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                                                SRI LANKA
                                       CHAIRMAN'S SUMMING UP

            Second Poverty Reduction Strategy Paper and Joint IDA-IMF Staff Advisory Note

                                Meeting of Board of Executive Directors of IDA
                                                June 5, 2008




       The Executive Directors considered the Second Poverty Reduction Strategy Paper (PRSP) prepared by
the Government of Sri Lanka, and the Joint IDA-IMF Staff Advisory Note. They noted that the PRSP was
based mainly on consultations with the Government, and stressed that enhanced involvement of all
stakeholders would broaden ownership of the strategy and the policy reforms that would be critical for
implementation. Some Directors also noted that the conflict should have received more prominent treatment
as a key development challenge for Sri Lanka.

       Directors commended the authorities for the progress in poverty reduction achieved in recent years
despite the major tsunami of December 2004. They noted the significant improvements that Sri Lanka has
made in recent years in key social indicators and progress toward achieving most MDGs. Directors noted that
the most significant challenges facing Sri Lanka are the continuing conflict, reducing macroeconomic
imbalances, including the high fiscal deficit and high inflation, and vulnerability to external shocks. They
noted that external shocks such as the recent increases in the international oil and food prices could adversely
affect balance of payments and poverty reduction. In this context, Directors encouraged the Government to
pursue efforts to stabilize the economy through an appropriate mix of fiscal and monetary policies.

       Directors broadly supported the three strategic areas that form the basis of the PRSP. Recognizing the
need to reduce disparities among geographic regions, they concurred with the focus on equitable growth as a
pre-requisite for poverty reduction. Directors welcomed the strategy's focus on private-sector led growth.
They commended the focus on infrastructure for achieving high growth and poverty reduction, and encouraged
the establishment of an appropriate legal and regulatory framework to create an enabling environment for
more active private sector participation. They noted that realization of the Government's ambitious plans
would depend on its ability to raise resources and improve implementation capacity. Accordingly they
suggested that better prioritization among programs should be developed given the limited capacity and
resources. Directors also encouraged the Bank to assist the country to address weaknesses in environmental
management.