The Evolving Role of the World Bank for

The Evolving Role of the World Bank for Countries like Sri Lanka The 25 th Anniversary Lecture of the Centre for Banking Studies 14 Dec 2006 World Bank, Naoko Ishii 1

Easterly（1997）　“The Ghost of Financing Gap” 2

WB’s Role is “Evolving” n In 1990’s – criticism towards lack of progress in poverty reduction n From projects to programs n From Bank-dictated projects / programs to supporting country strategies n Emphasis on ownership and partnership n Decentralization of offices and operations n Combining global knowledge with local expertise 3

World is Changing n WB no longer has “monopoly” in development Private capital is 5 -6 times larger than aid flows n Consultancy services are readily available n Globalization and interdependence n Booming Asia n Role of state changing n 4

Sri Lanka in the World n Sri Lanka has achieved 25 years of growth n In transition in income level n n From LIC (Low Income Country) (less than $875 per capita GNI) To Lower MIC (Middle Income Country) ($876 ~ $3, 465) n WB lending terms is to change n n n From IDA only (~ $1, 025) To IDA hardened To IBRD 5

Sri Lanka in Transition n Make sure Sri Lanka not fall into MIC trap (sluggish growth) n Achievements in human capital development have lead to MIC problems Transition to an aging society n Facing non-communicable diseases n Unemployment in educated youths n n WB’s role is to help Sri Lanka complete its transition in a smooth manner 6

Factors to Smooth Transition from LIC to MIC n MIC require “different things” to overcome challenges and sustain growth How to swim in capital markets n How to compete in global markets n How to cope with domestic disparities n How to provide social protection n How to define the role of state against private sector n 7

Go. SL’s 10 Year Vision has identified challenges n Equitable development, integration of lagging regions n Increase in productivity n Dynamic private sector development n International competitiveness and global integration n Shifting to commercial agriculture through modern technology 8

World Bank’s role is: n To help GOSL identify institutions required for smooth transition and develop, regulate and manage them n To help GOSL think through cross-cutting issues and formulate strategy to cope with Integration with global markets n Increase in competitiveness and productivity n Dealing with disparities n 9

How World Bank delivers: n Conduct studies before lending n Combine global knowledge with local expertise n Leverage lending (project or program) with policy dialogue, advisory services, capacity building and technical assistance n Maximize impact beyond direct impact of original project n Partnership with other partners under “strategic complementarity” 10

11

12

13

14

15

Macroeconomic Institutions n Support macroeconomic stability in the context of more liberalized capital markets n Modernization of Ministry of Finance n Public financial management n Debt management n Output-based budgeting n Monitoring and evaluation n Modernization of Central Bank & Non. Financial Regulatory Bodies 16

Financial Institutions n Objectives include: n Access to international capital markets n Bringing banking sector to Basel II 17

Increasing Long-term Financing n Infrastructure, Industry, Housing, Agriculture, etc, require more efficient and effective private sources of long term finance n Equity & Bond Market Development (report on India) n Securitization & Derivative Markets n Developing the Institutional Investor base n introduction of risk based supervision for the insurance sector; legal frameworks for the mutual funds industry 18

Increasing Access to Finance n The considerable segments of the population currently excluded from the formal financial system need to be provided with greater access to a full range of services n New approaches for SME financing to be developed n Rural Financing and agricultural insurance to be designed n Strong and viable MFIs for Microfinance to be built 19

Improving Financial Sector Infrastructure n n n Improve the legal framework for market regulation and supervision Help move towards international accounting and auditing standards Assess and strengthen corporate governance and disclosure of banks and non-bank financial institutions, and also of non-financial firms. Support efficient payments systems and credit bureaus Develop sounder markets for risk sharing 20

Raising Competitiveness n Investment climate to attract FDI and knowledge Regulatory regime and enforcement n Political and macro-stability n Infrastructure n “Stronger” state as “regulator” n n Meeting global standards (food, environment) n Focus on R& D in partnership with private sector n A high quality education system to move up the value chain of industrial and service activities n Increase in productivity of labor, land water resources 21

PPP for Infrastructure n What are PPPs? n Form of government procurement involving private sector participation for the delivery of specific public services n Agreement between the government and a private sector entity to share in the risk and rewards of a business venture involving public services n Areas: ICT, power, transport, water/urban 22

PPP types of Operations Partnership Models In-House Development Outsource Privatization Managed Service Provider Application Service Provider Fully Managed Build, Own & Operate Hosting only Build, Own, Operate & Transfer Transaction Fee Based Build, Operate & Transfer Public-Private Partnerships 23

WB group role in infra-PPP n Develop consensus and frameworks -- TA n PPP approach defined, political buy-in established n Develop pilot transactions – IFC advisory, investment and WB lending n The first sets of transactions developed and brought to the market n Scale-up successful pilots – evaluation TA, lending n Larger scale programs based on the lessons from the pilot 24

Coping with Disparities n Identify sources of economic disparities n Create opportunities through rural development n Commercial orientation of R&E n Scaling up of CDD (community empowerment) n Make service delivery work for the poor n Provide social safety net 25

Addressing Governance n Help countries to improve governance through entry-points n Demand for governance n Core governance n Private sector development n Local governance n Governance in sectors n Anti-corruption in WB operations 26

World Bank in Sri Lanka in the past n What we have done? 27

World Bank in Sri Lanka in the future n What we will do? n CAS (Country Assistance Strategy) for 20072010 n Annual lending level – $150 million n Build on government’s 10 Year Vision n Focus on areas / theme where WB has comparative advantage n Work with the government counterparts n Explore the possibility of partnership 28