Sri Lanka was among 28 countries which were selected for study on oil-food shocks and considered vulnerable from the fiscal perspective based on the quantitative levels of their fiscal balances, the level of debt and the quality of fiscal and debt management institutions, the World Bank said.

The Bank’s Colombo office, explaining this study that was released in Washington last week, said it looks at how each of these countries has been affected by the twin oil-food shocks and the corresponding implications in terms of fiscal space. In the case of Sri Lanka the 2007-2008 terms of trade shock represented a negative impact of the order of 7 percent of GDP, with limited headroom to increase debt.
The background paper to Development Committee Fiscal vulnerability in developing countries and the twin oil-food shocks was aimed at gauging impacts of food and oil price hikes on countries that were considered vulnerable from the fiscal perspective.

“Importantly, however, Sri Lanka is not among the countries that were identified as in debt distress or at high risk of debt distress,” the Colombo office said. As the paper indicates, the Bank stands ready to provide support, on the analytical side to continuously examine the potential risks to the economy and to assess the appropriateness of the macroeconomic policies to counter such risks, as well as to provide financing to support their policy efforts, it said.

Asked about a bailout package for countries affected by the food and fuel crisis, the Bank said such assistance from the Global Food Response Programme was designed to speed assistance to the neediest countries and is within the CAS (Country Assessment Strategy) envelope.

It said if Sri Lanka receives assistance from this programme the CAS envelope will be reduced by the same amount. The World Bank has extended assistance and will do so to the neediest countries through this programme which has a grant portion, but Sri Lanka is not qualified for a grant because of its relatively high per capita income, it said.