localising the transformation in the new normal

ii

LOCALISING THE TRANSFORMATION

IN THE NEW NORMALA Domestic Resource Mobilization Framework for

Sustainable Development Goals in Sri Lanka

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ISBN 978-955-7188-08-9

Editor-in-Chief and Lead Author: Uchita de Zoysa Co-Authors: Asoka Gunawardena, Prasanthi Gunawardena Contributing Authors and Researchers: Samantha Lindsay, Avishka Sendanayake, ManuTissera,KanchanaHettiarachchi, Sudarsha De SilvaEditorial and Research Assistants: Kusheshi De Zoysa, Dewmini VithanageLayout and Design: Yasith Perera

Publishers Janathakshan (GTE) Ltd. Centre for Environment and Development.

First published in October 2020

ThepublicationofthisbookwassupportedbytheGIZ2030TransformationFund,commissionedbytheGermanFederalMinistryforEconomicCooperationandDevelopment(BMZ),andcoordinatedlocallythroughtheGIZOfficeinSriLanka.TheprojectwasmanagedbyRangaPallawala(CEO),GothamiChandraratne(SeniorManager)anddesignatedstaffmembersatJanathakshan(GTE)Ltd.

Allcommunicationsshouldbeaddressedto,No.5LionelEdirisingheMawatha,Colombo00500,SriLanka.

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Table of ContentsList of Tables............................................................................................................................................................... ivList of Figures ..............................................................................................................................................................vAcknowledgements................................................................................................................................................. viAbbreviations .......................................................................................................................................................... Viii

1. THE POLICY CONTEXT An Analysis of the Performance and Progress of Implementing the SDGs in Sri Lanka................................................................................................................................................ 01

1.1.Introduction.......................................................................................................................................................... 031.2.ThePoliticalEconomyintheContextofthe2030Agenda................................................................. 041.3.AnAnalysisofTransformativeAction........................................................................................................ .. 11 1.3.1.PoliticalLeadership............................................................................................................................ 11 1.3.2.InstitutionalArrangements............................................................................................................. 12 1.3.3.PolicyCoherence,Integration&Mainstreaming................................................................... 15 1.3.4.Monitoring,StatisticsandData..................................................................................................... 16 1.3.5.LocalisingSDGsandSubnationalInitiatives:............................................................................. 17 1.3.6.FinancingStrategy................................................................................................................ ............. 18 1.3.7.LeaveNoOneBehind........................................................................................................................ 20 1.4. An Analysis of Advancing the SDGs............................................................................................................. 22

2. THE LOCALISING CONTEXT An Analysis of Governance Systems and Public Financing for Implementing the SDGs in Sri Lanka ............................................................................................................................................... 43

2.1.Introduction......................................................................................................................................................... 45

2.2.TheMultilevelGovernanceSystemandLocalisingSDGs................................................................... 45

2.2.1.TheMultilevelSystemofGovernmentandGovernance.................................................... 46

2.2.2.TheSubnationalIntergovernmentalSystem........................................................................... 46

2.2.3.TheSystemContextforLocalisingSDGs .................................................................................. 48

2.2.4.TheStatusofDecentralisedImplementationofSDGs......................................................... 48

2.3.ThePublicFinancingSystemandLocalisingSDGs................................................................................ 49

2.3.1.Nationallevelfinancing.................................................................................................................. 50

2.3.2.Provinciallevelfinancing................................................................................................................ 52

2.3.3.Localgovernmentlevelfinancing............................................................................................... 60

2.4.ChallengesandStrategiesforFinancingtheSDGsasSubnationalLevels.................................... 67

2.4.1.ChallengesforFinancingtheSDGs............................................................................................. 67

2.4.2.PublicInvestmentStrategiesforSDGs......................................................................................72

2.4.3.WayForwardinLocalisingtheFinancingofSDGs................................................................ 78

3. THE FINANCING CONTEXT An Analysis of Domestic and International Financing for implementing the SDGs in Sri Lanka ............................................................................................................................................... 81

3.1.Introduction.........................................................................................................................................................83

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3.2.NationalEconomicEnvironmentforImplementingtheSDGs..........................................................83 3.2.1.AStatisticalAnalysisoftheStateoftheEconomy............................................................... 84 3.2.2.ExternalFlowsTowardsStrengtheningDomesticFinancing............................................ 883.3.PrivateSectorInvestmentinAchievingtheSDGs................................................................................ 943.3.1.Policy&RegulatoryEnvironmentforPrivateSectorInvestment...................................... 953.3.2.ExpectationsforPrivateSectorInvestment............................................................................... 963.3.3.PrivateSectorInvestmentOpportunitiesintheSDGs.......................................................... 97 3.4.BankingSectorReadinessforfinancingtheSDGs .............................................................................. 100 3.4.1.TheChallengeofFinancialInnovationfortheSDGs.......................................................... 100 3.4.2.BankingSectorPlansforAligningwiththeSDGs................................................................ 101 3.4.3.FinancialSectorModernizationEfforts..................................................................................103 3.4.4.ProvidingCreditandLoanstothePrivateSector............................................................... 104 3.4.5.TheRoleofMicrofinancingfortheSDGs............................................................................... 1053.5.CivilSocietyActionforAchievingtheSDGs.......................................................................................... 107 3.5.1.TheComplexCaseofCivilSocietyOrganizationsasDevelopment Partners .............................................................................................................................................. 107 3.5.2.TheRoleofCivilSocietyOrganizationsinImplementingtheSDGs.............................. 109 3.5.3.DevelopmentInterventionsandInvestmentsbyCivilSocietyOrganizations.............................. ................................................................................................... 110 3.6.ChallengesandOpportunitiesforFinancingtheSDGs..................................................................... 112

4. THE TRANSFORMATION CONTEXT An Analysis of Scenarios for Planning Domestic Resource Mobilisation Strategies for the SDGs in Sri Lanka .............................................................................................................................. 115

4.1. Introduction...................................................................................................................................................... 1174.2.AnAnalysisofCurrentApproachestoSustainableDevelopmentChallenges.......................... 117 4.2.1.NewRealitiesofCOVID-19andPandemics........................................................................... 118 4.2.2.TheThreatofClimateChangeandDisasters........................................................................ 121 4.2.3.ProsperitywithinBiophysicalConstrainsandLimitstoGrowth....................................126 4.2.4.SustainabilityPathwaysofEcosystemServicesandEnvironmental Economics .......................................... ................................................................................................ 133 4.2.5.SubsidiarityandDevolutionofFinancingtheSDGs........................................................... 1424.3.ForesightintoScenariosBasedPlanningintheNewNormal........................................................ 147 4.3.1.ResponsetoPotentialBreakdownScenarios....................................................................... 1484.3.2.ApproachtoAdoptingAlternativeScenarios....................................................................... 149 4.3.3.TransitionalMeasuresinPolicyandRegulatoryScenarios............................................. 150 4.3.4.TransitioningThroughaNewNormalScenario................................................................... 151

5. THE FRAMEWORK The Domestic Resource Mobilization Framework for SDGs in Sri Lanka ............................................................................................................................................ 155

5.1. Introduction...................................................................................................................................................... 1575.2.AnOverviewoftheFramework................................................................................................................ 157 5.2.1.Vision................................................................................................................................................... 158 5.2.2.Mission................................................................................................................................................ 158 5.2.3.Strategy............................................................................................................................................... 158 5.2.4.Goal...................................................................................................................................................... 158 5.2.5.Objective............................................................................................................................................ 158 5.2.6.Scope................................................................................................................................................... 158 5.2.7.Framework......................................................................................................................................... 160

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5.3.ContextoftheFramework........................................................................................................................... 160 5.3.1.PolicyContext................................................................................................................................... 160 5.3.2.LocalisingContext........................................................................................................................... 161 5.3.3.FinancingContext........................................................................................................................... 161 5.3.4.TransformationContext................................................................................................................ 1625.4.ElementsoftheFramework....................................................................................................................... 162 5.4.1.Principles:Equality,Subsidiarity,Resilience,Integration........................................................................................................................................162 5.4.2.Purposes:Coherence,Decentralisation,Prosperity, Sustainability ...................................................................................................................................164 5.4.3.Strategies:SystemsApproach,IntegratedDelivery,CircularEconomy,BiophysicalLimitations........................................................................................... 166 5.4.4Pathways:Convergence,Partnerships,Sufficiency, Ecosystems ....................................................................................................................................... 1695.5.ToolsoftheFramework................................................................................................................................ 171 5.5.1. Capacity ..... ........................................................................................................................................ 171 5.5.2.Co-creation........................................................................................................................................ 173 5.5.3.Innovation.......................................................................................................................................... 174 5.5.4.Demonstration................................................................................................................................. 1755.6.ApplicationoftheFramework.................................................................................................................... 177

References ............................................................................................................................................................. 181

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List of Tables Table01:FinancingofProvinces:Inter-ProvincialShares2017............................................................... 54Table02:ProvincialRecurrentExpenditurebySubjectCategories–2004/2017............................... 56Table03:ProvincialRecurrentExpenditurebyObjectCategories–2004/2017................................. 56Table04:PSDGExpendituresbySubjectCategories–2009/2017............................................................ 57Table05:ProvincialRevenuebySource–2004/2017................................................................................... 58Table06:ProvincialRevenueCollectionbySource-2017........................................................................... 59Table07:FinancingofLocalAuthorities-2017(Rs.Millions)......................................................................64Table08:ExpendituresofLocalGovernmentInstitutions-2017..............................................................65Table09:Central,ProvincialandLocalExpenditure-2008/2017..............................................................70Table10:Central,ProvincialandLocalRevenue-2008/2017.................................................................... 70Table11:ComparativeSummary-Country’sDebtPosition....................................................................... 86Table12:ForeignDirectInvestmentinSriLanka............................................................................................. 92Table13:EmploymentbySector........................................................................................................................... 96Table 14: Employment Status in Sri Lanka ......................................................................................................... 97Table15:InvestmentOpportunityinAchievingtheSDGsinSriLanka,bySectorIndicator.....................................................................................................................................................100

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List of Figures

Figure01:StructureofGovernmentAdministrationinSriLanka............................................................... 47Figure02:SubnationalFinancing................................. .......................................................................................... 74Figure03:SpendingAgencyPlanning-BudgetingAlignment...................................................................... 76Figure04:LogicalFrameworkModelforMacroLevelIntegration............................................................. 77Figure05:FrameworkforMicro-MacroAlignment.......................................................................................... 78Figure06:SriLankaGovernmentDebttoGDP2010-2020(pastandforecast)..................................... 84Figure07:SriLankaGovernmentBudgetDeficit2010-2020(pastandforecast)................................. 84Figure08:SriLanka’sCapitalInvestments1985-2018asaPercentageofGDP..................................... 87Figure09:GrantincomeandOfficialDevelopmentassistancereceived,2009to2017...................... 90Figure10:ForeignFinancingDisbursementsin2018...................................................................................... 91Figure11:ForeignDirectInvestmentinSriLanka............................................................................................. 93Figure12:CredittoPrivateSector....................................................................................................................... 105Figure13:PolicyScenariosforPlanningInvestmentStrategies................................................................ 147Figure14:DomesticResourceMobilisationFrameworkforImplementingthe SDGs in Sri Lanka ............................................. ..................................................................................... 159Figure15:DomesticResourceMobilisationFrameworkforImplementingthe SDGs in Sri Lanka (The Circular Model) ........................................................................................ 179

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‘LOCALISING THE TRANSFORMATION IN THE NEW NORMAL: A Domestic Resource Mobilization Framework for Sustainable Development Goals in Sri Lanka’ wasjointlyprepared and published by Janathakshan (GTE) Ltd. and the Centre for Environment andDevelopment.Thepublicationispartoftheproject‘StrengtheningtheMobilizationof Private and Subnational DomesticInvestmentsinSriLankaforthe2030Agenda’.TheprojectwassupportedbytheGIZ2030Transformation Fund, commissioned bytheGermanFederalMinistry forEconomicCooperation and Development (BMZ), andcoordinatedlocallythroughtheGIZOfficeinSri Lanka.

An Editorial and Research Team wasled by Uchita de Zoysa, as the Editor-in-Chief and Lead Author. Co-Authors, Asoka Gunawardena and Prof. Prasanthi Gunawardenawere joinedbyContributingAuthorsandResearchersSamanthaLindsay,Avishka Sendanayake, Manu Tissera, Kanchana Hettiarachchi and Sudarsha DeSilva. The editorial and research team was assisted by Kusheshi De Zoysa and Dewmini Vithanage, while the layout and design of the publication was by Yasith Perera. Theproject was managed by Ranga Pallawala(CEO), Gothami Chandraratne (Senior Manager)anddesignatedstaffmembersatJanathakshan (GTE) Ltd.

Aseriesofexpertconsultationswasheldtocollect information, and review, verify andvalidatethefindingsoftheresearchandtheanalysis. These drew around one hundred and seventy five of experts and overeightyorganisations fromthegovernment,subnational governments, internationalagencies, academia, private sector, banking sector, civil society, and other stakeholders. The experience drawn from the various

experts were invaluable in conducting theanalysis and formulating the DomesticResourceMobilizationFramework.

The advice and specific contributionsreceivedfromanumberofexpertsincludingProf. Siri Hettige (Professor Emeritus ofSociology ), Prof. Sarath Kotagama (Professor Emeritus of Environmental Science ), Uditha Palihakkara (Chairman of the FinanceCommission), Chandrarathna Vithanage (Senior Assistant Secretary General of the Ceylon Chamber of Commerce), Pradeep Saputhanthri(AdditionalSecretary,Ministryof Skills Development, Employment And Labour Relations), Chamindry Sapramadu(International Development Consultant),Hemanthi Goonesekara (CEO of the FederationofSriLankanLocalGovernmentAuthorities),AdheeshaPerera(SustainabilityManager at Nations Trust Bank), ShaniWeerasena (Attorney-at-Law), JohnWilson(Protected Area Specialist and WildlifeConservationist),andNavamNiles(ClimateAdaptation and Sustainable DevelopmentResearcher)arehighlyappreciated.

Special acknowledgement for the contributionsatnationalconsultationsgoestoDrNandalalWeerasinghe(FormerSeniorDeputyGovernoroftheCentralBankofSriLanka ), Premasiri Hettiarachchi (FormerAdditionalSecretaryatMinistryofProvincialCouncils and Local Government), S. Ravi(AdditionalDirectoratDisasterManagementCentre),SujeewaSamaraweera(ImmediatePastPresidentof theNationalChamberofCommerce Sri Lanka), Nalin Karunatilake(Vice President of the DFCC Bank), RizviZaheed (Director at Viddhulanka PLC), Dr RohanFernando(DirectoratAitkenSpencePLC),ShiranFernando(ChiefEconomistatthe Ceylon Chamber of Commerce), Kirthisri Rajatha Wijeweera (Senior Economic

Acknowledgements

vii

Advisor at United Nations DevelopmentProgramme), Sureka Perera (Programme Associate at United Nations DevelopmentProgramme) Madhavi Malalgoda (DRRspecialist at Duryog Nivaran), and SisiraMadurapperuma (Director, Preparedness and Resilient Recovery at Asian DisasterPreparednessCentre).Theprojectreceivedgreat support from the North CentralProvincial Council, Eastern Provincial Council, and Central Provincial Council and thecontributionsofMr.Dayaratne(DeputyChief Secretary of Planning, NCP), Mr. N.Thamilchelvan (Deputy Chief Secretary of Planning, EPC), Mr. N. Manivannan (LocalGovernment Commissioner, EPC), Mr. M A Munazir (Additional Director of Planning,EPC),H.M.PPunchibanda(DirectorFinanceDivision,CPC),NayanaPerera(ManagementAssistant, Chief Secretary Office,CPC), Shalika Palamakumbura (BudgetDepartment, Chief Secretary Office, CPC)through the subnational consultations arehighly appreciated.

Whilesomanycontributionswerereceivedtowards conducting the SDG reviews,special acknowledgement goes to Dr.

Jagath Munasinghe, Dr Sachie Pananwala, Dr. Kalpana Ambepitiya, Dr. DinejChandrasiri, Dr Sajith Wijesuriya, AnandaJayaweera, Samantha Kumarasena, Jagath Gunawardena, Palinda Perera, Hemantha Harischandra, Uthpala Sankalpani, Sashan Rodrigo, Kaveen Muhandiramge,Wathsarindu Karunarathne, MudithaKatuwawala, Shamilka Karunanayake, Dakshitha Wickremarathne, Sarah Soyza,Minoli Malka, Upeka Kottage, KarinFernando, Udeshika Wimalasiri, ThiliniKasthuri, Imali Manikarachchi, SaffranMihnar, Kavindya Tennakoon, Udara Hemachandra, Kamal Herath, Janith Perera,DilkaPeiris,andSudarshanaAnojanJayasundara.

Conducting an independent monitoring,evaluation and review of the performanceand progress of the SDG’s in Sei Lankawas possible due to previously published government data, as well as published international and independent stakeholderinformation, articles and reports. Theeditorial team acknowledges the hard work done by all these organisations andresearchers.

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Abbreviations2030Agenda 2030AgendaforSustainableDevelopmentADB AsianDevelopmentBankAFD AddisAbabaActionAgendaonFinancingforDevelopmentAPTA AsiaPacificTradeAgreementARFs AgencyResultsFrameworksASEAN AssociationofSoutheastAsianNationsBAU BusinessasusualBFP BiodiversityFinancePlanBG BlockGrantBIT BilateralInvestmentPromotionandprotectiontreatiesBMICH BandaranaikeMemorialInternationalConferenceHallBn BillionBOI BoardofInvestmentBOP BalanceofPaymentsBPO BusinessProcessOutsourcingBTT BusinessTurnoverTaxCBA Cost-BenefitAnalysisCBG CriteriaBasedGrantCBO CommunityBasedOrganizationsCBSL CentralBankofSriLankaCCC Ceylon Chambers of CommerceCCS Climate Change Secretariat CEA Central Environmental Authority CEB CeylonElectricityBoardCEDAW ConventionontheEliminationofAllFormsofDiscriminationAgainst WomenCIM CharteredInstituteofMarketingCITES TheConventiononInternationalTradeinEndangeredSpeciesofWildFaunaandFloraCKD Chronic Kidney Disease COVID-19 CoronavirusDisease2019CPCU CentralProjectsCoordinationUnitCPI CorruptionPerceptionsIndexCRC ConventionontheRightsoftheChildCRIP ClimateResilienceImprovementProjectCRIWMP ClimateResilientIntegratedWaterManagementProjectCSE ColomboStockExchangeCSO CivilSocietyOrganizationsCSR CorporateSocialResponsibilityDANIDA DanishInternationalDevelopmentAgencyDCB DecentralizedCapitalBudgetProgrammeDCC DistrictCoordinatingCommitteeDVCC DivisionalCoordinatingCommitteeDCS DepartmentofCensusandStatisticsDFC DepartmentofForestConservationDFI DevelopmentFinanceInstitutionsDLI Disbursement-linkedIndicatorsDMC Disaster Management Centre

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DOM Department of Meteorology DRMF DomesticResourceMobilizationFrameworkDRR DisasterRiskReductionDWC DepartmentofWildlifeConservationE&S EnvironmentalandSocialECBA ExtendedCost-BenefitAnalysisECI EconomicComplexityIndexEco-DRR Ecosystem-BasedDisasterRiskReductionEE Environmental Economics EEA EnvironmentalEconomicAccountingEIA EnvironmentalImpactAssessmentEPAs EnvironmentalProtectionAreasEPSP Economic Performance and Social Progress ESG Environmental, Social and Governance ETCA EconomicandTechnologyCo-operationAgreementFAO FoodandAgricultureOrganizationFC FinanceCommissionFDI ForeignDirectInvestmentFHB FamilyHealthBureauFM FinancialManagementFPI ForeignPortfolioInvestmentGBV GenderBasedViolenceGDI GenderDevelopmentIndexGDP GrossDomesticProductGEF GlobalEnvironmentFacilityGEMs Global Environmental Markets GGP Global Gender Gap GHG Green House Gases GNH GrossNationalHappinessGNI GrossNationalIncomeGNP GrossNationalProductGoSL Government of Sri Lanka GPF GovernmentpolicyframeworkGSP GeneralizedSystemofpreferencesHDI HumanDevelopmentIndexHDR HumanDevelopmentReportHIES HouseholdIncomeandExpenditureSurveyHLPF UnitedNationsHighLevelPoliticalForumIBSL InsuranceBoardofSriLankaICC InternationalChamberofCommerceIDA InternationalDevelopmentAgenciesIFC InternationalFinanceCorporationIMER IndependentMonitoring,EvaluationandReviewMechanismIMF InternationalMonetaryFundINGO InternationalNon-GovernmentalOrganisationsISB InternationalSovereignBondsISFTA Indo–SriLankaFreeTradeAgreementIUCN InternationalUnionforConservationofNatureJICA JapanInternationalCooperationAgencyLCLTGEP LeastCostLong-TermGenerationExpansionPlanLFS LabourForceSurvey

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LG Local Government LGA LocalGovernmentAssociationsLVPP LakvijayaPowerPlantMC Municipal Council MDB MultilateralDevelopmentBanksMDGs Millennium Development Goals MEA Millennium Ecosystem Assessment MEFR Monitoring,Evaluation,Follow-upandReviewMENR MinistryofEnvironmentalProtectionandNaturalResourceMEPA MarineEnvironmentProtectionAuthorityMFAD MinistryofForeignAffairsofDenmarkMFI MicrofinanceInstitutionsMLBs MultilateralBanksMMDA Muslim Marriage and Divorce Act Mn MillionMNE MultinationalEnterprisesMOI MeansofImplementationMPPA MarinePollutionPreventionActMSME Micro, Small and Medium EnterprisesMTEF Medium-TermExpenditureFrameworksNAP NationalAgriculturalPolicyNAP NationalAdaptationPlansNARA NationalAquaticResourcesResearch&DevelopmentAgencyNBFI Non-BankFinancialInstitutionsNBSAP NationalBiodiversityStrategicActionPlanNBT NationBuildingTaxNCA NaturalCapitalAccountingNCD Non-CommunicableDiseaseNCM NationalCalculationMethodologyNDC NationallyDeterminedContributionsNEA NationalEnvironmentalActNGO Non-GovernmentalOrganizationsNNP NationalNutritionPolicyofSriLankaNPM NewPublicManagementNPSCP NationalPolicyonSustainableConsumption&ProductionNSSWM NationalStrategyforSolidWasteManagementNWS&DB NationalWaterSupplyandDrainageBoardNYP NationalYouthPolicyODA OfficialDevelopmentAssistanceOECD OrganizationforEconomicCo-operationandDevelopmentOSF OtherStateForestsPas Protected Areas PCs Provincial Councils PCSD Policy Coherence for Sustainable Development PDNA PostDisasterNeedsAssessmentPDVA ThePreventionofDomesticViolenceActPHCR PovertyheadcountRatioGHI GlobalHungerIndexPPP Public Private PartnershipsPR PolicyRegulations/PolicyRegulatory/PolicyReformPS Pradeshiya Saba

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PSC ProjectSteeringCommitteePSDG ProvinceSpecificDevelopmentGrantPSFTA Pakistan–SriLankaFreeTradeAgreementPSOD PrivateSectorOperationsDepartmentPTA PreferentialTradingAreaR&D ResearchandDevelopmentRBM Results-basedManagementRDA RoadDevelopmentAuthoritySAARC SouthAsianAssociationforRegionalCooperationSAFTA SouthAsianFreeTradeAreaSCP SustainableConsumptionandProductionSD Sustainable Development SDA Sustainable Development Act SDC Sustainable Development Council SDGs Sustainable Development Goals SDSN SustainableDevelopmentSolutionsNetworkSEC SecuritiesandExchangeCommissionofSriLankaSLPI SriLankaProsperityIndexSLSFTA SriLanka-SingaporeFreeTradeAgreementSME SmallandMedium-sizedenterprisesSNA SystemofNationalAccountsSOE State Owned EnterprisesTPAs Terrestrial Protected Areas UC Urban Council UHC Universal Health Coverage UN UnitedNationsUNDP UnitedNationsDevelopmentProgrammeUNESCAP UnitedNationsEconomicandSocialCommissionforAsiaandthePacificUNFCCC UnitedNationsFrameworkConventiononClimateChangeUNHABITAT UnitedNationsHumanSettlementProgrammeUNHRC UnitedNationsHumanRightsCouncilUNMD UnitedNationsMillenniumDeclarationUNRISD UnitedNationsResearchInstituteforSocialDevelopmentUNSNA UnitedNationsSystemofNationalAccountsUNSSE UnitedNationsSustainableStockExchangesUS$ United States DollarVAT ValueAddedTaxesVNR VoluntaryNationalReviewVPR VoluntaryPeoplesReviewVPS Vistas of Prosperity and SplendourVSL ValueofStatisticalLifeVSSO VoluntarySocialServiceOrganizationsWB WorldBankWHO WorldHealthOrganizationWTP Willingness-To-Pay

CHAPTER01:

THE POLICY CONTEXTAn Analysis of the Performance and Progress of

Implementing the SDGs in Sri Lanka

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THE POLICY CONTEXT

1.1. Introduction The formulation of a Domestic ResourceMobilizationFramework(DRMF)demandedan analysis of the performance and progress of implementing the SustainableDevelopment Goals (SDGs) in Sri Lanka. The analysis, however, had to be conducted in theabsenceofarobustnationalmonitoring,evaluation, follow-up and review (MEFR)mechanismaswellassufficientofficialdataand statistics. Therefore, an independentresearch, using multiples sources ofinformationwasconductedforasystematicand in-depth analysis of the context inwhich the SDGs were being implemented in the country.

All member states including Sri Lanka, as partoftheofficialcommitmenttothe2030AgendaforSustainableDevelopment(2030Agenda), have agreed to fully engage in conductingregularandinclusivereviewsofprogress at the national level. This wouldmean that the government has to collect, monitor, analyse and review disaggregated data based on the indicators for all SDGs on a regular basis. This ideally should be throughawholeofgovernmentandmulti-stakeholder engagement process. As an international reporting requirement tothe United Nations High Level PoliticalForum(HLPF),theGovernmentofSriLanka(GoSL) presented a Voluntary NationalReview (VNR) in 2018. In the absence ofa fair space for engagement, a Voluntary Peoples Review (VPR) in 2018 was alsoprepared by an independent stakeholder platform that felt that the Sri Lanka VNR2018 has fallen short of being a fair orinclusiveevaluationoftheperformanceandprogress of implementing the SDGs. TheofficialVNRhadnotadequatelyaddressedthe gaps in transformational actionincludingintegration,mainstreaming,policycoherence,localising,financing,monitoringandevaluation.While authorities continue

to claim a lack of data, internationalassessments have managed to evaluate the country’s performance using a widerangeofdata,statisticsandinformation;theSustainableDevelopment Report 2019 hasrankedSriLanka93outof192countriesonits performance on the achievement of SDG targetstowardsa2030transformation.

This analysis is drawn from an independent monitoring,evaluationandreviewinitiativethat adopted a methodology to assess the performance and progress on the 169 SDG targets and its interlinkages. The analysis draws data and information froma wide range of options and included: (a)published official data and information(b) published independent stakeholder data and information (c) publishednews articles and reports (d) publishedinternational data and information (e) anonlinesurvey(f)consultationswithexpertsdrawn from stakeholders including central government institutions, provincial andlocal government institutions, civil societyorganisations,businesssectororganisationsandchambers,bankingandfinancialsectorprofessionals, academics, researchers, and otherdomesticand internationalagencies.A group of researchers were engaged for a period of twelve months, spanning fromSeptember2019toAugust2020; theteam collected, streamlined, and analysed data and information towards drawing anintegrated systems assessment of macro and micro dimensions of implementingthe SDGs in Sri Lanka. The findings of thisanalysisthenwerealsoverifiedbyselectedthematicandsectorexpertstoensurebestpossible accuracy of the information andimpartialityoftheanalysis.

The information and the analysis wouldadvance the understanding of the contextofimplementingtheSDGs.Itcouldalsohelppolicy makers, administrators, development practitioners and all stakeholder across

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LOCALISING THE TRANSFORMATION IN THE NEW NORMAL

all national and subnational governancelevels in Sri Lanka in their future action.Stakeholders must ensure that the commitmenttothe2030Agendaisupheldbythegovernment.Whilethecountrymaylack an integrated statistical system, allpossible informationanddataneeds tobepooled-intowardsconductingindependentmonitoring, evaluation and review of theprogress achieved so far. The appropriate approach would be for representativesfrom civil society, business, academia, media,aswellas subnationalandnationalgovernment to congregate periodically to assess our status on sustainability and deviseacollectivestrategyforprosperity.

1.2. Political Economy of Sri Lanka in the Context of the 2030 Agenda

Theyear2015sawSriLankajoiningtherestof the world in committing to four globalagreements that attempts to transformthe world and advance sustainable development; Sendai Framework forDisaster Risk Reduction (March 2015),Addis Ababa Action Agenda on FinancingforDevelopment (July 2015), Transformingourworld:the2030AgendaforSustainableDevelopment (September 2015), and ParisAgreement on Climate Change (December 2015). The seventh elected executivePresident who was sworn in November2019 and the new Government electedin August 2020 have renewed Sri Lanka’scommitment to achieve the 2030 Agendafor the Sustainable Development Goals.

The new global collective agreement,‘TransformingOurWorld:The2030Agendafor Sustainable Development’, is a callfor a recalibration of the developmentmindset towards implementing a set ofuniversal and transformative goals andtargets while leaving no one behind. The

termstransformation,transformationalandtransformative are used across the 2030Agenda butmay require a clear definitionand comprehensive understanding. Transformationrequiresaddressingtherootcauses that generate and produce economic, social and environmental problems and inequities, not merely their symptoms.In the end, progress toward sustainabledevelopment should not be the summary ofisolatedandsiloedinterventions,buttheoutcome of systemic changes and holisticapproaches based on a new normativeframework of transformation. The report‘Policy Innovations for TransformativeChange’ by United Nations ResearchInstitute for Social Development (UNRISD)says,itisnecessarytoidentifypathwaystotransformative change that are desirable,in the sense that they are; (i) progressive,in a normative sense of social justice(ii) systemic, addressing various factors simultaneously and in an interrelated way, and (iii) long term, so it cannot be easily reversed in theshort term.Transformationis about the processes of change needed in society and the economy to achieve greater equality, empowerment and sustainability.

The Government of Sri Lanka, in 2015,respondedproactively to the2030Agendaas the first country in the Asia-PacificRegion to establish a cabinet Ministryfor Sustainable Development. In 2016,the Ministry successfully negotiatedwith the United Nations Economic andSocial Commission for Asia and the Pacific (UNESCAP) to be elected as Chairof the Asia-Pacific Forum on SustainableDevelopment(APFSD)andSriLankawasinauniqueleadershippositiontochampionthetransformationtosustainabledevelopment.This ministry established national andprovincial ‘Sustainable Development Engagement Platforms’ and through aprocess of stakeholder consultationsformulatedkeyelementsofanationalSDG

5

THE POLICY CONTEXT

roadmap under the theme of ‘Planning for an Inclusive Transformation’. It conductedan institutional coherence mapping toascertain roles and responsibilities of allthe line-ministries and 425 governmentinstitutions against the 169 targets todraw an integrated whole-of-government institutional architecture for implementingthe SDGs. Further, a Parliamentary SelectCommittee on the United Nations 2030Agenda for Sustainable Development was established in October 2016, thereaftera Presidential Expert Committee in 2017formulatedadraftReporttitled‘SustainableSri Lanka 2030 Vision and Strategic Path’,andfinallya‘BlueGreen’Budget2018waspresentedin2017.However,alloftheaboveappear tohavebeendiscontinuedwithoutanysubstantialreplacement.

A separate Sustainable Development Act (SDA), initiated in 2015 was only passedin parliament in October 2017 delayingprogress of action on many policy andinstitutionalprocesses. TheActmandatedthe establishment of a Sustainable Development Council (SDC) to formulate and monitor progress of a Sustainable Development Policy and Strategy (SDPS) in line with the 2030 Agenda. The SDC wasfinally established in 2018; but two yearslater, as of 2020, the SDPS is still pendingand keeping all other critical processeslagging behind. Despite the initial politicalcommitment to the 2030 Agenda, thelack of vision, leadership, coordination,responsibility and accountability has derailed the initial momentum and drasticallyslowed the progress of the implementingSDGs. Although different state entities areattempting to implement the SDGs, theseeffortsarenotguidedbyanintegratedplanandremaininstitutionallyfragmented.Thisis furtherexacerbatedbytheexistentdatagap, low technical capacity, and a lack of properprocessofimplementationthatlinksthenationalandlocallevel.

Sri Lanka has so far not been effective inthe integrationof the threedimensionsofsustainable development, environment-social-economic, and in mainstreaming the SDGs across national policy frameworks.In theabsenceof a cohesivenational SDGpolicy, strategy, roadmap, action plan,financing strategy, monitoring mechanismandan integrated institutionalmechanism,different ministries and agencies in SriLanka have been left to making sporadicand fragmented initiatives to engage inthe SDGs. For example, the fragmentationbetween climate change and sustainable development planning is explained bythe ‘State of the Economy2018’ report ofthe Institute of Policy Studies that states;“mainstreaming climate adaptation is toobroadasubjecttobehandledeffectivelybyasinglelineministryoragency.Notonlythegovernment, but non-state actors such as theprivatesector,civilsocietyorganisationsand development partners have a role to playintheirrespectivedomainstoachievethefinalgoalofaresilienteconomy.Climatechangeisanationaldevelopmentchallengewith cross-cutting impacts on severaleconomicsectors. Itspreadsoverall levelsof governance – national provincial andlocal. The way to overcome this challenge is tomainstreamclimatechangeadaptationtobuild up a climate resilient economy.”

ThedelegationofresponsibilitiesoftheSDGsto a separate new agency the SDC, without proper institutional integration acrossthe public service and an accountability mechanism has led tomonopolistic actionand further fragmentation of the planningand implementing the 2030 agenda. Fiveyearssinceadoptingthe2030Agenda,thebureaucracyisstillstrugglingtomainstreamtheSDGsintothenationalpolicyframeworksand ensure policy coherence. For this, thegovernment needs to take leadership and responsibility in establishing an integrated

6


institutional structure. It should alsoestablishapropermonitoringandreportingmechanism, localise and decentralize theimplementation, and develop a financingarchitecture to attract both foreign anddomesticfinancing.Theinabilityofthepublicservicetodemonstrateasignificantvalueofthe SDGs towards the nation’s prosperityhas adversely impacted on potentialcontributionsofallotherstakeholders.Asaresult,thepoliticalimportanceofthe2030Agenda has dwindled and SDGs are being limited to policy greenwashing, talk shows and linear projects without substantivecommitmenttotheagreedtransformation.

A whole of government approach to implementingtheSGDsisseriouslyweakenedby the low awareness and capacity at the provincial and local government level. The principle of subsidiarity is sparsely upheld anddecentralizationoftheimplementationoftheSDGstowards‘leavingnoonebehind’has not been facilitated by the centralised bureaucracy of the country. While sub-national level authorities are not includedinthenationalSDGplanning,theyarealsodenied of any significant implementationroles with limited budgetary allocations.Meanwhile, the private sector continuestoapproachSDGsas anextensionof theirCSR activities and thefinancial sectors arestill insearchofabusinesscasetofinancethe transformation of economic activities.The space for civil societyorganisations toengageintheplanningandimplementationof SDGs has been shrinking and the struggle forresourceshinderstakingthe2030agendato the community level. In this context, itcouldbesaidthatSriLanka’sinitialpromiseforpoliticalcommitmenttotheSDGsseemto have dwindled and the interest appears toswingfromtimetotime,mostlyrelatedtoexternalopportunitiessuchasconferencing,fundingorinternationalpublicrelations.

As the country has not conducted an assessment on the domestic financingcommitment to SDGs and not had a proper budget for consecutive years, theactual political commitment to the 2030transformation agenda is hard to gauge.UNESCAP suggest that Sri Lanka needs anannual additional investment of 4.4% ofthe 2018 GDP through 2030 to provide asocial protection floor (1.7%), poverty gaptransfers (0.2%), quality education (1.6%)and climate-resilient infrastructure (0.8%).UNESCAP feels that relatively low level oftaxrevenueconstrainsSriLanka’sdomesticresource mobilization. Furthermore,UNESCAPbelievesthatregionalcooperationisanareawithgreatpotentialthathasnotyet fully entered the SDG discourse in Sri Lanka. Regional cooperation in South AsiaandthebroaderIndianOceaneconomycanhelp Sri Lanka accelerate its SDG progress in several areas, including climate change, renewable energy transition and foodsecurity.

Unfortunately, Sri Lanka is faced with multiplechallengesthatwillcreatebarrierstowards achieving the SDGs. The Easter Terrorist Attacks in 2019, a PresidentialElection in 2019, a General Electionin 2020, and the continuing COVID-19Global Pandemic presents the nationwith unfavourable propositions towardsadvancingthe2030agenda.Intheeconomicfrontof thecountry,ayearafterSri Lankawas categorised into an upper middle-income country, the World Bank’s 2020-2021countryclassificationbyincomelevel,reverted the status back to a lower middle-incomecountryinJune2020.AccordingtotheWorldBank,Sri Lanka’seconomygrewat an average of 5.3% during 2010–2019and growth had slowed down in the last few years. Sri Lanka is seen to be vulnerable to uncertainglobalfinancialconditionsastherepayment profile requires the country to

7

THE POLICY CONTEXT

accessfinancialmarkets frequently.Ahighdeficit and rising debt levels could furtherdeteriorate debt dynamics and negativelyimpact market sentiments. Accordingto the Central Bank of Sri Lanka (CBSL),the economy is fragile and the country’seconomicgrowthhadfallento2.3%in2019from 3.3% achieved in 2018, with a totalforeign debt risen to 55.9 billion dollars at theendof2019.SriLanka’scurrentdebt-to-GDPratiostandsat86.8%.

The World Bank expects a slowdown ineconomic activities in Sri Lanka, especiallytourism, trade, transport, construction,andotherSMEbusinesseswhichwillaffectjobs and wage growth in the near future.Tourism and related service sectors have provided employment and income for large numbers of the poor and low-skilled workers from rural areas in recent years, contributing topoverty reduction.TheWBfurther states that low female labour force participationandthelowqualityofprivatesectorjobs,includinghighratesofinformalemployment, will remain persistent issues. Whileoverallunemploymentwasrelativelylowat4.4%in2018,youthunemployment(15-24years)recorded21.4%.Thedecreasein remittances, due to changes in thecomposition of migrant workers from SriLanka, is also expected to lead to lowercontributions to household income. As aresult, the pace of poverty reduction isexpectedtoslowdown.The lowresilienceof the economy may adversely impact the progressing of SDG implementation in SriLanka.

The political economy context towardsimplementing the SDGs does not painta favourable picture. Internal conflictsand social disharmony, even over decade sinceendingtheCivilWar,hascontributedtowards the drop in economic performance in Sri Lanka. The inability to achieve

comprehensive reconciliation betweenthe communities and tensions betweendifferent faiths and ethnicities, meansthe nation suffers with continuing socio-economicchallenges.Whilethequestioningofhumanrightsconductcontinuestofollowthe nation, it is more critical to inquireif governments in power had made all possible efforts towards post war peacebuilding.TheUnitedNationsHumanRightsCouncil (HRC) High Commissioner’s reportonpromotingreconciliation,accountability,and human rights in Sri Lanka, by calling upon the member states to exerciseuniversaljurisdictionclaimsthatthereisanabsence of willingness by the government to tackle impunity and gross violations ofhuman rights. This report suggests that key preconditionsfortransitionaljusticeremainunfulfilledinSriLankawhileassaults,deaththreats, surveillance and harassment of human rights defenders and victims ofviolationshavealsocontinued.However, itmustbenoted that transitional justicehasnot generated universal agreement; whileproponentsrecommendtheimplementationof transitional justice policies assert thatnatural and fundamental justice requireindividuals be held accountable for the worst violationsofuniversalhuman rights,opponents argues that digging up the past and identifyingperpetratorscouldsharpensocietal divisions or provoke backlash leading to renewed conflict. The governmentmayor not accept transitional justice as awayforward,butbuildinglastingpeacethroughreconciliation measures should continueto become a priority as a transformativeaction for sustainable development. Thecase of ensuring peace and reconciliationmaynotbemerelylefttotheGovernment.Theultimateachievementofpositivepeacein the post-war peace building process will be in the hands of the public guided by all stakeholders together with the

8


government. Such an inclusive process has been largely absent in Sri Lanka and has led todividingthenationonopinionandaction,as opposed to bringing society together.

The constitution of Sri Lanka commits thestate to promote the interest of children and youth, ensuring their full development, inorder toprotect themfromexploitationanddiscrimination,whileensuringuniversalaccesstoeducation.TheMinistriescoveringsubjectsofJustice,Health,Education,ChildDevelopment, Women’s Affairs and SocialWelfare are the main state institutionsthat translate the legal commitments to tangible action. However, coordinationbetween these ministries, and the various governmententitiesisweak,slowingdownreformandpolicyimplementation.AlthoughSriLankahadratifiedtheConventionontheRightsoftheChild(CRC)on12July1991,todate, it has not been directly incorporated into national law. Sri Lanka has, however,expressed its view that many of theprovisionsof theConventionontheRightsof theChild (CRC)are in linewithmanyofthe current rights espoused by the 1978 Sri Lankan Constitution. The national childprotection policy was cabinet approved inOctober 2019, and needs to be launchedandoperationalized.

Sri Lanka had also ratified the UNConventionontheEliminationofAllFormsofDiscriminationAgainstWomen(CEDAW)in 1981, but some of its provisions are yet to beincorporatedintonationallegislation.Thekeyconcernsintheconcludingobservationsof CEDAW state the need to strengthenthe implementationmechanisms includinghuman resources and skills, strengthen the laws, policies and action plans concerningwomeninawomenparticipatedmannerandimproving efficiency of judicial proceduresto address gender based violence (GBV),combat discriminatory gender stereotypes in education and mainstream gender into

national education policies including theEducation Sector Development Frameworkand Programmes. Gender equality is a cross cuttingissueidentifiedintheSDGframeworkand correlates and corresponds with many of the SDG targets and indicators and the elimination of discrimination and violenceagainst women is vital for eradication ofinequality.

Youth are seen largely missing out from the national decision-making processes.In 2014, Sri Lanka launched the NationalYouth Policy (NYP) that recognized ninekey strategic areas for policy interventionsin education, skills development andvocational training, civics and citizenship,professionalizationoftheyouthworksector,health andwellbeing, social exclusion anddiscrimination, peace and reconciliation,arts,recreation,sportsandleisure.TheNYPhas identified young women as a ‘prioritytargetgroup’andissuesfacedbytheyoungwomen such as gender-based violence and sexual harassment, teenage pregnancies,sexualabuseandtheprevalenceofculturaland social barriers for female employment. The policy makes recommendations forvocationalskillsandemploymentbutisnotexplicitof the recommendations foryounggirlsandboys.Itmakesprovisionforcreatingspacesforyouthtoparticipatemeaningfullyat family, community and national levelsbut lacksanational actionplan toachievethem. The lack of streamlining of all youth related policies and frameworks, may result in ad-hoc approaches, strategies and nationalprogrammes,thatarenotrelatingto and corresponding to issues and areas previouslyidentifiedforpriorityaction.

However, as of 2019, Sri Lanka has gainedfivepositions,ontheHumanDevelopmentIndex (HDI) to rank71st,breaking into thecategory of High Human Development. According to the United NationsDevelopment Programme (UNDP), the

9

THE POLICY CONTEXT

HDI provides an alternative single-numbermeasure, capturing progress across three basic dimensions of human development: health, education and living standards. SriLankahadaHDIof0.780,aslightrisefromthe 2018 figure of 0.770 and a ranking of76. While the report looks at data fromthe previous year, Sri Lanka reported a life expectancy at birth of 76.8 years in 2018,a slight increase from the previous year’s75.5 years. There have also been increases ineducation-relatedstatistics,withthe13.9expected years of schooling and 10.9 mean yearsofschoolinginthe2018reportrisingto14expectedyearsofschoolingand11.1mean years of schooling the following year. TheGrossNationalIncome(GNI)percapitain the 2019 report was 11,611, showinga slight increase from the 11,326 GNI percapita documented in the 2018 HumanDevelopmentReport(HDR).TheHDR2019alsopointstoSriLankafaringbetterthanitsSouth Asian neighbours in terms of gender equality. The report also measures a Gender Development Index (GDI), calculated for166 countries, and looks at gender-based inequality in the achievement of three basic dimensions of human development - health, education and command over economicresources. Sri Lanka has achieved a GDIvalueof0.938,placingitinGroup3,whichaccording to the UNDP indicates mediumequality.

On a disaggregated level, the Sri Lanka Prosperity Index (SLPI) 2016 of the CBSLshows deep inequalitywithin the country;while the Western Province ranked firsthas a prosperity index rating of 1.272 thelowest ranked Eastern Province only has a rating of 0.135. Similarly, wellbeing in theWestern Province is rated at 1.173 and amere 0.036 in the Eastern Province showsthe deep inequalities with the nation. SriLanka continues to suffer in the sphereof sustainable development due to a consistently incoherent and disintegrated approach to prosperity planning. The lack

of an integrated development budgeting,financingandinvestmentapproachtendstonegate even the positive performances as thenegativestendtocreateanimbalancedfinaloutcome. As forcorruption,SriLankaranks93rdoutof 180 countries on theGlobal CorruptionPerceptions Index 2019 (CPI), with a lowscore of 38 out of 100. This indicatesthat the public’s view of the state sectorgovernanceremainsnegativedespitepolicyand political promises. According to theCPI, full democracies score an average of75,flaweddemocraciesscoreanaverageof49, hybrid regimes which show elements of autocratic tendencies score 35. Autocraticregimes perform worst with an average score of just 30 on the CPI; Sri Lanka’sCPI score suggests that it falls between aflawed democracy and a hybrid regime.Widespread public sector corruptionweakens government institutions, leadsto governmental instability, threatens the economy by undermining fair competitionand discouraging trade and investment, and is a deterrent to prosperity.

Meanwhile,SriLankawasranked2ndintheGlobal Climate Risk Index 2019 amongstcountries affected by impacts of weather-relatedlosseventsincludingstorms,floods,heat waves etc. This shows that the country is seriously vulnerable to climate change and that resilience has been weakened during previous years. According to the earthday.org, Sri Lanka is placed as the 5th largestplasticpolluterintheworldrankingamongcountries suchasChina, Indonesia,the Philippines, and Vietnam. This demonstrates that the country has been led into a wasteful consumerist culture despite regulatoryeffortsattempttocontrolplasticusagesince1994.Whileperformingwellonpoverty eradication, education and evenhealth,SriLankacontinuestopoorlyinvest

10


ongenderequality,democraticinstitutionalprocesses,peaceandsocialintegration.

Thecollectiveagreementfor‘TransformingOur World’ through the ‘2030 Agendafor Sustainable Development’ is a call bygovernments to build a new deal of shared prosperity without leaving no one behind while protecting the earth ecosystem.Such a transformation essentially requiresnations to believe in the need for changeand commit to new pathways towards prosperity.Sinceformallycommittingtothe2030Agendain2015,SriLankahasnotbeenconsistentinitsbeliefinchange,convictionin charteringnewpathwaysor committingto act out of the prevalent system.Whileinterested in engaging in the SDGs and showcasing its alignment with rest of the world, the fragmented and disintegrated approach towards implementing the 2030Agenda, only facilitates gathering dust under anewcarpet.Thiscouldpotentiallyinducegreaterbreakdownsasoppositetocreatingtransformation. Recalibrating the mindsettowardsadvancingthe2030Agendawouldnecessitate visionary political leadership,subsidiarity of governance, integrated public service, coherent policy framework, engaged stakeholder mechanisms, a conscious society, investment in shared prosperity and commitmenttotransformation.

The challenge is how Sri Lanka could localise the 2030 agenda to exemplify the centralprinciple of leaving no one behind. The manifesto of the 7th President of Sri Lanka, ‘VistasofProsperityandSplendour’,statesthat the government has a clear policy andaprogrammeofaction toachieve thetargets of the Sustainable Development Goals (SDG) with the participation ofthe people. In line with the principleof ‘leave no one behind’, the primarypurpose of the new government states the importance of creating a productivecitizen,ahappyfamily,adisciplinedsociety

andaprosperousnation,ensuringthatthebenefitsofdevelopmentreacheverygroupof people. This would include designing for substance, process and outcomes based ona rangeof activities includingplanning,implementation, financing and monitoringoftheSDGs.Planningfortheintegrationofenvironmental-social-economic dimensionsof sustainable development and mainstreamingtheSDGsintonationalpolicyframeworks would demonstrate the vision for a transformation. The implementationneeds to embrace a whole-of-government and multi-stakeholder implementation.This would require an integrated institutional approach and a decentralisedgovernance system that demonstrates the belief in subsidiarity and democracy. The commitmenttoenforcingatransformationcould be demonstrated in public-private financingof aprogrammeof actionacrossthe system, sectors and stakeholders. Proper monitoring of progress will require both data disaggregation and data democracyto includeall. Theobjective is toplan andimplementaninclusivetransformation.

Sri Lanka has faced a challenging politicalenvironment, weak fiscal buffers and highindebtedness that make the economy vulnerable to uncertain global financialconditions. The COVID-19 pandemicfurther weakened Sri Lanka’s growthand compromises investments in the SDGs. Sri Lanka’s planning must take intoconsideration the nations vulnerabilitiesto global conditions and adopt policiesto advance the ecosystems and services theyprovide,alongsideoptions to restore,conserve or enhance the sustainable use of ecosystems. Foresight into potentialbreakdown scenarios such as climate change, disasters, famines, pandemics, wars, economic downturns and redesigning policytoaccommodatealternativesoptionsisnecessary.Beyondan increasingly failingGDP as a measurement, the inclusion

11

THE POLICY CONTEXT

of happiness, wellbeing and prosperity-based measurements will help the country enforcetransformativeregulatorymeasuresto advance sustainable development. While international and multilateralagencies constantly place the SDGs high in their agendas, international financingfor the implementation of the SDGs is yetto beprovided to Sri Lanka in an effectiveway. Even though much of dialogue and promotion of the 2030 agenda has takenplace during the past five years, SDGscontinue to be approached as anotherinternational project within the exclusivepolicy circles that does not appear to reach thestakeholdersandpublic;infactpoliticalengagement in the policy process has been limitedevenatnationallevelwhileprovincialand local government levels are quite marginalised. In this context, commitmenttodomestic investment for theSDGs inSriLanka has become a difficult proposition.A new financial architecture towards asustainable development driven economy needs to be put in place by the government if all stakeholders are to contribute to the SDG process. Therefore, formulating adomestic investment framework for theimplementation of the 2030 agenda in SriLankabecomescriticallyimportant.

1.3. An Analysis of Transformative Action

Fiveyearshavepassedsincetheadoptionofthe2030Agenda.According to theUnitedNations Sustainable Development GoalsReport (2019), the natural environmentis deteriorating at an alarming rate. In thefaceofrisingsealevels,acceleratingoceanacidification etc., the past four years havebeen the warmest on record. One million plant and animal species are at risk of extinction,and landdegradationcontinuesunchecked. The slow pace to end human sufferingandcreateopportunityforallhas

jeopardisedthegoaltoendextremepovertyby 2030 and enhanced the struggle torespondtoentrencheddeprivation,violentconflicts and vulnerabilities to naturaldisasters. Global hunger is on the rise and at leasthalfoftheworld’spopulationislackingessentialhealthservices;morethanhalfoftheworld’schildrendonotmeetstandardsin reading and mathematics, only 28% ofpersonswithseveredisabilitiesreceivedcashbenefits,andwomeninallpartsoftheworldcontinue to face structural disadvantagesand discrimination. The UN High-levelPoliticalForumonSustainableDevelopment(HLPF), which is the main United Nationsplatform to conduct the follow-up andreviewofthe2030AgendaandtheSDGsatthe global level, is already in its second cycle whichcoversthefouryearsfrom2020-2023.A review and analysis of domestic actionduring the first cycle between 2016-2019will help the new government in Sri Lanka totakethenecessarytransformativeactionrequired for recalibrating the context ofimplementing theSDGsandadvancing thecountry towards sustainable development.

1.3.1. Political Leadership

Sri Lanka’s initial promise for politicalcommitment to the 2030 Agenda has notbeen sustained. Since signing on to the 2030Agenda for SustainableDevelopmentinSeptember2015,theGovernmentatthetime responded by the introduction of aCabinetMinisterialPortfolioonSustainableDevelopment, enacting the SustainableDevelopment Act through parliament, and establishing a Parliamentary Select Committee on the SDGs. Unfortunately,three years later, by the end of 2018,the same government had scrapped the sustainable development portfolio, whilethe parliamentary select committee wasdisbanded without any substitution. Withthe initial interest on the SDGs dwindling,

12


the political hierarchy in the governmentsthat followed have placed a lessor focus onthesubjectofsustainabledevelopmentin both parliamentary and administrativeprocesses.

The initial momentum towards atransformation created by the politicalleadership of the then government was stalled by bureaucratic monopolizing ofthe SDGs planning process within a highly fragmented public administrative system.LackofpoliticalleadershiphaslefttheSDGsin the hands of a fragmented public service system,operatedunderlinearbureaucraticprocedures resulting in a lost momentumand drive for transformational action.The main reason for the failure of Agenda 21, and the previous global sustainabledevelopment agenda was the lack of political will. Sri Lanka needs to assumepolitical leadership in the 2030 Agendaand demonstrate its will and commitment towards implementing the SDGs; not topassontheresponsibilitiesdownthechainand expect transformation. Thiswillmeana more inclusive political culture withdevolved responsibilities at a subnationallevel, an integrated service delivery that is responsive to public needs, a coherent policy process across environmental-social-economic dimensions, and investment in transformational action driven by politicalideologies favourable to sustainable development.ThisisexpectedfromthenewPresident and Government that has pledged its commitment to the implementation ofthe SDGs.

1.3.2. Institutional Arrangements

The establishment of a Cabinet Ministerial Portfolio in charge of SustainableDevelopment in 2015 was expected tofacilitate an integrated whole of government process and help mainstream the SDGs into thenationalpolicyframework.Italsowasthe

nationalfocalpointforSriLanka,providinga mechanism for coordinating, facilitating,and reporting the implementation of thenationalcommitmentstothe2030AgendaandtheSDGs.In2016,theSubjectMinistryhad presented the key elements of a roadmap towards implementing the SDGs, mappedtherolesandresponsibilitiesofallministriesandthe425centralgovernmententities,andhad presented an integrated institutionalmechanism towards implementing theSDGs through a whole of government and multi-stakeholder mechanism. The plansformulatedby theSubjectMinistry, clearlystated that line agencies will take the lead intheirrespectivesubjectareasinplanningto implementation and reporting, whileprovincial sustainability plans would help devise and manage decentralised strategies andactions.

These plans had recommended three timeboundstagesfortherealisationofthe2030AgendainSriLanka;Legislative,Institutional&PolicyFrameworkestablished(2016-2020),investment for sustainable infrastructure and systems in place (2021-2025), andcoherent and convergent transformationin motion (2026-2030). During the firststage the following actions were alsoproposed: Capacity Building, Means of Implementation and Partnerships for Sustainable Development, oriented towards facilitating and coordinating the nationalsustainable development programme, including building national capacity forimplementing the SDGs and strengtheningthe national transformation process;a National and Provincial Sustainable Development Platform as a common forum for stakeholder awareness, knowledge building and engagement in coherent and collectivesustainabledevelopmentvisioning,pathways building, planning, innovationand movement; a National Sustainable Development Roadmap leading to the national SD strategy and action plan, and

13

THE POLICY CONTEXT

to evolve a policy-regulatory-institutionalframeworkthatenablesthetransformation;a National Sustainable Development Policy-Regulatory-Institutional Framework, Strategy & Action Plan will be evolved through the guidance of the NationalSD Roadmap and in coherence with themandate of the proposed act to provide for the establishment of a Sustainable Development Council for the development and implementation of a sustainabledevelopment strategy in Sri Lanka; aNational SDG Facilitation Mechanism for inter-agencycoordination,buildingsectoral/thematic expertise towards achievingthe SDGs, and monitoring, evaluation& reporting; a National Sustainable Development Data and Information Portal as a central location for all public, privateand civil society published information atlocal, national, regional and internationallevels to enhance a strong nationalstatistical analysis system; a Sustainable Development Response Mechanism towards the identification of nationalsustainable development interventionrequirements and provide responsible ministries, agencies and organizationsguidelines and recommendations onmanaging development initiatives orprojects where appropriate collaborationand/or cooperation in implementation oftherecommendationsoccurs;aSustainable Development Standards Framework through an expert verification process toprovide project planning and approvingagencies, the necessary monitoring and evaluationguidelines,toolsandstandards;aSustainable Development Demonstrations to validate SD as a realistic developmentpathway mainly at local, community and district levels engaging all relevant stakeholdersandpublicsectorinstitutionsinpartnership.

Noneof these planswas set inmotion bythe respective authorities and there is

no trace of these processes since 2018.Unfortunately, no substantive replacementof the abovehas beenpresented. If thoseplans had been implemented, then the country would have been in an advanced stageofimplementingtheSDGsandwouldalso be properly guided by a domesticresourcemobilizationframework.

WiththediscontinuationoftheMinistryofSustainable Development, the lead role of planningandimplementationoftheSDGswasassumed by a newly established Secretariat of the Sustainable Development Council (SDC).Ironically,appointedmembersoftheSustainable Development Council have not metsinceNovember2019toconducttheirmandated roles and responsibilities whileofficialsofthesecretariatcontinuewithoutguidance and supervision of the actual council. The mandate of SDC, derived from the Sustainable Development Act of 2018,istheformulationandreviewofaNationalPolicy and Strategy working alongside the nine Provincial Councils, the Cabinet of Ministersaswellasother relevantparties;an outcome pending since 2018. The actspecifically states that Sri Lankawould setitsownnationaltargetsguidedbythegloballevelofambition,whiletakingintoaccountnational interest and circumstances andalso incorporate all seventeen Sustainable Development Goals into national planningprocesses, policies and strategies in the relevant ongoing processes, within the economic, social and environmental fields.Again,thishasnotbeendeliveredandofferslimited hope within a highly fragmented institutional structure giving away tobureaucraticmonopolisationintheabsenceofpoliticalleadership.

The Act has provided limited perspectiveon the policy for sustainable development while focussing more or less entirely onthe establishment and management of a Council.TheSDC,duetoinsufficientpolitical

14


and planning foresight in the design of the Sustainable Development Act, narrows and limits the potential of the government inresponding to the 2030 Agenda’s call fortransformation. Firstly, the Council lacksthe political leadership needed to enforcecabinet level decision making. Secondly, it lacks the critical requirement for a wholeof government approach as in inter-agency representationforintegrateddelivery.Thirdly,is lacksmulti-stakeholder representation toensure the voice of people and their issues. The lack of a multi-sectoral, inter-agency,multi-stakeholder coordination mechanismwithouthighpolitical,administrativeaswellas intellectual leadership has led the SDG agenda to be isolated from mainstream national planning and budgeting. TheSDC Secretariat has resorted to externallyfinanced and supported sporadicprogrammaticactivities,whilefinancing fortheofficialimplementationoftheSDGshasalso been dwindling. The lack of expectedvision and leadership from the actual Council Members and a Secretariat unresponsive to inclusive transformative action has keptawaysignificant internationalanddomesticpartnerships.

The planning and implementation of theSDGs requires the highest level of decision-making power available to a nation; tohavesubstitutedtheseresponsibilitiestoafewpublic officials andpolitical nominees,without any options for stakeholderrepresentation, has compromised therequisiteinstitutionaltransformation,aswellas the principles of partnerships and leaving no one behind. The SDC, operated through an unguided bureaucratic secretariat,is a conveniently linear institutionalarrangement within the fragmented public service structure. The new government would be well advised the revisit the Sustainable Development Act; while thecouncil membership needs political andstakeholder representation, the secretariat

must be an integrated institutionalmechanism, with representatives from allkey public entities required to facilitate awhole of government approach. Valuable years have passed without critical actionandhasweakenedSriLanka’spotential forbothinternationalanddomesticresourcingof the SDGs.

The new government must demonstrate its foresightintransformationalactionincludingreforming legislation and restructuringinstitutional structures in order to gainpartnerships that were lost during the past few years. An integrated institutionalmechanismtofacilitatetheimplementationof the SDGs is of vital importance for transformation. Firstly, the responsibilityof leading the national sustainabledevelopment agenda must be assumed by the country’s political leadership, startingfrom the President and the Cabinet of Ministers. Secondly, subnational levelrepresentation must be strong and notlimited to a few Provincial Councils. Thirdly, key stakeholder representation must beestablished within the decision-making structure.Sustainabledevelopmentexpertswith proven experience from the privatesector, civil society, academia, etc. must be providedequalspacewithinaninstitutionalstructure to ensure the knowledge, content and objectives of the SDGs are protectedand national interests are safeguarded.Fourthly,keypublicsectorinstitutionsmustbe incorporated to deliver an integrated service delivery assuring a whole of government approach. Key government institutions covering planning, finance,external resources, statistics, monitoring,etc.shouldberepresentedinacoordinatingsecretariat to link all ministries and institutions covering environmental, social,economic dimensions and governance aspects.Finally,apublicaccountabilityand

15

THE POLICY CONTEXT

a public engagement mechanism needs to be included in the operational proceduresoftheinstitutionalmechanismforSDGs. 1.3.3. Policy Coherence, Integration

& Mainstreaming

Sri Lanka continues to operate itsdevelopment programmes and projectscreating contradictions, confusions,compromises and confrontations betweenenvironmental, social and economic policies,aswellasregulations.Developmentprojects with linear economic objectivesof destroying ecosystems and disturbing community lifestyles are being constantly reported across media, providing evidence that the policy integration for sustainabledevelopment is yet to be established. The lack of clarity on an overarching national policy framework, continues keepsustainable development in the corridors of national determinations rather thanat the centre. A lack of policy coherence planning has prevented proper integrationof the three dimensions of sustainable development – environmental, social andeconomic-whilemainstreamingtheSGD’sinto existing national policy frameworkshas been through the siloed approaches of subject ministries. In a highly fragmentedinstitutional structure, policy coordinationacross sectors is weak in Sri Lanka. Also, a cultureofindividualministryandinstitutionlead programmatic approaches providesfor limited inter-sectoral convergence. This isamplydemonstrated innationalbudgetsthatmakesallocationstosubjectministrieswithout much consideration of sectoralintegration.

Evolved into a highly fragmented public institutional structure, planning andbudgeting through siloed programmes bydifferentministriesdoesnotfitintoaholisticimpact model for sustainable development.

In fact, according to the analysis on theperformance of the 17 SDGs, the approach to policy and institutional incoherencein Sri Lanka does not demonstrate the capacity or readiness to measure the true impact towards a transformation. Povertyeradicationpoliciesdonotreinforceequalitybetween and within districts as growth is concentrated within a few urban pockets. Therichest20%ofthepopulationreceivesnearly 51%of the total household incomeandthepoorest20%amere5%,whilethemiddle 60%was receiving 44%.While thehealthsectorandtheeducationsectorhasshown high statistical achievements, thewide gaps of service delivery and quality of services for the rural and poor remains unsatisfactory. The education service hasbeenprovidingequalopportunities for thefemale child, but gender equality is not addressed in the labour market. Meanwhile, promising 100% renewable energy by2050, the long-term generation plan for2020 to 2039 presents contradictions byrecognising the need for coal in electricity generation. The new National Policy forSustainable Consumption and Productiondoesnotplaceanysignificantemphasisonconsumerprotectionand consumer rights,leavingittotheConsumerAffairsAuthorityAct (No.9of2003).On theenvironmentalfront, while promising to increase the forestcoverto32%,thegovernmentisalsoproposing to takeover other state forests for the facilitationofdistrictdevelopment.While, many climate change and disastermanagement policies and strategies have been introduced, Germanwatch has listed Sri Lanka under the top 10 most affectedcountriesfrom2018to2020.Inplanningforan inclusive transformation, and pursuingthe SDG pathways, the government will have to revisit the large amounts of inherited policies and address the issue of coherence.

As Sri Lanka is yet to resolve the sectoral versus thematic planning and budgeting

16


of development, SDGs have been turned into siloed sectoral interventions. Theseventeen SDGs have been devised as thematic clusters that constitute specificactionable and measurable targets. Whilethe performance of targets is measurable by specific indicators, the assessment oftheperformanceof thethematicgoalsareexpectedtobethroughtheimpactsbetweentargets within and across the goals. The 169targetscreateawebof interactionstoact as an indivisible system and the impact on the outcomes need to be measured as whole. However, in Sri Lanka, public sector planning and budgeting is predominantlysector focused and this approach is similarly followed by the private sector.

During 2015 to 2019, Sri Lanka did nothavea clearnationalpolicy frameworkora guiding strategy that could demonstrate an actual integration of economic,environmental, and social considerations.If Sri Lanka is seriousaboutachieving thetransformational objectives of the 2030Agenda, then ensuring policy coherence for sustainable development (PCSD) is centrally important.TheobjectivesofPCSDincludes;foster synergies and minimise trade-offsacross sectors, reconcile domestic policyobjectives with internationally agreedobjectives,andaddressthetransboundaryand long-termeffectsofpolicies.Towardsimplementing the2030Agenda, Sri Lankalike most countries needs to address challenges including ensuring integration,fostering alignment across local, nationalandinternationalactions,andovercomingfragmented or siloed policy actions. Anoverarching sustainable development policy framework guided by national prioritiesforprosperityiscriticallyimportantforSriLanka. Under the overarching framework, a nationalSDGimplementationstrategythatincludes the domestic goals and targets,planofimplementationwithtimehorizons,sectoralandthematicfinancingstrategies,

and a monitoring, evaluation, follow-upand review mechanism must be clearly defined.

1.3.4. Monitoring, Statistics and Data

While Sri Lanka presented its VoluntaryNational Review (VNR) to the High-LevelPolitical Forum (HLPF) on SustainableDevelopment in July 2018, as a nation SriLankaisyettoestablishaclearnationalSDGmonitoring,evaluation,follow-upandreview(MEFR)mechanism.Theauthoritiesneedtorealisethatreportingondataissuboptimaland presenting an incorrect picture of thestatus, to internal and external audiences,wouldonlyleadtoincreasedvulnerabilitiesand stall the country’s progress towardssustainable development. For the last fiveyearsandtodate,theauthoritieshavenotbeen able to localise the targets, formulate a national indicator framework, andestablish an integrated MEFR mechanism.The inefficiency of the authorities inestablishing baseline indicators and streamlining the supporting data towardsenabling a systematic assessment of theprogressintransformingthenationtowardssustainabledevelopmentbytheyear2030,hasleftawidegapinstocktakingandhonestreportingevenfor internalevaluationsandforesight planning.

The report ‘Status of Sustainable DevelopmentGoals Indicators inSri Lanka:2017’, published by the Department ofCensus and Statistic (DCS) included 12chapters;Outof244indicators,datafor46indicators was compiled through ongoing censuses and surveys of the DCS and administrative records with an indicationof the possibility for another 25. Theformulationofthereport,solelyconductedby the DCS appears not to have included other government entities, thus is limitedto its own censuses and surveys and does not provide a whole of government status

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THE POLICY CONTEXT

on the availability of national data. Forexample,mostofthedataforenvironmentalindicators, particularly in goals 12, 13, 14and 15, aremissingwhile this informationis situatedwithin institutions thatmanagethe relevant thematic sectors and issues.The report also does not make any effortto acknowledge and analyse non-public sectorinformationsuchasfromcivilsociety,academia and private sector. Therefore, this report does not provide an accurate status on the data availability on the SDG indicators.

The claim that Sri Lanka lacks data to conduct propermonitoring and evaluationoftheSDGsisnotanaccurateclaim.Infact,many public, private, civil society, research as well as international organisationsconduct and publish data, statistics andinformation related to Sri Lanka. Forexample, the Sustainable DevelopmentReport 2020 prepared by the SustainableDevelopment Solutions Network (SDSN)andtheBertelsmannStiftunghasuseddatafromawiderangeof internationalsourcesto assess Sri Lanka and rate the performance on SDGs, proving that information couldbe sourced and analysed even within the current national statistical systemlimitations. Firstly, there is no systemicprocess to coordinate the data from all other public intuitions for an integratedstatistical analysis; the lack of adequatedata to evaluate the progress, thus relates tothecontinuedfailuretoestablishawholeofgovernmentapproachtodatacollectionand facilitation. Secondly, bureaucraticprocesses continue to ignore independentdata while not having the capacity themselves to conduct such research on diverse and significantly sensitive areas ofsustainability. Thus, the national statisticalsystem is restricted, providing only a limited amount of data to cover the SDG global indicators. However, the DCS had requested all public sector agencies to follow-up and

provide the necessary data and provided thereportingformat.There isnoevidencethat any significant follow-up in sectoraldata was either provided to the DCS by the relevant government agencies or that the processwaseffectively coordinatedby theSDCforinter-agencydatacoordination.

In early 2016, the Ministry of SustainableDevelopment had formally proposed the necessitytoestablisha‘NationalSustainableDevelopmentData and InformationPortal’as a central location for all national SDinformation with local, national as wellas relevant regional and internationallinks to enhance the data-revolution at acountry level and support viable statisticalanalysis systemtoassistnationalplanning.If the authorities had acted upon thisrecommendation, today in 2020, thecountry would be in strong position toevaluate the strengths and weaknesses of national development initiatives towardsdevisingstrategiesfortransformativeactionand forging sustainable development. However, a fragmented institutionalstructure for the SDGs, a monopolised bureaucratic approach to planning anddelegation of responsibilities, along withthe inefficiency and lack of accountabilityof the relevant officials have all preventedthe establishment of a data and statisticsleadmonitoring, evaluation, follow-upandreviewmechanism (MEFR) in the country. Thenewgovernmentmustactswiftlytoputin place a coherent mechanism to ensure that theMEFRmechanism for SDGsare inplace and support the DCS to deliver regular and advanced statistical analysis to trackthenationsprogressonthetransformationtowards sustainable development.

1.3.5. Localising SDGs and Subnational Initiatives

Sri Lanka has not demonstrated much faith in the principle of subsidiarity and Provincial

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Councils and Local Governments, which have not been empowered adequately to plan and implement SDGs at subnationallevels.Insufficientfinancing,lackoftechnicalsupport, and keeping them away from the nationalplanningsystemshasmarginalizedprovincial and local level governance from the SDG process so far.

Provincial and Local Sustainability Plans have been proposed and discussed since early 2016 without follow-up from therelevant central government institutions.There has been attempts financed by theUNDPinSriLankatomainstreamtheSDGsinto District Development Plans and also through a few Provincial Level Development Plans. Unfortunately, these have not been able to adopt a transformative approach and remained as siloed mainstreaming efforts. Theelectedmembersof ProvincialCouncils lack critical understanding andcapacity concerning the SDGs, creating awide gap in political commitment. This isdelivered down the chain and resulting inlowmotivationandcommitmentbyofficials with limited knowledge and capacity. While the Finance Commission has providedguidanceforintegratingtheSDGsin provincial plans, a lack of financial andtechnical support has kept the Provincial Councils away from delivering integrated plans and strategies. At the Local Government level,bothelectedmembersandtheofficials,haveextremely lowawareness,knowledgeand capacity to implement the SDGs. The limited information on the SDGs in locallanguageshasmarginalizedgrassrootslevelpoliticians and officials. Furthermore, the responsible central government entitieshave not valued the potential of localgovernment in localising SDGs, which has resulted in the low and slow transmission of the SDG related information flows,knowledge development and capacity building at the village and community levels. If not for some awareness creation

activities by some CSOs and local governmentassociations,localgovernmentsmay not have had any engagement in the SDGsafter05years.

Substantial efforts have to be made towards localizing the developmentplanning based on the SDGs and provincial, district and local development plans need toadoptatransformativeformatapproachand address the recommendations ofthe 2030 agenda. While it is globallyrecognized that local governments have aunique role to play in planning, executingand monitoring of the SDGs, in Sri Lanka, they are handicapped by a lack of clearly devolved and decentralized authority,diffusedinstitutionalandlegalframeworks,limited human and financial resources,and weaknesses in data systems hindering effective target setting and monitoring.To rectify these anomalies, subnationalgovernments should be capacitated with authority,resourcesandfinances,aswellastheinstitutionalframeworktodefine,deliverand monitor SDG targets and indicators, keeping in mind that subsidiarity and goodgovernanceat all levels are essentialto implementing the 2030 Agenda. Theproposed constitutional reforms processprovides good opportunities to define anational context of subsidiarity, determinelevels, concerning of devolution of poweranddecentralisationofresponsibilities,andexploreoptionsforlocalizingtheSDGs.

1.3.6. Financing Strategy

Sri Lanka, as a developing country with an extremely low economic growth; heavyexternaldebtandmultiplesocio-economicchallenges, is more challenged by survival at present than investing in long termsustainability. This does not provide a strong positionfordomesticfinancingoftheSDGs.Another major setback in implementingthe SDGs is the low international financial

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THE POLICY CONTEXT

support received by Sri Lanka. A key reason for this is because Sri Lankan authoritieshave not been able to formulate and present to the international communitya clear roadmap on mainstreaming and implementing the SDGs at national andsubnationallevels.

Thecountrystilldoesnothaveasustainabledevelopment financing architecture whichprevents the government from seeking foreign and domestic support for theimplementation of the SDGs. Accordingto the United Nations, governments mustaddress areas such as enhancing sustainable financing strategies and investments atnationalandsubnationallevels,whileseizingthepotentialforfinancialinnovations,newtechnologies and digitalization to provideequitable access to finance. It is reportedthat there is evidence that investing inthe SDGs makes economic sense. Withestimates highlighting that achieving theSDGs could open upUS$ 12 trillionworthof market opportunities and create 380millionnewjobs,andthatactiononclimatechange would result in savings of about US$ 26trillionby2030.SriLankaneedstorealisethis opportunity and plan strategies to draw fromtheglobalfinancingpotentials.Inthisrespect, a domestic resource mobilizationframework for the 2030 Agenda becomescriticallyimportant.

UNESCAPsuggests thatfinancingtheSDGsis expected to remain a challenge witha relatively low level of tax revenue thatconstrains Sri Lanka’s domestic resourcemobilization. It further notes that thecountry’s access to concessionary financehasdeclined given its elevation tomiddle-incomestatusin2019,andexportearningsand FDI inflows have remained belowpotential. Various measures have beentaken to attract FDI and boost exportearnings, including the implementation ofanewNationalExportStrategy,andeasing

the business environment by digitalizingcompany registration and land registry.In addition to these measures, improvinginvestmentefficiencyisseenascritical.

The CBSL in 2019 launched a ‘Roadmapfor Sustainable Finance’ to guide the localbankingandfinanceindustry,strengthenthecapacity of the banking sector to implement such practices, facilitate knowledgesharing with members and promote green investment in the country. The main thrust of this Roadmap is to ensure thatsustainability is embedded in the decisions of stakeholders in the financial system.It provides a broad direction to financialregulators and financial institutions toeffectivelymanagetheenvironmental,socialand governance (ESG) risks associated with projectstheyfinance,promotingassistanceto businesses that are greener, climate-friendlyandsociallyinclusive.TheRoadmapalso attempts to scale up the contributionof the financial sector and help build amore resilient, sustainable green economy. However,theresponsibleauthoritiesofthecountry are yet to mainstream it into the relevant national economic policies andfinancialsystemsandalignwiththenationalplansforthe2030Agenda.

Sri Lanka could be inspired by the European Union’s (EU) approach, which postulatesthat sustainability and the transition to alow-carbon, more resource-efficient andcircular economy are keys in ensuring long-termcompetitivenessoftheeconomy.TheEU Commission appointed a High-Level Expert Group offering a comprehensivevisiononhowtobuildasustainablefinancestrategy argues that sustainable finance isabout two urgent imperatives: improvingthe contribution of finance to sustainableand inclusive growth by funding society’slong-term needs; strengthening financialstability by incorporating environmental,social and governance (ESG) factors into

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investment decision-making. This ActionPlanonsustainablefinanceispartofbroadereffortstoconnectfinancewiththespecificneeds of the European and global economy for the benefit of the planet and oursociety.Specifically,thisActionPlanaimsto:reorient capital flows towards sustainableinvestment in order to achieve sustainable andinclusivegrowth;managefinancialrisksstemming from climate change, resource depletion, environmental degradation andsocial issues;and fosterboth transparencyandlong-termisminfinancialandeconomicactivity.

1.3.7. Leave No One Behind

The central pledge of the 2030 Agendafor Sustainable Development, to ‘leave no one behind’, is a call for an inclusivetransformation;atransformationthatdoesnot exclude many from planning throughimplementation to benefit sharing. TheCommittee for Development Policy ofthe United Nations recommends that themember states embed the concept of leaving no one behind in their strategic frameworks and translate that concept into action,notonlybytargetingspecificgroupsthat are excluded from decision-makingpowerandthebenefitsofdevelopment,butalso by safeguarding the interests of those groups by not pushing them further behind through measures that deprive them of their rights and livelihoods. The OECD sees ‘Leave No One Behind’ as both an anti-poverty and anti-discrimination agenda.It is, furthermore, one that recognises thenaivety of expecting progress to trickledown the socio-economic scale; instead,it necessitates explicit and proactiveattempts to ensure that the populationswhom progress has left out are now notonly included, but placed at the forefront. Leaving no one behind underpins the successoftheentire2030Agendaandalso

serve as a proxy for progress towards theSDGsbyeachcountry.Iftheworstoffhavenot seen their lives improveddramatically,thenthejobwillnothavebeendone.

In early 2016, under the thenMinistry ofSustainable Development and Wildlife, SriLankakicked-offthenationalSDGcampaignunder an overarching theme of ‘Planning for an Inclusive Transformation”. The processfacilitated stakeholder consultationsthroughnationalandprovincialsustainabledevelopment engagement platformsand drew voluntary contributions fromsubject experts across thematic sectorsand stakeholders towards planning the roadmap,strategyandactionplan.Sincethediscontinuation of theMinisterial Portfoliofor Sustainable Development, the dynamic space for stakeholder engagement in SDG related national planning and strategisinghas been shrinking. Despite a limited group being invited to workshops and events, the actual space to engage in policy, strategy, programme planning and design has been extremely limited during the past few ofyears.WhilethegovernmentleadNationalSustainable Development Engagement Platformwasabandoned,theSriLankaSDGStakeholder Platform initiated in 2018 asa response has also not formally operated since formulating the Voluntary PeoplesReview(VPR).WithlimitedfundingforSDGbasedactivities,stakeholder fragmentationtoo is a major concern hindering theprogressoftheSDGs.UNESCAPstatesthat,developing multi-stakeholder partnershipsprovides much room for improvement in Sri Lanka to fully engage the general public and theprivatesector.AneffectivemechanismisneededforcollaborativeengagementinSDGimplementation,frompolicyformulationtomonitoring.

The implementation of transformativeactionandachievingtheSDGswilldependon the awareness, knowledge and capacity

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THE POLICY CONTEXT

amongst all stakeholders and the public. There is extremely low level of awarenesson the SDGs amongst members of the general public, especially those speaking local languages. With the public beingdistanced from policy domains, SDGs are not appearing in political processesand dialogues, and combined with the lack of media sensitivity to cover deepersystemic issues, the general public have had limited opportunities to learn andunderstand SDGs. Parliamentarians, provincial councillors and local government representatives have had limited exposureto the SDGs that has so far remained within selected public sector officials and somestakeholders.With thecoordinationof theSDGs being delegated to a single entity ofthegovernment, theSDC,and interactionsbeen confined to limited public agencies,theinitialcompetencybuildingdriveacrossthepublicsectoralsohaddecreased.Withlimited opportunities to engage in thecentralplanningof SDGaction, knowledgeandcapacityamongstpublicofficialsacrossministries and institutions, district anddivisional secretariats, and provincial and local governments has weakened over the years rather than being strengthened.

Civil Society Organisations (CSOs) havefor a long time carried the responsibilityof keeping the government in check and accountableforenvironmentalconservationand social equity. CSOs are non-state and not-for-profit entities formed by people inthe social sphere that are separate from the Stateandthemarket.TheWorldEconomicForum recognizes that civil society todayincludes an ever wider and more vibrant range of organized and unorganizedgroups, as new civil society actors blur the boundariesbetweensectorsandexperimentwithneworganizationalforms,bothonlineand off. Covering a broad cross section ofsectorsandthematicareas,CSOshavealsoplayed a vital role in keeping the sustainable

development agenda alive for decades in SriLanka.However,thecomplexityofSDGshasbecomeabarrierfortransformativeandcritical actionbymost CSOs.As thedonorconditionalities grow towards integratingSDGs in their funding criteria, greater interestofrelatedactivitiesisseentogrowamongstCSOs.However,CSOactionappearsto be project oriented and not long-termand transformative. Most of the projectfinancing is viewedasdistributedamongstinternational development agenciesand International Non-GovernmentalOrganisations(INGO);eventhosefundsdonot appear to advance a localised agenda for sustainable development and concentrates around a few selected thematic sectors ofthe SDGs, driving further fragmentation.CBOsarefarfrombeingengagedintheSDGsastherelateddialoguesstillcontinuetobein urban areas and in the English language rather than local languages. As bringing the SDGs to ground level has not been facilitated byauthoritiesandinternationalagenciesoreven the larger local CSOs, the grassroot level SDG awareness and engagement remainsextremelylowtodate.

The private sector, predominantly the larger corporate business and industry, continuetoengageinSDGsasanextensionto Corporate Social Responsibility (CSR).Most in the business sector continue tobe unaware, disregarding the integrationof the three dimensions of sustainable development into their business practices.While, regular corporate sustainabilityand CSR awards are being carried out bysector associations, there is no systematicassessment of transformative action toshow true shifts in business processes forproductionand services that advances thenation towards Sustainable Development.Whileenvironmentalandsocialcompliancehas increased, unsustainable consumptionand production patterns continue to growin Sri Lanka. At the same time, the policy

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environment for business to transform into sustainable practices within a competitivemarket has not been facilitated by the authorities.A lackofeffectiveengagementin national policy and sectoral strategyprocesses keeps the business sector stakeholdersawayfromplayingtheircriticalroleaspartnersinthetransformation.

While the big businesses are yet to findmore meaningful engagement in the transformative agenda, the SMEs, microenterprises and cottage industries need tofindtheirwayintotheSDGs.Seenasacriticalagent of the national prosperity drive, thesmaller and local entrepreneurs need to be supported properly in domestic resourcemobilisation. With a smaller ecologicalfootprintandgreaterpotentialforacirculareconomy, smaller local entrepreneurs need to be centrally engaged in the SDGs for transformation towards sustainabledevelopment in the country. The business case of SDGs has not been addressed well in Sri Lanka. Strategies to incentivisebusinesses through policy mainstreaming should be present across all development sectors and programmes of the government. In themeantime, businesses are expectedtoproactivelyengagesustainabilitysystemsand processes to advance prosperity through circular economic strategies.

As the progress of SDG mainstreaming in the education, higher education andvocational education sectors has beenslow, the opportunity for both professional level learning and skill building is limited in Sri Lanka. Some curriculums at university level have been incorporating the SDGs,but the lowexpertisewithin theacademiccommunity on SDGs continues to delaytheprogress.Sometrainingofthetrainers’programmes have been conducted without criticalfollow-uponpublicandprivatesectorinvestmentandjobprospectenhancementfor the sustainable development fields. At

primary and secondary schooling levels there is extremely low understandingamongst teachers, leaving a wide gap in preparing the next generation forsustainable living. With very low attemptto integrate SDGs into school curriculum and showcase future career pathways in sustainabledevelopment,it’shardtoexpectthenextgenerationtobepreparedforthetransformation.However,SDGshavebecomea trending topic for the English-speaking urban youth who have organized severalevents including conferences, debates and otherinteractiveeventstocreateawarenessamongst youth and children. Yet, these activities have vastly remained amongstlimited urban geographical spaces. The same reality transcends to rural communities aswell as the urban poor who remain non-participants in a transformative agenda,while their futures are been designed and decided by a small group of privileged urban authoritiesandactors.Astheruraloreventhe poor urban youth are yet to be aware about SDGs, it is hard to expect a truetransformation taking place by 2030 andbeyond in Sri Lanka.

1.4. An Analysis of Advancing the SDGs

The analysis of progress made on the 17 SDGs in Sri Lanka is a follow-up on the Voluntary Peoples Review in 2018and to strengthen the process of an independent monitoring, evaluation andreview mechanism (IMER). As a nationalmonitoring, evaluation, follow-up andreview mechanism (MEFR) has still notbeen established in the country and regular methodological assessments concerning the progress of the SDGs are not conducted and reported by responsible authorities,this analysis is expected to assist the newgovernment in taking the appropriate decisions and associated actions. As

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THE POLICY CONTEXT

the analysis was conducted as a multi-stakeholderandmulti-dimensionalprocess,all stakeholders of sectors across nationaland subnational levels will benefit inplanningtheirownaction.

In theabsenceof cleardataand statistics,a qualitative analysis is provided usingall different kinds of data, statistics, andinformation.Inconductingtheanalysis,firstpreference was given to published officialstatistics provided by the Departmentof Census and Statics (DCS) and othergovernment entities. However, in theabsence of integrated and updated data within official sources, itwas inevitable toturn to credible international sources aswell as national and local sources. A teamof researchers used the Global IndicatorFramework to assess the 169 targetsand analyse the 17 SDGs. The analysis is subjectivetotheinformationandmaydifferfromanyotherresearchusingdifferentdataandadifferentmethodology.Theanalysishasbeenmindfulofpresentingafairandhonestnarrativeguidedbytheinformationsourcedduring a period spanning twelve months. The following is only a summary based on thefindings, focusingon theperformance,interlinkages, and policy coherence within and between the sustainable development goals and targets.

SDG 01: End poverty in all its forms everywhere

Sri Lanka has achieved significant progressinreducingpoverty.Yetregionaldisparitiesand disparities between the richest andpoorest quintiles remains a concern. In2016, approximately 843,913 individualswere in poverty but in 2012/13, it wasaround 1.3million, depicting a 0.5milliondecline. Poor households represents 3.1%of the total households; approximately169,392 households in 2016. According togovernmentstatistics, thenationalpoverty

headcount rate has declined steadily from 22.7%in2002to6.7%in2012/13,to4.1%in 2016. This number however marks therealityofthosejustabovethepovertyline.The population below the internationallower middle income and upper middle-income poverty line thresholds of US dollars 3.20 per day and US dollars 5.50 per dayrespectively, stood at 10.1% and 40.4% in2016.Itindicatesthateventhoughthereisasignificantprogressinalleviatingpoverty,the impoverished population is still highlyvulnerable and could easily fall back into the poverty line due to shocks such as loss of livelihood, sickness of a family member or a natural or man-made disaster. The lack of savings, being in debt, and reliance on daily wages also increases their vulnerability to shock. Social policies are concentrated on theprovisionof freehealthandeducationservices and food subsidies to alleviate the poverty in Sri Lanka and improve the social protection of the nation. However, theimplementationofthesepoliciescontradictswith the objectives of those policies itself.Even though Sri Lanka has reported a 4.1 PHCR (poverty headcount ratio) in 2016,poverty pockets exist across the countryandthiswilldirectlyimpactonSDG2sincethelackoffinancialabilityaffectstheaccessto healthy/balanced diets. In addition, itwill lead to poor performance in school (SDG 4), working place productivity (SDG8), leading them towards a cycle of poverty. The economically inactive population is7.8million inSri Lanka,andof thatfigure,women represented 73.7% as of 2019.Due to this situation, even though theaverage household income was calculated asRs.43,511in2016,themonthlyaveragehousehold incomeofthepoorest20%wasRs.14,843,instarkcontrasttothemonthlyaverage household income of the richest 20%,whichstoodatRs.158,072(SDG10).Poverty has forced mothers to forsake their children, in order for them to be able to

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travel overseas in the pursuit of employment opportunities. The Middle Eastern regionconstitutesapproximately85%of the totaldestinations travelled to in the pursuit offoreign employment opportunities, with97%oftheaforementionedfigureservingashousemaids.Thisaffectsboththehouseholdand also the Sri Lankan economy (SDG 8). Thisdrawsattentiontotheneedofplanningbased on disaggregated data, and policy coherencebetweenpovertyeradicationandeconomicgrowthobjectives.

SDG 02: End hunger, achieve food security and improved nutrition and promote sustainable agriculture

Accordingtothe2019GlobalHungerIndex(GHI), the island was ranked 66th out ofthe 117 qualifying countries. Sri Lanka’sscore of 17.1, rated as ‘moderate’ is animprovementfromthe2015rankingwhichwas rated as ‘serious’. Sri Lanka howeverhasanunexplainedphenomenonofunder5-year ChildWasting (15.1%) and under 5ChildStunting(17.3%).Childmortalityrateof Sri Lanka has fallen over the years to reachalow;7.1deathsper1,000livebirthsin 2018. Sri Lankan children are also atincreased risk of micronutrient deficiency.However, Sri Lanka has been awarded the first-ever‘Green’nationstatusbytheWorldBreastfeeding Trends Initiative (WBTI) in2020,forsupportingbreastfeedingwomen,leadingtoimprovedbreastfeedingpracticesdrastically in the country. Sri Lanka is oncourse to meet the global target for infant exclusive breast feeding (82% of infantsunder 6 months). As for food security, Sri Lanka is nearly self-sufficient in rice. Theper-capita consumption of rice in 2006/7was 107.9 kg which is an increase in rice consumption over the years. Cultivationhowever is characterised by small holder ‘subsistence farming’. Estimatedagricultural households in Sri Lanka is 2.1million (2017) with a total count of over

8.1millionpeople,whichisover1/3ofthetotal population. Yet, Sri Lanka grappleswith lower agricultural productivity. SriLanka’s food security policy is coveredunder the Sri Lanka National AgriculturalPolicy 2007 (NAPSL), with further linkagescovered by way of the National NutritionPolicy of Sri Lanka, 2010 (NNP). Sluggishgrowth, regulatory constraints, fragmented land use, insufficient availability of water,credit,seed,technicalknow-how,marketingfacilities, storage, transportation, andpoorfarming practices have been identified asmain reasons for lower agricultural growth. NAP-SL states that more than 70% of thepopulation living in rural areas dependon agriculture for their livelihoods and contributesto18%ofnationalGDPand30%of employment. Currently, Sri Lanka spends 0.49% of total government expenditureon nutrition-specific interventions, andaccording to the World Bank, increasingnational budget investments in financingfor nutrition interventions is necessary.SDG 2 connects to targets associatedwithmanyothers;Foodsecurityanderadicatingpoverty (SDG 1.1. and SDG 1.2) go hand-in-hand. Sri Lanka’s National PovertyLevel standsat4.1 (2018)andhassteadilydeclined over the years. However, this is merely income poverty. SDG1.4 connects agri-food governance to the right of owning and controlling land, which is an important component for practicing agriculture.However, it must be noted that among those poor and near-poor that are employed, a large proportion is engaged in agriculture.Furthermore, in Sri Lanka as nearly 66%of cropland is rain-fed, it ismost sensitiveto the effects of climate change (SDG 13),subsequently highlighting amajor concerninestimatingandplanning for currentandfuturecropproduction.Thisshowsalackofpolicy coherence between poverty (SDG 1), nutrition(SDG2),health(SDG3),education(SDG4)andclimatechange(SDG13).With

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THE POLICY CONTEXT

regard to linkages with health, Sri Lanka shows a rising incidence of diabetes, and isconnectedtoSDG3’smonitoringofnon-communicable diseases. Good nutritionundoubtedly helps in better educationaloutcomes, and in this respect appropriate schemes such as the school mid-day meals, are commendable. However, even though the country has a ‘canteen policy’ forschools,thenutritionalguidelinesareoftennot followed. Maternal health, preventingdeath of new-borns (SDG 3.1 and SDG3.2), and reducing communicable diseases(SDG3.3)areallmore likelytobeachievedthroughbetternutrition.

SDG 03: Ensure healthy lives and promote well-being for all at all ages

Sri Lanka has already met the SDG targets in terms of maternal mortality, neonatal mortality, and under 5 mortality. Maternal mortality ratio forSriLankawas32deathsper100,000livebirthsin2018accordingtothelatestFamilyHealthBureau(FHB)data.Theproportionofbirthsattendedbyskilledhealth personnel is 98.6%. Child mortalityratehas fallen from73.1deathsper1,000live births in 1969 to 9.5 deaths per 1,000 live births in 2018 (FHB). The Neonatalmortality rate also shows a declining trend, 6.5 deaths per 1,000 live births, according to theFHB.Asforlifeexpectancy,theincreasefrom the year 2000 (71.5 years) to (74.9years)2019isanincreaseby3.4years.Witha health system that covers nearly all Sri Lankans, the country has made impressive progress on its health indicators. Physicians (per1,000people)haveincreasedfrom0.3per 1,000 people in 1997 to 1 per 1,000 in 2018. Sri Lanka is one of the first twocountries in the South-East Asia Region toachieve measles and rubella eliminationaheadofthe2023target(WHO).However,the national context of alcohol per capitaconsumption (aged 15 years and older)within a calendar year in terms of litres

of pure alcohol is alarming; theper capitaconsumption of liquor in Sri Lanka is 4.1litres. Sri Lanka is known for its effectivehealth service delivery at reasonable cost when compared with countries displaying comparable health outcomes where their investment on health in terms of percentage GDP is relatively higher. However, theenviable public health service is stretched in bothqualityandquantity,andoutofpocketpayments for health care are increasing. Sri Lankahasmademajoradvancesinreducingits suicide rate to an incidence of 16 per 100,000 in 2018. According to the latestWHO data published in 2018, road trafficaccidentsdeathsinSriLankareached3,590or2.82%oftotaldeaths.Theageadjusteddeathrateis16.37per100,000ofpopulationranks Sri Lanka at #96 in the world. Current health expenditure as a share of GDP is1.6%. The policy repository related to theHealth Sector shows 28 policies related, aportionofwhichremainindraftformat.Thepolicy on Healthcare Delivery for Universal Health Coverage (UHC) is foremost. The goalofwhichistoensureUHCtoallcitizensthrough a well-integrated, comprehensive and efficient health service. However, notall services are readily available. There is significant rationing, whether in the formofwaitinglistsor limitedavailabilityoftherequired specialized human resources,equipment, and drugs to provide certain services. Thiswill affectmanywho cannotaffordprivatehealthcareandcouldfurtheraggravate Sri Lanka’s burden of Non-CommunicableDisease(NCD).Thechanginghealth burden from communicable disease to non-communicable disease now requires a different type of health service deliverymodel,togivemoreattentiontochronicityof the high prevalent conditions such asdiabetes, hypertension, ischaemic heart disease, stroke, chronic kidney disease, cancer and mental health problems. The risk factorsincludetheexposuretoagricultural

26


and industrial chemicals, sedentary lifestyles and unhealthy food habits (no enforcement of advertising code). Tocombat the aforementioned situation, thecountry has already taken measures by implementing a NCD National Policy, andNationalMultiSectoralActionPlan for thePreventionandControlofNCDs2016-2020.The Country’s policy on agrochemical use,has to be revisited. Additionally, initiativeson advancing healthy Sri Lankan food clashes with the propagation of processed food.However,intheyear2019,fourregulationscame into effect. These include the Food(Preservatives) Regulation, Food (Additives- General) Regulations, Food (Registrationof Premises) Regulations - ExtraordinaryGazetteNo. 2128/4, and the Food (ColourCoding for Sugar, Salt andFat)Regulations2019 - Extraordinary Gazette No. 2131/2.BetterimplementationoftheCanteenPolicyinschoolswouldbebeneficialaswell.SDG3can be properly linked to many other goals. Sri Lanka’s policy onUHC establishes and/or strengthens national arrangements forsocialprotectionsothatitincludescoverageofthepoorandthevulnerable(Target1.3).Target2.2focusesonthenutritionalneedsof children and adolescents, pregnant and lactatingwomen,aswellasolderpersons.Themulti sectoral actionplanonnutritionin Sri Lanka, addresses most of these issues.SDG3 isalso interlinkedwith threetargets of SDG 5, which refers to ending all forms of violence (SDG 5.2) and harmfulpractices(SDG5.3)againstwomenandgirls,subsequently ensuring universal access to sexual and reproductive health andreproductiverights(5.6).InSriLanka,thereisnogender-baseddiscriminationforhealthaccess.Also,oneofthefirstresponderstogender based violence is the medical sector, thus connecting to 16.1. Not achievingthis targetwillaffectthecloserelationshipbetween increased health and wellbeing of individuals and their contribution to

economic growth (SDG 8.1).

SDG 4 - Ensure inclusive and equitable quality education and promote lifelong learning opportunities for all

Though the sector has received a lot ofOfficial Development Assistance foreducational reform, consecutivegovernments have not given adequate priority to ensure that learners acquire the knowledge and skills needed, in order to ‘promote’ sustainable development.Pertaining toa seriesofexamples,gender,human rights, inclusion, culture of peace, nonviolence, peer to peer learning and equality are in policy documents but not practiced due lack of comprehension.Quality of education in Sri Lanka is highlycriticised due to its heavy focus on anexam-based curriculum. Outcomes arenot creating value based holistic citizensand not providing adequate supply to the ever changing market needs at the same time. Private tuition plays a critical factorin education and examination outcomesandcreatesunequalopportunitiesbetweentherichandpoor.Whileruralschoolshavea shortage of skilled teachers, students also have limited opportunities for privatetuition as well. Access to early childhoodeducationisstilllowinSriLankacomparedto most middle and high-income countries. Thereareexistingdisparitiesbyincomeandlocationandthemajorityofearlyeducationcentres (primary education, secondaryeducationetc),lacksadequateresourcesforteaching and learning, especially for children with special needs. For example, someschools have only one building for all grades. Theeducationsystemhasnotbeenabletoeffectively address the changing financialand market trends. Shortages of technically skilled personnel for the marketplace is a key issue due to lack of equitable treatment and investment in the TVET sector. Unequal attention and recognition

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THE POLICY CONTEXT

are given to vocational education and istreated with lower quality of educationstandards in social ranking. SDG 4 has not beeneffectivelyandadequatelyaddressedby the concerned authorities. Except SDGTarget 4.7 on education for sustainabledevelopment, Sri Lanka is showing moderate progress across other indicators. TheSustainableDevelopmentReport2019highlights a positive performance on SDG4.Asof2018,10,175Schoolsexists in thecountry; national schools 353, provincialschools9822,withthenumberofstudentsamounting to 4,214,772 (male 2,082,696and 2,132,076 female). Further 139,581(72,472male, 67,109 female) students areenrolledin80privateschools,2451specialneeds children (1455 male, 996 female) werestudyingin26schoolsislandwide,and763 Temple schools functioned for 60,875recruitments (32,160 male and 28,715female). In 2018, 31,451 students wereenrolledfortertiaryeducationinSriLanka,ofwhich19,798werefemalesamountingto62.3%.

SDG 5: Achieve gender equality and empower all women and girls

Sri Lanka is progressing on gender equality with positive achievements in educationand health indicators, but shows negativedevelopments in areas such as gender equality in employment and politicalparticipation. The country also grappleswithissuesofgender-basedviolence.WhileSri Lanka was ranked 71 out of 189 countries in the Human Development Index (HDI)2019,fallingunderthecategoryofcountrieswith ‘High Human Development’ thecountrycontinuestolagbehindkeygenderequality indices. Sri Lanka ranks 102 outof153countries intheGlobalGenderGap(GGP). The health gap ranks 1, education88,politicalparticipation73andeconomicopportunity at 126 (2020). In Sri Lanka,82.6%ofadultwomenhavereachedatleast

a secondary level of education comparedto 83.1% of their male counterparts, andgirls outnumber boys in secondary and tertiary education enrolment. Yet, theseachievements have not helped in increasing the share of women in wage employment and women’s political representation.According to the Sri Lanka Labour ForceSurvey (LFS), the estimated economicallyactivepopulationisabout8.6millionofwhich64.7% are males and 35.3% are females.Of theeconomically inactivepopulationofabout7.8million,26%aremalesand74%are females. What is equally significant isthe fact that the female unemployment rate is much higher than that of males (male 3.3%and female7.4% in2019).There isasharp increase in complaints and incidents of violence against girls and women. The Governmenthasidentifiedendingdomesticviolenceandsexualabuse inall formsasakey national priority under the banner ofending ‘violence against women’. As forgender-based violence, recent data from Sri Lanka shows that 30.28% of womenexperienced violence due to an intimatepartner (2016). According to the DHS2016, only 28% of the women sufferingfromdomesticviolenceaskedforhelp,andthe majority (75%) did so from ‘’parents,brothers/sisters/relatives”. Another 27%went to “friends or neighbours”, followed by the“Police”withonly18%.Also,astudybyUNFPAconductedin2017onfemalepublictransport commuters revealed that almost 90%,hadexperiencedsomeformofsexualharassmentwhilecommuting. Specifically,on marriage and reproductive rights it isseenthattheshareofwomen(aged20-24years)whoweremarriedbyage15,(2018)is low at 0.9%. While some indicators ofgender equality are progressing, such as a decline in the prevalence of early marriage, there appears to be child marriage prevalent in some pockets. Whilst a large numberof women work in the informal sector, no

28


formal provisions have been introduced to provide social protection to thesewomen.Inleadershippositions,womenareunderrepresented in most decision-making processes, especially in the corporate sector and the most public enterprises where women cadre is recorded high. According to the ILO, women represent 44% of thegovernment labour force. Female landrights or ownership is addressed in SDG Indicator 5.a.1 and according to a FAOgenderAssessment,only16%ofallownedland in Sri Lanka belong to women, and this limits their access to different agriculturalassetsandbenefitssuchassubsidies,creditor irrigationwater. Even though, there area number of Government Ministries and Entitiesthathavebeenestablishedrelatingtogenderthereseemsalackofcoordinationand appears to be disjointed, hamperingthe effort to deliver quality and inclusiveand gender responsive services especially forwomenand children, and in particular,girls and children with disabilities. Lackof direction at the national level, and theabsenceofasingleagencyforcoordinationis also seen as major problems. A reformof the Muslim Marriage and Divorce Act (MMDA) is requested by progressive Muslim civil societyorganisations - amainissue is that the MMDA does not specify a minimum age for marriage of Muslim women. The Prevention of DomesticViolenceAct(PDVA),No.34of2005,whichwas introduced in 2005 is deemed to beoutdated according to problems observed duringtheimplementationoftheActduringthe last 12 years. One of the flaws of thePDVA is that the Act is mainly concerned with protecting the victim rather thanpunishing the offender. Furthermore, theDomesticViolenceActfailstoprovideproperprotection for abusedwomen through thejudicial system. In leaving no on behind,Sri Lanka needs to pay more attention toSDG 5 and ensure coherence across social

and economic policies to ensure gender equality.

SDG 6: Ensure availability and sustainable management of water and sanitation for all

Sri Lanka is on track towards achieving access tobasicdrinkingwater,reaching89%ofthepopulationin2017.TheruralpopulationinSri Lanka is still heavily dependent on dugwellsforfulfillingwaterrequirements.Withonly 51.5% of the total population havingaccess topipeddrinkingwater in2019,SriLanka has to continue to improve accessto piped clean drinking water. In terms ofsanitation, the percentage of people withaccess to sanitation facilities increased toaround99%in2017.SriLankaisconsideredto have achieved one of the best coverages of sanitation facilities in Asia, where byin 2013, the island achieved 90% of thesanitationsubsectorcoverage(basicallyon-sitefacilitiessuchasseptictanksandclosedpit latrines, as well as also proportionatepiped sewerage systems). However, rural school sanitation and disabled access tosanitation should be improved. There isa new draft National Policy on Strategiesand Institutional Framework for WaterResourcesDevelopment, ConservationandManagement published by the Ministry of Agriculture,RuralEconomicAffairs,LivestockDevelopment, Irrigation and Fisheries andAquatic Resources Development in 2019.This new policy recognises the need for sustainable management of water resources due to the current deteriorating statusof natural water reservoirs. Sanitation isalsoahighpriority in thenewpolicydraftandtheNationalWaterSupply&DrainageBoard,DepartmentofNationalCommunityWater Supply,Water Resources Board andProvincial Councils/Municipal Councils/Urban Councils/Divisional Councils will allbe responsible for domestic water supplyandsanitation.Groundwatercontaminationresulting from on-site sanitation in

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THE POLICY CONTEXT

congested townships is a serious problem which is also addressed in the new policy through sustainable management and development of groundwater. The new policy also highlights the importance of groundwater and the heavy reliance it has on the population and recommends todevelop plans, conduct regular monitoring and promote sustainable management and development of groundwater. Other key policiesincludetheNationalDrinkingWaterPolicy and the National Policy on PrivateSector Participation. Water Supply andSanitationarealsocrucialelements,neededto achieve SDG 6 but these policies will only be effective, if enforced and updatedeffectivelyandtimely.Ensuringtheprogressand achievement of SDG 15 is crucial for SDG6asallthemajorriversoriginatefromProtected Areas (PAs) and any destructionto these pristine and fragile ecosystemswoulddirectlyaffectthequality,availabilityand associated ecosystem services of the island’s overall freshwater supply. QualityofwaterdirectlyaffectsSDG3,forinstance,Chronic Kidney Disease (CKD) is a common issue in some provinces, the reasons of which are still undetermined. It has beenaptly named Chronic Kidney Disease of unknown etiology (CKDu), but is said tobe due to the presence of heavy metals in water.Wastewatermanagementandfreshwaterpollutionmanagementarekeypolicycoherence gaps that should be addressed in order to achieve SDG 11 and SDG 14 in Sri Lanka.

SDG 7: Ensure access to affordable, reliable, sustainable and modern energy for all

Sri Lanka has achieved the first targetunder SDG 7 by reaching 100% electricityaccessibility. However, power outages are a common occurrence throughout the country due to various reasons, mainly as a result of infrastructure failure and also extremeweatherevents.Theenergymixcompriseof

both non-renewable and renewable sources of energy, where 43% of the total energyshareisfromimportedPetroleumand46%is from renewable energy. Pioneering in hydropower generation from the 1960’sonwards, Sri Lanka has now moved towards mini hydro and micro grid solar deployment. The latest discussion on renewable energy in Sri Lanka revolves around achieving 100% of the electricity requirement fromrenewable sources by 2050. This targetwas set at the 22ndConference of Parties(COP) of the United Nations FrameworkConvention on Climate Change (UNFCCC)held in Marrakesh, Morocco. According to the Renewable Energy Development PlanPhaseI(2019-2025),acomprehensivelistofprospectivepowerplantsistobeestablishedfrom2019to2025undersolarenergy,windenergy, biomass power and mini hydro power. In addition, the National EnergyPolicies and Strategies of Sri Lanka published on09thofAugust2019isbasedon10pillarswhich encompasses social, environmental and economic progress in terms of energy for Sri Lanka. The plan and the new policy havesimilarobjectives,ensuringapositiveoutcome in terms of clean energy, if both are properly implemented. However, the CeylonElectricityBoard(CEB)haspublishedthe draft long-term generation plan from2020to2039,whichproposestoincorporaterenewable energy alternatives, whilesimultaneously recognising the need for coal basedelectricitygenerationinthelongterminSriLanka,directlycontradictingtheplanstobe100%renewableby2050.The100%renewableenergyby2050scenariohasthepotential to save US$18-US$19 billion onimported coal in comparison with the base scenariowhichpredictsa continuedheavyuse of coal. Sri Lanka will need to mobilise capital investments of around US$ 5.0 billion tomeet the projected demand for power.“The estimated cumulative investment ofabout US$ 7.0 billion in the power sector

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fortheperiodupto2026willhavetocomefrom both the government, commercial banks, and the private sector, and tap both domestic and foreign sources of capital”.Clean energy is not equally accessible to all in Sri Lanka, which negatively impactsonSDG10i.e.inSriLankaover78%(2018)of households still usefirewood for stoveswhichissaidtohaveasignificantlygreaterhealthimplicationsthansmokingcigarettes.As for SDG 11, cities that are powered byrenewable energy will have reduced air pollution leading to positively impact SDG3aswell.Certainrenewableenergysourceshave detrimental environmental effects,especially major hydro power plants builton larger rivers, which alter both landscapes and water ways, thereby affecting wildlifepopulations(SDG15)andruralcommunities,thelatterofwhichdependontheseriversforasignificantportionoftheirsurvival.TheWasteToEnergyconceptanddiscussion isgrowing in Sri Lanka,where it is practisedat smaller scales around the country. This concept which aligns with the sustainable consumptionideasunderSDG12.

SDG 08: Promote sustained, inclusive and sustainable economic growth, full and productive employment and decent work for all

TheWorldBankhasdowngradedSriLankafromanuppermiddle-incomecountry(2019)to lower middle-income country (2020)due to thechanges inWorldBankcountryclassificationby income level.Even thoughSri Lanka graduated to an upper middle-income country in 2019, the Sri Lankaneconomy achieved a subdued growth of 2.3%in2019,comparedto3.3%in2018.TheGDPhasdecreasedcontinuouslyfrom2015to2019from5%to2.3%.Allmajorsectorshave positive statistics but displaymodestgrowthrates.Duetoanincreaseinextremeweather conditions, the agriculture sectorrecorded a growth of only 0.6% in 2019

compared to the growth of 6.5% in 2018.Meanwhile, the industry sector registered agrowthof2.7%in2019,comparedtothegrowthof1.2% inthepreviousyear. WiththeimpactoftheEasterSundayattacksontourismrelatedactivities,thegrowthoftheservices sector decelerated significantlyto 2.3% in 2019, compared to the growthof4.6%shown in2018.SriLankahad8.59millioneconomicallyactivelabourforce,and7.8millioneconomicallyinactivepopulationin 2019, in which 73.7% of the ‘inactive’sector were females. The percentage distributionoftheemployedpopulationbyenrolment status as an employee, employer and own account worker, with regards to maledistributionishigh.Atthesametime,a high level of females can be witnessed as contributing family workers amountingto 78.9%. The proportion of youthunemployment as a percentage of the total unemployment figure was 53% in 2018.Youth unemployment is the percentage of theunemployedpopulationintheagegroup15–24yearsandthatrateisthehighestforboth sexes, compared tootheragegroups(21.5%,male17.6%andfemale28.7%).EventhoughnationalvalueoftheGiniCoefficientof household income decreased to 0.45 in 2016from0.48(reflectedinthe‘HouseholdIncomeandExpenditureSurvey2016(HIES),there is a huge difference between theaverage monthly household income of the poorest20%andtherichest20%(Rs.14,843and Rs.158,072 respectively). Equitablegrowth policies focus on nationalisingforeign owned productive assets, landdevelopment, smallholder irrigationschemes and employment creation. Asper the National Policy for Decent Workin Sri Lanka, the goal of decent work is to promoteopportunitiesforwomenandmento obtain productive work in conditionsof freedom, equity, security and human dignity. The focus is not just the creationof jobs, but also the creation of jobs of

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THE POLICY CONTEXT

acceptable quality. However, this policy contradicts with the education policies intermsofjobcreationinacceptablequality.In terms of labour related laws, Sri Lankapossessesmultipleexamplesof legislation,which have been formulated, in order to protect the labour force, through ensuring a decent work culture (minimum wages, maternity leave, and child labour law etc). Inanalysingtheaforementionedlegislation,it must be noted that there are huge gaps concerning proper implementation, whichhas been further exacerbated by theprevailing COVID-19 situation. In addition,a large number of migrant workers are returning to Sri Lanka, resulting in anurgent need for the relevant policies and procedures to be enforced, which can createadecentworkculture/environmentfor such inbound communities. Pandemicsand other such disasters can have a highly significant impact on a country’s economyand climate change projections warn of afuturewithincreasedhazards,whichcouldpotentially have negative impacts on SDG8 in the subsequent decades. Even though there is an improvement in the agriculture sector, it has already been affected byabnormal,agriculturallyhazardousweatherconditions, directly impacting the nationaleconomy (SDG 13). Due to a lack of jobsecurity in the tourism industry, many impoverished people depending on it will experienceanincreaseintheirvulnerabilitywhen facedwithexternal shocks, resultingin increased poverty (SDG 1). The GDP which decreased from 5% to 2.3% from2015 to 2019 will affect the availabilityof state funds which are to be allocated towardsSDG4andSDG3.Theperformanceof this goal will directly affect SDG 10because even though country records the GiniCoefficientofhouseholdincome0.45in2016therearehugedisparitiesbetweenthehighest mean household income recorded in Western Province (Rs. 84,231) and the

lowest mean household income recorded in Eastern Province (Rs. 43,168) whilethe country average household income per month is Rs. 62,237 (2016). Also, thisSDG goal will interlink with SDG 16 peace and justice due to an apparent increasein youth unemployment in the north and east, a by-product of the Sri Lankan Civil War (1983 - 2009). The new governmentapproach pertains to a greater focus on self-production and manufacturing approachand with regard to this we can link this SDG withSDGs9,11and12.

SDG 09: Build resilient infrastructure, promote inclusive and sustainable industrialization and foster innovation

Industry,asasectorinSriLankaisratedasthe2ndhighestcontributortotheSriLankaneconomy,accountingfor27.6%ofthetotalemploymentin2019.However,thesuccessofSDG9willdependoninclusive,innovativeand sustainable industrial development, in conjunction with investment that ensuresgreater resilience of environmental, social and economic systems. The Government recognises SMEs as the backbone of the economyasitaccountsformorethan75%of the total number of enterprises, providing 45%oftheemployment,contributinginturnto 52% of the Gross Domestic Production(GDP). However, Sri Lanka has lagged. behind inthefieldsofscienceandtechnologyandhasnotcapitalisedonthesignificantglobaldemand for technologically advanced high-qualitysoftwareproducts.Thegovernmentbelieves that the economy needs a shifttowards innovative, knowledge-basedbusiness ventures. In order to advancetowards a diversified, high value, tradablesector growth process, a country must attract the right type of Foreign DirectInvestment (FDI) that brings in moderntechnology and managerial know-how while motivating domestic private investments.According to the Science, Technology &

32


Innovation Statistical Handbook of 2015,the lowest investment for Research andDevelopment (R&D) from the island’sGDPwas 0.1% in 2014 and it was the lowestinvestment towards R&D within the timeperiod from 1966 to 2015,with 2013 and2015specificallyrecordingamere0.11%.Asper theGlobalCompetitive Index2018,SriLanka ranks 110 out of 119 countries based on the percentage of R&D expenditureagainstGDP.ThefinancialresourcesforR&Dcomefromdifferentsources,including60%(which is derived from the Government), 34% from business enterprises, 2% fromforeignfinancesand4%fromothersources.When compared to government funds,foreign funds are much less. Internetconnections in Sri Lanka grew by 26.9%,andaccordingly,internetpenetrationstoodat 61.5% by the end of 2019. Sri Lanka’sIT/Business Process Outsourcing (BPO)industry has set its vision to achieve US$ 5 billion inexportsby2022whilegenerating200,000 jobs. The continuous progress intelecommunicationcanbeseeninSriLanka,with the mobile telephone penetrationstanding at 150.8% by end 2019. Thegovernmentcontinued itsactivities relatedto the construction of new roads i.e. therehabilitation of existing roads during2019 by the Road Development Authority(RDA),whichalso spentRs.55.5billiononexpressway development, Rs. 71.8 billiononhighwaydevelopmentandRs.9.4billionontheconstructionofbridgesandflyoversduring2019.Thepromotionofagro-basedindustry and the manufacture of finishedagricultural products needs greater priority in the Sri Lankan industrial policy. The government should foster environmentally friendly and sustainable industrial growth through the establishment of macroeconomic stability which would lead to lower inflation and interest rates. Eventhough the policy has provided directionsfor sustainable industrial development,

the major projects implemented underindustrial sectors have clashed with environment protection policies. Eventhough internetpenetration is recordedas61.5% and mobile phone penetration as150.8%,themajorityofthepopulationdoesnot utilise internet for productive uses;many in rural areas lack the knowledge on accessing internet through their smartphones to utilise it for their benefit.Such inequalities are still present and thevisionofgenerating200,000jobsby2022isagain focused predominately on the urban population, preventing such opportunitiesfromflowingintoruralareas(SDG10).Withthe required IT literacy not reaching ruralpopulations,theIT/BPOSectorcontinuestobedominatedbytheurbanpopulationanditdoesn’thaveapositiveimpactintermsofalleviating unemployment and poverty inruralareas,thusdirectlyimpactingonSDG1andSDG8.EducationalPoliciesaremovingtowards IT related innovations and (as anexample), subjects such as “Technology”,have been introduced as an A/L subject.This would be a future investment to match the industry sector, with the educationalsector catering to the requirements posed by the industry sector (SDG 4). The SME sector being the backbone of the Sri Lankan economy, contributes to 52% of the totalGDP and yet, it lacks critical support forinnovation, research and development.WithregardstoinnovationsinSriLankathetrend inpatentsregisteredacrossdifferentdisciplines in Sri Lanka showed an increasing trend from222 patents in 2014 to 263 by2015.However,incomparisonSriLankafallsfar behind other countries such as Malaysia and Philippines that registered 6,455 and 3,359 patents respectively in 2015,significantlyimpactingtheeconomicgrowthof the country (SDG 8). The Government proceeded with the construction of newroads and road rehabilitation, in orderto facilitate an efficient transportation

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THE POLICY CONTEXT

system. Unfortunately, this drive towards improving transportation has had directnegative environmental impacts especiallyduetothefailuretoincludeviableWildlifeCorridorsunderthenewlybuiltExpresswayNetwork.Thegovernmentshouldprioritisethe environment and overall sustainability when planning massive infrastructure developments.Themultipleandcumulativeimpacts associated with large scale development projects that are locatedwithin/intheimmediatevicinityecologicallysensitiveareaswhicharealso inhabitedbysocially marginalized groups has not beenaddressed in Sri Lanka. The industries in Sri Lanka should be accountable for externalimpacts incurred by industry activities.Sri Lanka must upgrade infrastructure and retrofit industries to make themsustainable with increased resource-use efficiencyandgreateradoptionofcleanandenvironmentally sound technologies and industrial processes, to be coherent with theclimateactionspecifiedinSDG13.

SDG 10 - Reduce inequality within and among countries

Even though Sri Lanka has achieved 0.45 Gini Coefficient in 2016 in comparisonto 0.48 in 2012/2013, the richest 20% ofthe population receives nearly 51% of theisland’s total household income,while thepoorest20%receiveamere5%,while themiddle 60% was receiving 44%, accordingto theHousehold IncomeandExpenditureSurvey2016.BasedonthesurveyconductedbytheDepartmentofCensusandStatistics(DCS), the average household income per month was Rs. 62,237 and the medianhousehold income per month in Sri Lanka reported as Rs. 43,511 in 2016. However,when it comes to the poorest 20%, themonthly average household income was Rs. 14,843 and it is far below the averagehousehold income per month calculated for Sri Lanka; with regard to the monthly

averagehousehold incomeof richest 20%,it amounts to Rs. 158,072which is higherthan theaverageRs.62,237. Furthermore,the changes in the average monthly household income per socio-economic group show that poorest income will change byroughly0.7%monthly,middleincomeby0.3%monthly and richestmonthly incomecan vary by 2.5%. This makes alleviatinginequality among these socio-economic groups difficult. There are a number ofsocial protection programs initiated bythe government to reduce the inequality within the country and 33% of Sri Lankanhouseholds are receiving the Samurdhi benefits. Furthermore, governmentexpenditure has increased from Rs. 39.2billionin2018toRs.44.7Billionin2019forthispovertyalleviationprogram,increasingthebeneficiaries’numberfrom1.4millionin2018to1.8millionin2019.Eventhoughthegovernment is spending large sums of money to alleviate poverty and reduce inequality in SriLanka,thenumberofbeneficiariesfortheabove-mentioned programs are increasingyear by year. Unfortunately, it is reported that some deserving families have never received these benefits. The Governmenthasimplementedsocialpoliciestoofferfreeeducationandhealth,whilesimultaneouslyintroducing different types of socialprotectionprograms to reduce inequalitiesacross the island. Despite such measures, inequality continues to exist throughoutthecountry,due to thecontradictionsandincoherence within policies as well as lack of proper implementation. The Sri LankanGovernmenthastakenanumberofactionstoalleviatepovertyamongthepopulation,yet huge income disparities are observedbetweentherichestandpoorest;impactingnegatively on SDG 1. The high inequalitydrives the increase in poverty, poverty pockets depict high inequality among the population.Withthissituationthecountryis not in a position to achieve the zero-

34


hunger goal (SDG 2) as well, because thetargets within these goals are interlinked with each other. In a country where therichest 20% consume 51% of the totalhousehold income, equal access to health (SDG3),education(SDG4)aswellaswater(SDG 6), energy (SDG7) and all resources, public utilities and opportunities across alltheSDGsbecomeimpossibleforamajorityofthepopulation.

SDG 11- Make cities and human settlements inclusive, safe, resilient and sustainable

SriLankahasareportedpopulationof21.6million people and the urbanisation in SriLankawasreportedas18.2%in2019bytheDCS.AccordingtoWorldBankdata,only3.9millionoutof21.2millionareofficiallylivingin urban areas and the estimated annualaveragerateofurbanisationis0.85%.Also,SriLanka was ranked as the 5th least urbanised outof233countries,accordingtotheUN’sWorldUrbanisationProspectsfor2018,withan 18.5% urban spread. The given figureis far below the global average of around 50% and it is the joint lowest urbanisedcountry in South Asia. However, a report by the Faculty of Architecture, Universityof Moratuwa in 2015 states that currenturbanisation rate could exceed 30% in SriLanka if the official administrative criteriaand definitions are changed. Accordingto the present criteria only those living in Municipal Council (MC) or Urban Council (UC) areas are considered urban. This may be misleading as some Pradeshiya Sabha or Local Council areas and many peripheral areas in Sri Lanka which are considered rural according to the classification usedfor administration purposes which havemany urban characteristics. Sri Lankafaces challenges in urban planning and design including environmental management, strategic city management, land and housing developments, as well as the management and maintenance of

infrastructure. Furthermore, limitationsin capacity, resourcesand functionsof theLocal Authorities delay the formulation and implementation of urban planning.Urban planning in the country faces difficulties with lack of data that has ledpolicymakers to allocate resources to urgent, short-term issues rather than towards the long term and progressive changes;while there is considerable informationon Colombo and the Western province,other cities lack detailed and compositeinformation. Sri Lanka experienced a hugeman-made disaster in April 2017 when ahuge garbage dump slid causing heavy loss of lives and property. This incident triggered a situationofconcernamongthegovernmentauthorities aswell as the public. Sri Lankagenerates 7000 Mt of solid waste per day out of which the Western province generates60%;AccordingtotheWasteManagementAuthority and the Central Environmental Authority, only half of this waste is collected. The National Strategy for Solid WasteManagement (NSSWM) has formulatedguidelines for effective management ofsolid waste. Wetlands, rivers and otherstreams have become dumping sites of waste material. According to the municipal and local government authorities thenon-separation of solid waste at the places oforigin, especially the household, is the core of the problem. Therefore, the community participationinthedisposalofsolidwasteisanimportantfactor.Noattentionhasbeenmade to the needs of the communities invulnerable situations; no facilities havebeen provided to the disabled and elderly persons to gain access to the railway carriagesandbuses.In2015,thetransportsector contributed to around 10% of GDPand generated about 6% of employment.However, the sector is responsible for more than half of the greenhouse gas emissions in Sri Lanka and contributes to more than 16%ofthe importbill (vehicleandfuel)of

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THE POLICY CONTEXT

the country. Meanwhile, a National PolicyonTransportisstillinadraftformatandhasbeensubmittedtotheCabinetforapprovalrecently(2020).Thedraftpolicypointsoutthat the present transport system in Sri Lankaneedssignificantimprovements.Lackofeffectiveintegrationofexistingtransportsystems, inefficiencies in public transit,para transit andprivate vehicle operationsand management, inadequate transport demand management interventions,capacity limitations in transport relatedinfrastructure, lack of stakeholder capacity, un-coordinated land use development and lack of policy directives to encourageefficiency improvements are the mainreasonsforthepresentstate;anothercaseof lackofpolicycoherenceand integrationin Sri Lanka.

SDG 12: Ensure sustainable consumption and production patterns

Sri Lanka is yet to show adequate progress towards achieving SDG 12. The domesticmaterial consumption was 107.4 millionmetrictonsasof2017,whichisasignificantincrease from the 89 million metric tons recorded in 2015. This increase inconsumption leads to daily solid wastegenerationofaround8,000MTto15,000MTwhere56.6%ofitisorganicmaterialwhichisbiodegradableintheshortterm,5.94%ofitisbiodegradableorganicmatterinthelongterm,andtherestofthe37.46%belongstopolytheneandplastic,glass,paper,wooden,metalandmore.Around86%ofSriLanka’swasteendsupinlandfill,ofwhichonly6%iscompostedand4%isrecycled.Eventhoughthe percentage recycled is very low, there has been an increase in recycling centres being developed around the country for plastic, paper, glass and even to managee-waste. Hazardous waste managementis still not properly implemented. EventhoughSriLankaisasignatorytotheBaselConvention, it has not been incorporated

into national legislation. Hence the majorcontroversial issue of the UK sending clinical hazardous waste containers to Sri Lankain 2019, sparked a wide outrage amongenvironmental activists and academicsas well. Similarly, the National WasteManagement Policy (since 2019) which isstill at the draft stage proposes to ensurethat Local Government Authorities (i.e.Provincial Councils) will ensure proper solid waste management in Sri Lanka, with the Central Environmental Authority (CEA) and Marine Environment Protection Authority(MEPA) being responsible for the overall enforcement of existing legislation onwaste management, across multiple eco -climaticzonesandassociatedhabitats.TheNationalPolicyonSustainableConsumption& Production (NPSCP) for Sri Lanka hasbeen effective since the 29October 2019.This policy was expected to ensure that acircular economy be promoted within the country with the private sector and local government. Policies related to sustainable consumption and production (SCP) shouldessentially ensure cleaner production,consumer awareness raising, product design for sustainability, sustainable labels, sustainable supply and chain management, sustainable procurement; but this is notthe case in Sri Lanka. The NPSCP, whilenot placing any significant emphasis onconsumerprotectionand consumer rights,simply focuses on consumer awareness while recognising consumers as key stakeholders in decision-making processes. Therefore, the Government must ensure that the NPSCP and the Consumer AffairsAuthority Act (No. 9 of 2003), should beintegrated to achieve SCP in Sri Lanka. Consumerprotection,fairtradeandcontrolof prices were managed by separate Acts until9thJan,2003whentheconsumeraffairsauthority act was passed by the parliament which established the Consumer AffairsAuthorityundertheMinistryofIndustryand

36


Commerce. This Act protects the interest of consumers, by safeguarding both consumer rights and traders from being subjectedto any injustice. Sri Lanka has not yeteffectively integrated SCP and sustainabledevelopment into the education system(SDG4)andneedstobeprioritisedinordertoinfluenceachangeinpublicbehaviouralpatterns towards consumerism. Moreover,unsustainable agricultural practices couldleadtolackoffoodsecurity(SDG2)andlanddegradation (SDG 15). Water quality (SDG6) can be improved by reducing pollution,eliminating dumping and minimisinghazardouschemicalsandmaterials,halvingthe proportion of untreated wastewaterand increasing recycling and reuse. Lack of proper waste management policies and proceduresaffectSDG6andSDG14 sinceall improperly managed waste ends up in the Indian Ocean. While ensuring policycoherence between consumer protectionand producer responsibility polices is essential, the investment in research anddevelopment(R&D),scienceandtechnology(S&T)andinnovationisacriticalfactor,buttheprevailinggapbetweenbothSriLanka’spolicy and business approaches, might keep theSCPadistantgoal,subsequentlycreatingimpacts across all other SDGs as well.

SDG 13 - Take urgent action to combat climate change and its impacts

Sri Lanka is slowly progressing towards climate action in terms of policydevelopment but is lagging behind on actual mitigation. TheClimateChangeSecretariat(CCS) was established following the signing andratifyingoftheParisAgreement.Sincethen,SriLankahaspublishedtheNDC’s,NAPand the National Communications. Priorto the CCS, the National Climate ChangePolicy was published in 2012 focusingon mitigation, adaptation, vulnerability,sustainable consumption and productionand knowledge management. The policy

also highlights the need for sustainable financial mechanisms to ensure effectiveimplementation of the policy in Sri Lanka.The need to act on climate change in Sri Lanka is highlighted through the Global Climate Risk IndexdevelopedbyGermanwatch, aninternationalorganisation,whichhas listedSri Lanka under the top 10 most affectedcountriesfrom2018to2020consecutively.Even though the ranking has moved between the top 10 ranks, it is apparent that Sri Lanka is facing the impacts of climate change both directly and significantly. An increasingnumber of deaths, combined with the displacement of people is being recorded islandwideduetoextremeweathereventssuch as droughts and floods. For instance,in 2019, 634,000peoplewere recorded tohave been affected by droughts, with theNorthernandEasternprovincesreportedlybeingthemostaffected.Inthesameyear,71,000 people were recorded as having beenaffectedbyheavy rains,floodingandlandslides throughout the island, resultingin a death toll that stood in excess of 360people (confirmed as having drowned asa result of the inclement weather). On average the healthcare costs associated with disastersinSriLankawereestimatedtobeinthevicinityof52.8millionUS$annually,with 70% of the aforementioned figurebeing attributed to costsborneas a resultofdroughtconditions.Furthermore,studiesconductedinSriLankaonclimaticfactorsthataffect the spreadof vector borne diseaseshavefoundpositivecorrelationbetweenthespread of dengue and climate change, with the year 2019 alone recording 90 denguefatalities,with such fatalities being part ofamuchgreaterfigurethatstoodat96,903reported dengue cases island wide. The Sri Lanka Post Disaster Needs Assessment(PDNA)2017reporthighlightsthatSriLankastill has inadequate earlywarning systemsin place and highlights the inadequacies of community preparedness. There is a

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THE POLICY CONTEXT

strongcorrelationbetweenclimatechangeand disasters, therefore when addressing climate change,disaster risk reductionhastobeprioritised.TheRoadmapforDisasterRisk Reduction states that by 2020, localDRRstrategiesshouldbeestablishedinlinewith the National Disaster ManagementPlan (Draft) 2018 to 2022. Educationplaysakeyroleinunderstatingimpactsofclimatechange and the new syllabus incorporates climate change into secondary educationunder the new syllabus from Grade 7 and above under different subjects, such asGeography, Health & Physical Education,Science and Technical Education. Poorland-use planning and utilisation havebeen highlighted in the most recent disastersfrom2016to2018;unstableriverbanks resulting from sand mining, loss ofnaturalbuffer zones,blockingdownstreamwaterways and construction in retentionareas have all contributed to the increased risks of flooding and landslides. By 2050,it expected that the GDP in Sri Lanka willexperienceadeclineof7.7%,correspondingto a loss of US$50 billion, and that 19 million people are currently inhabiting hotspotswhich will suffer severe impacts of thetemperaturechangeof1°-1.5°degrees.By2050, Colombo is projected to experiencea 7.5% decline in living standards. Climatechangehas thepotential ofmultiplying allother challenges and negatively impactingthe drive towards prosperity, and Sri Lanka would be well advised to ensure that all policies, strategies and programmes are coherentlyintegratingenvironmental,socialand economic dimensions to ensure greater resilience.

SDG 14 - Conserve and sustainably use the oceans, seas and marine resources for sustainable development

In 2016, South Asia including Sri Lankagenerated 26 million tonnes of plasticwasteintotheocean.Thissituationhasled

to the creation of a dead zone in the Bayof Bengal where oxygen levels have gonedown resulting in an enormous reductioninmarinelifewithinofBayofBengal.Evenwith adequate policies and regulations,according to Wall Street Journal and theUniversity of Georgia, Sri Lanka is ranked the 5thlargestplasticpolluterinoceanspheres.Sri Lanka’sannualplasticwastedisposal intheIndianOceanis1.6millionmetrictons.However according to the Ocean Health Index 2019, Sri Lanka hasmaintained 58%clean marine waters. Progress on the SDG 14.5 remains low, according to the WorldBank, with the total extent of theMarineProtected Areas (MPAs) remaining at 0.1%. This is far below the recommendedaverageof 10% forMarineProtectedArea(MPA) coverage. Furthermore, establishingcommunity managed coral nurseries and other marine nurseries could result in the expansionofMarineProtectedAreas(MPAs)in the country. Lesser progress is also shown for SDG 14.4, as 80% of fish stocks arereducedduetomicroplasticcontamination,unsustainable fishery practices andoverfishing; further surveys are requiredtogetanunderstandingofthecurrentfishstock for the next 5 years. Data collectionand monitoring process taking place from institutes such as Marine EnvironmentProtection Authority (MEPA) and NationalAquaticResourcesResearch&DevelopmentAgency (NARA) are only on some selectedindicators, but does not specifically focuson the SDG 14 monitoring mechanism. This leaves a wide gap in the review and follow-up ofSDG14aswellitsimpactsonthenationaleconomy, the marine ecology, as well as coastal community livelihood. The key legal framework structures for conservationand sustainable use of ocean and marine resources includes the Fauna and FloraProtection Ordinance (FFPO) of 1937 andthe Fisheries and Aquatic Resources Act (FARA) of 1996. Sri Lanka also introduced

38


a number of legal frameworks to address marine pollution and the unregulatedutilisation of coastal zones, namely theMarine Pollution Prevention Act (MPPA)No. 35 of 2008 and Coast Conservationand Coastal Resource Management(Amendment)Act(CCCRMA),No.57of2008.WithspecificreferencetointerlinkageswithotherSDGs,thecombinedlossoffishstocksdue tooverfishing and the impactsof IUUaffects SDG 12. Due to increase of oceanacidification and marine pollution fishstocks were reduced showing low progress droppingthenutritionallevelsoffishfoodsaffectingSDG2.Notachieving(SDG15.8.1)target will result in poor performance on 14.4, 14.5 and 14.1 reducing fish stocks.SDG 15.c.1 is directly linked to SDG 14.4 as the number of marine species not protected under the relevant legislation (refer FFPOSchedulesII,IV,VIandVIII).ImprovingR&Drelating to ocean sciences and sustainablefisheries(14.b),willhavedirectperformanceon SDG 9.5 for improvement of research.

SDG 15: Protect, restore and promote sustainable use of terrestrial ecosystems, sustainably manage forests, combat desertification, and halt and reverse land degradation and halt biodiversity loss

A total tree cover of 3,446,232 ha (2018)amountsto52%ofSriLanka’stotallandareaof6,628,110ha.Theforestcoverdefinitionin Sri Lanka under the current iteration oftheForestConservationOrdinance(No.65of 2009) states that ‘forest’ is not definedas tree cover but rather all the land that is under disposal of the state, including land that has been degraded and deforested;thisdefinitionvariessignificantlywithglobaldefinitions.Theprimaryforestcover,whichrefers to highly biodiverse and carbon-dense form of forest has now declined to around

17% as of 2018, which is amere 586,518ha,asreportedbyaninternationalwebsiteon verified forest data, titled Mongabay.According to the Nationally DeterminedContributions(NDCs)SriLankahasaforestcoverof29%andaimstoincreaseitto32%by 2030. But the problem associatedwiththisnationalgoalisthat29.6%isastatisticfrom 1996 which was obtained during the last official forest cover assessmentconducted in Sri Lanka using LANDSAT TMimageries.However,asof02July2020,theamendment/removal of the GovernmentCircularNo.05of2001wasapprovedbytheacting cabinet, and this would mean thatapproximately 700,000 ha of forest landunder the purview of the Department of ForestConservation(DFC)wouldbeavailablefor other land uses. Environmentalists have warned that this could result in the loss of small Other State Forest (OSF) patchesincluding much neededWildlife Corridors.Terrestrial Protected Areas (TPAs) hold the majority of the biodiversity of Sri Lanka’sfaunaandfloraand30%ofthelandareaintheislandhasbeenclassifiedasaProtectedArea(PA)undertheDepartmentofWildlifeConservation (DWC) and Department ofForest Conservation (DFC). The CEA underthe National environment Act (No. 47of 1980) has declared 10 Environmental ProtectionAreas(EPAs)aswell.Themajorityof the endemic species in Sri Lanka reside in the lowlandrainforestsbutonly9%of it isunderProtectedAreas(PAs).ForestswithinProtectedAreas(PAs)havebeensubjectedto severe degradation and deforestationand as of 2019, 23,000ha of forests havebeenlostordegradedaccordingtothe6NRonBiodiversityprofileofSriLanka.Multipleexamples of Human Wildlife Conflict(HWC) are rampant all over the countryespecially in places with high biodiversity, therefore without proper interventions

39

THE POLICY CONTEXT

by the responsible government entities,biodiversity loss cannot be halted. As of 14thFebruary2020,thenewwildlifetrademanagement system was released in Sri Lanka, developed by the UNCTAD andthe Convention on International Trade inEndangered Species of Wild Fauna andFlora (CITES) and it will assist Sri Lanka inmaintaining its wildlife trade by using an electronic permit system, the first in theworld. There is a draft National Policy onConservation and Management of WildElephantsinSriLankaasofFebruary,2019,it aims to protect the Wild Elephants inProtected Areas (PAs) and outside. Snares have been the leading cause of death for the Sri Lankan Leopard and over the last 10 years therehavebeen42 recordeddeathsof Leopards that died due to snares, which is illegal as stated by the Flora and FaunaProtection Ordinance (No. 22 of 2009).Achieving SDG 15 will ensure that the physical impacts from climate change (SDG 13)willbeminimalaspreservingforestswillensure the average temperature within the countrywillnotrisedramaticallyandactasa natural carbon sequester. Healthy forests ensure soil conservation which can limitthe damage fromdisasters such as floods,thereby achieving resilience to projectedclimate change impacts. Sustainable forest management, as called for in SDG 9, is currentlynotbeenpractisedinSriLankaasa significant percentage of the populationdepend on forest-based products in many ruralindustries;forexample,thevalidityofProtected Areas such as “Village Forests”.Sustainable forest management can also supply biomass as a renewable energy source (SDG 7), since rural Sri Lankans heavily depend onbiomass energy. To ensure the long-term survival of wilderness areas inSriLanka,theeducationsystematall levels need to highlight the importance

of both forest and wildlife conservation,somethingthat’sstilllackingatthecountrylevel,interlinking SDG 15 policies with SDG 4.

SDG 16 - Promote peaceful and inclusive societies for sustainable development, provide access to justice for all and build effective, accountable and inclusive institutions at all levels

Weak governance and a fragmentedinstitutional structure compromises SriLanka’s aspiration for peace, justice andinclusive prosperity. In short, gaps in therule of law, corruption, and the lack ofdemocratic freedom, amongst othersissues have continued to negativelyimpact the country’s standing in globalindices on governance standards. Such weaknesses are often reflected in policyunpredictability, weak public service delivery and bureaucratic red tape thatdeters investments and undermines public confidence. Sri Lanka’s ranks 93rd out of180 countries on the Global CorruptionPerceptions Index (CPI) 2019 with a scoreof 38 out of 100 and falls between aflawed democracy and a hybrid regime.The most common forms of corruptioninclude facilitationpaymentspaid to avoidbureaucratic red tape, bribe solicitationby government officials, nepotism andcronyism.Meanwhile,domesticviolence isprevalent in Sri Lanka where 17% of evermarried women (ages 15-49) reported the highest percentage of domestic violence(20%). District wise, the Kilinochchi andBatticaloa districts have the highest levelof domestic violence (50%) reported (DCS,2016). The number of incidents on childrelated violence has also increased, with independentreportsstatingthatbytheendof 2017, there were over 17,000 cases ofchildabusestalledattheAttorneyGeneral’s

40


(AG’s) Department, dating back as long astenyearsandthatthisfigureisbelievedtohaverisenover20,000byendof2018.Thisis taking place despite many policies, laws and regulations prevailing in the country e.g. theNational Child ProtectionAct, No.50 of 1998, the Prevention of DomesticViolenceAct,No.34of2005, theChildrenandYoungPersonsOrdinance,theNationalChild Protection Policy, and the NationalPolicy for Child Day Care Centres (Draft).Meanwhile, issues pertaining to nationalreconciliation remain to be settled withmoreconvincingactionthatshowcasesthecommitment to post war peace building. The United Nations Human Rights Council(UNHRC)continuestocallforthepromotionofreconciliation,accountability,andhumanrights inSriLanka,anotionalsobackedbysome local human rights organisations aswell. As a country now seeking for inclusive prosperity, Sri Lanka would reach a favourable position, by ensuring that measures aretakentoadvancereconciliationamongstallethnicandreligiouscommunitiesanddrawall of society to contribute and enjoy thecompletebenefitsofprosperitywithequalopportunity. Sri Lanka cannot be satisfiedwith its efforts on the implementation ofSDG 16 and needs to rethink its governance processes to be more inclusive, a properly integrated public institutional structure,a justicesystemthat is fairandtruetoall,all in the name of ensuring that no one is left behind in their resolve for nationalprosperity i.e. the failure of adequate attention to SDG 16 will create gaps infulfillingallothergoals.

SDG 17: Strengthen the means of implementation and revitalise the Global Partnership for Sustainable Development

SDGtarget17.1callstostrengthendomesticresource mobilisation, especially throughinternational support to developingcountries to improve domestic capacity

for tax and other revenue collection. Thisis an area which Sri Lankan authoritieshave failed to pay adequate attention.The country after five years into the 2030AgendacontinuestobewithoutastrategicplanfordomesticresourcemobilisationfortheSDGs.SriLanka’sGovernmentrevenueas a percentage of GDP shows a decreasing trend 12.2% in 2019, 13.37% in 2018 and14.1% in 2016. The share of domesticbudget fundedby domestic taxes has alsobeen steadily declining, having shown an increase in2015of12.38%, ithas levelledoff after 2016 at 12.29%. Sri Lanka hasbeen a recipient of Official DevelopmentAssistance (ODA), provided bilaterally or throughmultilateraldevelopmentagenciesfor decades. Sri Lanka received nearly US$ 1400 Million in disbursements in ODA in 2018,withJapan,China,ADBandtheWorldBank being the four main contributors.According to the World Bank, Sri Lanka’scentral government debt level is high at an estimated86.8%ofitsGDP.Asthecountryapproached upper middle-income status, (since then downgraded in 2020), it hasbeen borrowing on less concessional rates with increased cost and risk. Accordingly, the total Debt Service as percentage of GDPfromtheyears2016-2018was11.3%,11.9%, and 14.5% respectively. Assessinganappropriateleveloftaxburden(revenueintheformoftaxes)isacriticalelementoffiscalpolicywithimplicationsforeconomicgrowth. Sri Lanka fares badly in this indicator. The share of domestic budgetfundedbydomestictaxeshasbeensteadilydeclining and has levelled off after 2016,reachingonly13.37%in2018.Remittancesseem to have plateaued at about $ 7 billion and their growth has continued to exhibitaseculardownwardtrendsince2011.TheCentralBankofSriLanka,hasforecasteda15%declineinworkerremittancesfor2020.The Government must review its policy framework for foreign employment and

41

THE POLICY CONTEXT

implement measures to address the decline inremittances.SriLankawillneedtoattractsubstantially more FDI in order to fuelgrowth. Sri Lanka has granted preferentialtariff benefits to awide rangeof productsimported under the following trade agreements/arrangements:TheGeneralisedSystem of Preferences (GSP), the Indo–SriLanka Free Trade Agreement (ISFTA), thePakistan–SriLankaFreeTradeAgreement(PSFTA), the SAARC Preferential TradingArrangement(SAPTA),theSouthAsianFreeTrade Area (SAFTA) and the Asia PacificTrade Agreement (APTA). As a founding member of the GATT, Sri Lanka remains fullycommittedtotheWTObypursuinganoutward-orientedmultilateraltradesystem.As mentioned in media reports manyassociations of professionals in Sri Lanka,had the sentiment that the Economic andTechnologyCo-operationAgreement(ETCA)was unsafe. The country reiterated the need for a comprehensive trade policy before signing any such agreement. Similarly, the SriLanka-SingaporeFreeTradeAgreement(SLSFTA),waschallengedinSupremeCourt.AsofFebruary2020,theAttorneyGeneral’sDepartment informed the Supreme Court that the government has decided to review the SLSFTA signed during the previous

administration. The Sri Lanka-India FreeTradeAgreement(SLIFTA)alsodisplaysmanyissues,includingtheinitialpositivefactorstoSriLankawhichnolongerexist.InMay2017theEUgrantedSriLankabetteraccesstotheEUforitsexports.ItdidsoundertheEU’sGeneralised Scheme of Preferences Plus (GSP+).Asmuchas50%ofourtotalexportstotheEUutilisedtheGSP+facility in2018andoverall utilisationofGSP+preferenceshas increased marginally from 54.8% in2017to58.1% in2018.Theapparelsectoraccountsforover60%ofexportstotheEU.Asfor trade, theexperienceof countries thathave successfully used trade to achieve and sustain high rates of economic growth over a long period illustrates the high potentialpay-offs to the pursuit of a trade-orienteddevelopment strategy,which isnotexactlySri Lanka’s strength. In order to addresssystemic issues, the Government needs to pay serious attention to SDG17.14 andenhance Policy Coherence for Sustainable Development (PCSD). The information sofar shows that Sri Lanka has not taken such an approach and has not progressed in policy coherence, therefore compromising the successful achievement of the SDGs by 2030.

CHAPTER02:

THE LOCALISING CONTEXTAn Analysis of Governance Systems and Public Financing for Implementing the SDGs in Sri Lanka

45

THE LOCALISING CONTEXT

2.1. Introduction‘Leaving no one behind’ is the centralprincipleinthe2030AgendaforSustainableDevelopment, geared towards achieving the Sustainable Development Goals (SDGs) and transforming the world. So far, the promise of “leaving no one behind” has not beenpracticedeffectively inSriLanka,andStakeholders including local governments have not been engaged adequately at all levels for an inclusive transformation.Localising the SDGs entails taking into account the subnational context in theachievementofthe2030Agenda,fromthesettingofgoalsandtargets todeterminingthe means of implementation and usingindicators to measure and monitor progress. Localising the SDGs is a process which attemptstoempoweralllocalstakeholders,aimed at making sustainable development more responsive, and therefore, relevant to local needs and aspirations. The SDGscan be reached only if local actors fully participate,notonlyintheimplementation,but also in the agenda-setting, financing,implementation,monitoringandreview.

Subnational governments are critical inturning Agenda 2030 from a global visioninto a local reality. Local communitiesand stakeholders, who know individual and collective needs and capacities best,are critical partners in implementing andrealizingtheSDGs.Goingbeyondthedirectapplicationoftheglobalgoalsandtargetstothelocallevel,localisationisaboutadoptingtheSDGstofindsolutionstolocalchallengesandaspirationsthroughinnovationandco-creation with requisite capacity building.Theoverall challengeof transformationby2030toaddresssystemicissueswouldentailensuring means of implementation (MoI)including financing, trade, and technologyat local levels effectively; this becomes agreater challenge when subsidiarity is not facilitated by the centre. The relevance

of local governance and the success of localisingSDGswilldependonthedefiningof the global targets in terms of local indicators. Inotherwords,theglobalgoalswill needs to be translated into local goals, and local indicators needs to be developed. Therefore, local sustainability plans and strategies will be most important if localising the SDGs is to be relevant, meaningful and successful.

In the context of mobilizing domesticresources for theSDGs,firstandforemost,theprioritymustbetoestablishanationalcontext on the applicationof theprincipleof subsidiarity and an agreement on the decentralization of governance, publicservice delivery, public finance, andstakeholder engagement. The call for a whole of government approach in implementingthe SDGs would mean that an integrated public delivery system is facilitated across the three tiers of government; national,provincial and local. The policy and programmecontext for localising theSDGsinSriLankaneedstobedefinedbyaunitarythough multilevel system of governmentin Sri Lanka. An analysis of multi-levelgovernance systems and public financingin Sri Lanka would provide critical insightinto the context of localising the SDGs and towards the mobilisation of domesticresources.

2.2. The Multilevel Governance System and Localising SDGs

The context for localising the SDGs in SriLanka isprovidedby themultilevel systemof government and the ensuing system of intergovernmental relations betweenthe three levels of government; national,provincial and local, as established by the 13th Amendment to the Constitution.However, the constitutional assignment ofpowers and functions of the three levels

46


has not led to any reordering of the service delivery responsibilities of the national visa vis, the provincial and the local in terms ofsubsidiarity.Therealityofconstitutionalreform was in effect to superimpose amiddle tier of government in the form ofProvincialCouncilswithintheexisting(PostIndependent)systemofthecentreworkingthrough a network of de-concentrated territorial administration and a system oflocally elected councils. The fundamental issue of localization is fragmentation insystems, structures and processes of planning and budgeting across sectors ofservice delivery and levels of government. It violates the fundamental principle ofsustainability, that of the indivisibility of the economic, social and environmental, intrinsic to the state of human wellbeing, especiallyofthoseleftbehind.

2.2.1. The Multilevel System of Government and Governance

Thesystemofinter-governmentalrelations,is constitutionally defined by the 13thAmendment, establishing the Provincial level ofGovernmentwhile recognizing thepowers and functions of the extant LocalGovernment, has been centre-driven. The centre defines public policy and developsprograms reaching out to the provincial and local levels of government. On the one hand,constitutionalreformforestablishingProvincial Councils did not change the primacy of the Central Government in relation to public finance, leaving theprovincialandlocalgovernmentsfinanciallydependent on the centre. On the other hand, the constitutional assignment ofsubjects and functions reserved “nationalpolicy” on all subjects and functions as aresponsibility of the centre. Thus, the service delivery roles of the provincial and local levelsaredefinedcentrallythroughnationalpolicy, constraining the program space

available to the provincial and local levels of government for localising service delivery to address local needs is constrained. The net effectoftheconstitutionalchangesandtheensuing administrative systems has beento create a fragmented policy and program contextforlocalisingtheSDGs,drivenbyanoutputratherthananoutcomeorientationin service delivery.

Some of the pertinent questions to beasked include; despite limited financialresources and little autonomy, how canlocal governments make decentralisationwork for inclusive local development? How canlocalgovernmentsengagewithnationalgovernments, civil society and the private sector in order to localise the SDGs? And, finally how to overcome challenges suchas inefficiencies in public expenditures,lack of clear fiscal regulatory policies, andthe transfer of functions from national tosubnationallevel.

2.2.2. The Subnational Intergovernmental System

The system of subnational governance isfragmented between the set of nationallevel de-concentrated structures at the district and divisional levels, and the set of devolved structures at the provincial and local levels.

The de-concentrated delivery system is defined by three operational levels,the District, the Division and the Village (Grama), where officials of CentralGovernment entities engage in carryingoutprogramtasks,takingspecifiedservicesto people. Each such service provider fields ahierarchyof officials at thedistrictand divisional levels, exercising delegatedresponsibility, but performing within a set of local relationships. A system of inter-agencyrelationshipshasevolvedovertimeat the District and Divisional levels. These

47


Figure 01: Structure of Government Administration in Sri Lanka

Parliament President

Cabinet of Ministries

Ministries/ Departments/ Public Coopera�ons

MoF MoHA Line Ministries MOLGPC

District Secretary

Divisional Secretary

Grama Niladhari

Offices

Offices

Governor Provincial Council

Chief Ministry/ Board of Ministers

Chief Secretary/ Provincial Ministeries /En��es

Divisional Level Officers

District Level Officers

Community Based Organiza�ons/ Civil Society Organiza�ons

Local Governance Ins�tu�ons

Na�onal

Provincial

Local

District

Divisional

MCs UCs PSs

sets of relationships are defined by fivesets of roles and functions. They includeagency delegation, inter-agency functionalrelations, planning and monitoring ofdevelopment activities, linkages betweennational policy and local implementation,and linkages with the devolved structures of provincialcouncilsandlocalauthorities.TheDistrictisattheapexofthede-concentratedspatialscales, linkingcentralandprovincialpolicy and programmes with Divisional level implementation. The Division functions astheprimaryunitofadministrativeoperationsfor all central and most provincial service deliveries. The Division brings together the political, administrative and non-government actors in local level decision making,therebymakingitthecriticalplayerin the local service delivery system.

The Provincial Council constitutes theapex of the subnational spatial scale. Itholds legislative; executive, fiscal and

administrative responsibilities in respectof subjects assigned to the ProvincialCouncil, under the Provincial List. The Provincial Councils Act No 42 of 1987provides every PC with a Provincial Public Service. Powers of appointment, transfer, dismissal and disciplinary control are vested with theGovernor of the Province. It alsovests budgetary competencies around a Provincial Fund established in respect ofeach PC. These constitutional and legalpowers establish PCs as competent service providerswithintherespectiveprovince.

This system of Local Government administration is comprised of electedMunicipal Councils, Urban Councils and Pradeshiya Sabhas, which derive their powersfromtherespectiveOrdinancesandActs.Alllocalauthoritiesare,“chargedwiththe regulation, control and administrationof all matters relating to health, publicutilityservicesandpublicthoroughfaresand

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generallywiththeprotectionandpromotionof the comfort, convenience and welfare of thepeopleandallamenities”.

2.2.3. The System Context for Localizing SDGs

The subnational system of governancebrings together two sets of service providers thataredistinctintermsoftheirpowersandfunctions, creating an uneasy co-existenceof the de-concentrated (Secretariats at the District and Divisional level which are agents of the Central Government) and the devolved structures and systems of governance(ProvincialcouncilsandLAs).Itundermines subsidiarity in so far as the de-concentrated delivery system is accountable to the centre while the devolved delivery systems are accountable to their electoral constituencies. Further, the systems,structures and processes for planning and budgeting are fragmented verticallybetweennational,provincialandlocallevelsof service delivery, and overlap sectorally. Both tiers being involved in services andplanning, confuses the public and increase opportunities for wasteful duplication inservice delivery.

This vertical fragmentation results inthe parallel presence of agency-based service delivery programmes that are independently planned and budgeted though interdependent in terms of delivering development outcomes and human well-being. It undermines theindivisibility of economic, social and environmental dimensions of sustainable development.While the SDGs provides anoutcome framework for integrated planning and budgeting, it should be groundedon an enabling governance framework for coherence and cohesion between de-concentrated and devolved service deliveries,verticallyandhorizontally.

Itisnoted,thatsofar,thenationallevelhasnot demonstrated any movement towards policy and programme integration thatwould allow prioritizing the financing ofservice delivery for development outcomes. The national level policy and programmedisconnects in planning and budgeting,translating into fragmentation at thesubnational level, in systems, structuresand processes for planning and financingthetargetingofservicedeliverytomeettheSDG outcomes of “leaving no one behind”.

2.2.4. The Status of Decentralised Implementation of SDGs:

Localising the SDGs involves translatingthe SDG targets into local development priorities in a manner that makes themrelevant to local development needs, for implementation through the subnationalservice delivery system. The subnationalsystem of governance does not provide a policyofprogramspacefor translatingtheSDG targets into subnational developmentpriorities.

i. A fundamental issue is the fragmentation, both vertically and

horizontally, of the policy andprogram space between the differentmultilevel sets of service providers.Such fragmentation has limited theintegration of service deliveries intargetingoutcomes.

ii. Vertical fragmentation followingthe establishment of a third tier ofgovernment at the provincial level, arising from the failure to reorder intergovernmental service delivery roles andresponsibilities,whichunderminessubsidiarityintheallocationofsubjectsand functions between the national,provincial and local levels.

iii. The fragmentationof serviceprovisionbetween agency-based service

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deliveries restricts the focus on results to specific sectoral and often sub-sectoral outputs. The approach to dealing with sectoral/sub-sectoralfragmentation has been coordination,a carry-over of pre-multilevel,district-based agency coordinationto post-multilevel negotiation ofintergovernmental relations betweenboth the deconcentrated and devolved systems of governance.

iv. The ensuing policy/program lacunain the working of the multilevelsubnational governance systemconfining service delivery of all levelsto an output rather than an outcome orientation.Itpreventsthesubnationalservice delivery system from engaging with complex development needs thatincludemultipleproblems.

v. This situation has resulted in a focuson “projects” to the neglect of the“service” for which such spending must contribute. In fact, planning is annualand implemented with a short-term focus that cannot take into account producing outcomes.

vi. Subnational governance system isdefined by a primacy of the publicsector. There is a significant absenceof partnerships with the private and non-government sectors as well as engagement with civil society in the workingofthesubnationalgovernancesystem, de-concentrated or devolved.

2.3. The Public Financing System and Localising the SDGs

Sri Lanka is yet to move from budgetary frameworks(whetheratnational,provincialor local levels) for funding expendituresto financing frameworks, for investing ondevelopment infrastructure. On the one hand, initiatives to align planning with

budgeting have introduced Medium-TermExpenditure Frameworks (MTEF) into thenational budget format. The notion ofMTEFs is yet tobeattempted inprovincialand local level budgeting. On the otherhand, Sri Lanka’s funding of expendituresdistinguishes between recurrent andcapital expenditure, thereby making for ashort-term output orientation, whetherof services (recurrent) or infrastructure (capital). In fact, what is needed is anintegrated focus,acombinationof fundingandfinancingintandemtoaddressservicedelivery and infrastructure development in order to close the gaps in development outcomes. A strong underlying funding framework is foundational in order togenerate the monies required to provide immediate services while also generatinga surplus which can be used to leverage upfront investment financing for neededcapital development infrastructure.

Current public sector expenditureframeworks do not provide for such integrated funding-financing ofdevelopment outcomes. It is within sucha funding format that the financing of theSDGsistobeaddressed.Furthermore,fromanSDGimplementationperspective,publicsector expenditure frameworks groundedon intergovernmental fiscal frameworksshouldbeanintegratedprocess;internally,expenditures being focussed on outcomesand externally involving a whole ofgovernment approach. The design of multilevel expenditure frameworks forimplementation of the SDGs would thenrequire addressing the issues of aligning the implementation imperatives of the 2030agenda with the policy and practice onbudgeting.

The 13th Amendment to the Constitutionsets the multilevel fiscal framework ofpowers and responsibilities in respect ofpublic finance and budgeting, exercised

50


by Parliament at the national level,Provincial Councils at the provincial level and Local Authorities at the local level.ThreelistsundertheNinthScheduletotheConstitutiondemarcatestheassignmentofsubjectsandfunctionsbetweentheCentre(Reserved) and the Provincial (Provincial)and a shared area (Concurrent) definingexpenditure responsibilities of the Centreand the Provinces. The 13th Amendmentguaranteedtheextantpowersandfunctionof the local sphere, Municipal Councils, Urban Councils and Pradeshiya Sabhas, thus retaining their expenditure role andresponsibilities.

The sections will review the budgetprocesses and expenditure frameworksat national, provincial and local levels andissuesandimplicationsforfinancingSDGs.

2.3.1. National Level Financing

According to theUnitedNations SecretaryGenerals ‘Roadmap forFinancing the2030Agenda for Sustainable Development’,it is vital to increase domestic resourcemobilizationandenhancethecomposition,effectiveness and efficiency of publicspending.Therefore,thecontextofnationalpublicfinancingwilldeterminetheeffectivelocalising of the SDGs.

A. Public Finance Context and Budgeting Framework:

The public expenditure system of thecountry, functions under the purview of“parliamentary control” in termsofArticle148oftheConstitution,inwhichitisstatedthat “Parliament shall have full control over public finance”. Operationalizationof public finance is organized arounda “Consolidated Fund”, into which allfunds not allocated by law for a specificpurpose are paid into. Such funds include

the acquisition of all taxes, imposts, ratesand duties and all other revenues andreceiptsnotallocatedtoaspecificpurpose.On approval by Parliament through the AppropriationActofthespecifiedpurposesfor which funds are required, withdrawal can take place under the authority of a warrant issuedby theMinisterof Finance.Such parliamentary approval of funds is operationalizedthroughanannual“nationalbudget” process. The national budgetingprocess is put into operation through a“budget call” , setting out guidelines anddirections for the preparation of “AnnualBudget Estimates”. The annual budget isset within the framework of a “Medium TermBudgetary Framework”, a forecast offinancialprovisionsforthesubsequenttwoyears.

The Annual Budget provides for funds tobe transferred to Provinces in terms of Article 154R of the Constitution; in whichit is stated that “the Government shall, on therecommendationof,andinconsultationwith, the Finance Commission, allocatefrom the Annual Budget, such funds areadequate for the purpose of meeting theneedsoftheProvinces”.Itisalsomandatedto recommend the principles on the basis of which such funds should be allocated proportionately between the provinces.The assessment of provincial needs, both recurrent and capital takes place as an assessmentthatisdistinctfromthatwhichtakes place for the national level. Whilesuch sums of monies may be transferred to provinces (as would be provided for in the Annual Budget), there is no coordinationbetween the two processes even though therewouldbenationalandprovincial,andperhaps local spending in the same sector.

B. Budget Call:

The National Budget Circular No. 04/2018defines the spending parameters for the

51


2019 Budget around the following broadareas of guidance.

a. The macro-economic framework that will guide fiscal projections in budgetpreparation. It sets the parameterswithinwhichtherecurrentexpenditureisrationalisedandcapitalexpenditureisprioritised.Theparametersare:

i. Government revenue at 17% ofGDP

ii. Governmentrecurrentexpenditureat15%ofGDP

iii. Government public investment at 5.5%ofGDP

iv. Budgetdeficitat3.5%ofGDPv. Outstanding government debt to

bemaintainedataround70%GDP.

b. Performance-based Budgeting and Key Performance Indicators that seek

to ensure the overall efficiency of theperformance of funds provided for different spending purposes. The 2019budget adopts a Performance-based Budgeting approach which allocateson the basis of “achieving specificallydefined measurable outcomes”. TheBudget Call requires that resourceallocations linked to Key PerformanceIndicatorsallowingthemeasurementofnotonlyefficiencybutalsoeffectivenessofestimatedspendingestimates.

c. Capital expenditure utilization concerns efficiency of performance oncapital expenditure projects which isestimated to approximately 30% lessthan budgeted on an average.

d. Policies of resource allocation provides for key development thrusts for which funding should be provided. These include, Health, Education andEconomic Infrastructure. Additionally,two local level investment programs are identified,GamperaliyaandGrama

Shakthi for making adequate financialprovisions.

e. Achieving the sustainable development goals notes the importance of aligning of the SDGs into development programs of the Spending Agencies and directs the Spending Agencies to mainstream the SDG Goals within current and future development activities whilesimultaneously ensuring that sufficientallocationshavebeenmadetoachievethe set targets.

f. Equal distribution for all Districts seeks to ensure “equal distribution”of resources for all 25 Districts and toprovide District-wise distribution offinancialestimates.

C. Preparation of Estimates:

TheBudgetCallsetsouttheprocedureforthepreparationofestimatesofexpenditureby the Spending Agencies. The following guidelines are noteworthy.

a. Preparationofbudgetestimateswithinthe ceilings.

b. Estimates should includebothongoingaswellasgovernmentpriorityprojects.

c. Phaseoutthetotalcostofprojectsoverthe implementationperiodwheretheyextendoveraone-yearduration.

Notably, the Budget Call 2019 does notprovide any guidelines on the actual estimation of both quantity and qualityof outputs, as well as the ensuing costs of service delivery by Spending Agencies. In this regard three items from theguidelinesstatedintheprevioussectionarenoteworthy. These are,

a. Performance-based budgeting and KeyPerformanceIndicators,

b. Achieving the sustainable development goals, and

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c.EqualdistributionforallDistricts.

Takentogether,thesebudgetingparametershavefundamental implicationsfordefiningservice deliveries in terms of outcomes, as requiredbyperformance-basedbudgeting,as required for aligning outputs with the SDG targets and as required for allocatinginter-district distribution of respectiveservice deliveries. While such budgetingparameters set out in 2019 Budget CallrequireanoutcomefocusinthepreparationofestimatesofexpenditurebytheSpendingAgencies, the reality of the budgetingexercise is brought to the fore by thefollowing call to attentionof the SpendingAgencies in theirpreparationofestimates,tothereleaseoffunds–apurelyaccountingconcern. Thus, the Budget Call guidelineson“BudgetaryAllocations for2019”, state,“General Treasury cash releases will be linked to the reported commitments and liabilities. Hence all Secretaries and Headsof Departments will have to update their commitmentsand liabilitiestotheGeneralTreasury on a regular basis”, which would minimize delays in cash releases. Theabove parameters for the preparation ofestimates suggests an accounting ratherthan a programme framework, where the focus ismoreon expenditure control thanpolicy outcomes. The linkage between the outcome framework and the expenditureclassification that is drawn out in theguidelines is tenuous, if at all. As will be seen,thisiscarriedintothepresentationofestimates.

There are several gaps in the practice of“Guidelines for the Preparation of theAnnual Budget Estimates”, set out in theBudgetCallfor2019.

a. The expectation of “achieving specifically defined measurableoutcomes” for the allocation ofresources within a performance-based

budgeting system is not demonstratedby the information set out in thestatementof“MajorProjects,KPIsandMajorTargetsoftherelevantSDGs”asa preamble to the estimates of eachSubject Ministry. The informationpresented therein remains at the level of outputs with respect to the capital expenditureprojectsoftheMinistries.

b. Mainstreaming the SDGs within current and future development activities,towards ensuring that sufficientallocationsaremadetoachievethesettargets,isonlyinrespectofmajorcapitalexpenditureprojects.Thisisdespitetheformat provided for the purpose in the Budget Call, which sought informationon alignment in both recurrent and capital expenditure. It leaves out thesubstantive area of funded servicedelivery. Further, allocating funds toachieve the SDG targets goes beyond sectoral agency-based budgets, both in termsoffragmentationacrossagenciesas well as between levels of government.

There is no evidence of district-based identification of spending to provide forthe equal distribution of funding betweendistricts.Itisnotedthatthenotionofequaldistributionof fundsdoesnot coherewiththeprinciples laidout inArticle154R(5)oftheConstitution,whichguidestheFinanceCommissionintheapportionmentbetweenprovinces of funds allocated to meet the needs of the Provinces.

2.3.2. Provincial Level Financing

The constitutional mandate for theprovincial provision of public services establishes a provincial fiscal andfinancial framework for financing suchservices. It is comprised of expenditureand revenue assignments as specified inthe Provincial List of the Ninth Schedule

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to the Constitution. The subjects andfunctions assigned to Provinces constitutethe expenditure assignment arising fromthe service delivery responsibilities ofsuch subjects and functions. The revenueassignment of provincial councils comprises items of revenue that provincial councils are competent to levy. In addition, thefiscalandfinancial frameworkprovides fortheallocationof funds fromGovernment’sAnnual Budget, on the recommendationof and in consultation with the FinanceCommission.

A. Expenditure and Revenue Assignment:

On paper, the subjects and functionsassignedtotheProvincesconstituteawidearray of service provision responsibilities.However,inpracticethisisseverelylimitedby the very constitutional provisions thatallow the Centre to engage in areas of provincial competence. Thus, nationalpolicy beingmade a reserved subject, themodalitiesfordetermininghowconcurrentpowers are exercised in practice (and theearly judicial interpretationsof thepowersof the Provinces in the reading of the three lists) have all made for a large central presence in areas of provincial service provision competence.

The Provinces are assigned a large number of items of revenue as per item36 of theProvincial List. However, despite the large number of revenue sources, the provincial taxbase isminiscule. It isnoteworthy thatthe sources with any significant potentialsuch as turnover taxes on wholesale andretail sales, motor vehicle license fees, and taxes on mineral rights are within suchlimitsandexemptionsasmaybeprescribedby Parliamentary Law. Further taxes onland and buildings including the property of the State and any other taxes withina province in order to raise revenue for

provincial purposes are only to an extentpermitted by Parliament. Thus, Provincescannot act on the revenue powers assigned by the Constitution without the approvalof Parliament.At the sametimeprovincescannot introduce any new revenue measures.

The operational basis of the revenueassignmentwas radically changed in2011,when the levy of the Business TurnoverTax by Provincial Councils was suppressedthrough Government budget proposals. The ensuing loss in revenue on the part of provincial councils was made good by the introduction of “special revenue sharingsystem”throughtransferofspecifiedsharesofthreenationalleveltaxes.

B. Allocation of Funds from the Annual Budget:

The revenue-expenditure assignmentresults in a large gap between revenue and expenditure. The gap is addressedthrough the allocation of funds annuallyfromthegovernment’sannualbudget.Suchallocations areprovidedunder three grantitems.

a. Block Grant: An un-conditional blocktransfer to meet the assessed recurrent expenditure needs of the Provinces.The need is estimated on the basis ofthe gap between the assessed recurrent expenditure for the Financial Year andtherevenuecollectiontargetsetfortheyear.

b. Criteria-based Grant:Anunconditionalblock grant for development expenditures of the Provinces. Theprovincialindexiscalculatedonthebasisofasetofindicatorsreflectingpercapitaincome and socio-economic disparitiesintandemwiththepopulationofeachProvince.

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c. Province-Specific Development Grant: A conditional grant to finance an

infrastructure development programme within specified areas of provincialservices.

TheschemefortheallocationofFundsfromtheAnnualBudgetfollowsaprocedure.

a. Assessing the needs of the Provinces through the Finance Commission.This is captured in the ‘Guideline for Annual Provincial Capital ExpenditureNeeds 2021, released by the FinanceCommission’.

b. The recommendation and consultationof the Finance Commission with theGovernmentforthedeterminationandallocation of funds from the AnnualBudget.

c. Apportionment of such fundsbetween the Provinces by the FinanceCommission.Inthisregard,theFinanceCommission is required by the following principlesforapportionmentsetoutinArticle154R(5)oftheConstitution.

i. thepopulationofeachprovince;ii. the per capita income of each

province;iii. the need, progressively, to reduce

social and economic disparities;and

iv. the need progressively to reduce the differences between the percapita income of each Province and the highest per capita income among the Provinces.

a. Overall shares of revenue and grants is 31.4%:68.6%. The Provinces are thusdependent on allocations from theAnnualBudget. The dependence ranges fromthelowestinWesternProvinceat73.4%:26.6% to theNorthern Provincewith a revenue to grant ratio of14.4%:85.6%.

b. Infiveof theprovincesgrantsaccountfor more than 80% of all provincialfinance.

It is significant to note that the grants arewithintheallocationfundsfromtheAnnual

Province Revenue Total reve-nue

% Grants Total Grants

% Total Finance

%

Devolved % Trans-fers

% Block Grants

% PSDG % CBG %

Western 7,909 17.8 36,588 82.2 44,497 73.4 15,091 93.8 900 5.6 100 0.6 16,091 26.6 60,588 100

Central 1,757 23.8 5,625 76.2 7,382 22.5 23,320 91.7 1,900 7.5 200 0.8 25,420 77.5 32,802 100

Southern 1,865 22.8 6,307 77.2 8,172 25.4 21,033 87.7 2,544 10.6 400 1.7 23,977 74.6 32,149 100

Northern 1,306 36.4 2,278 63.6 3,584 14.4 17,078 80.2 3,637 17.1 589 2.8 21,304 85.6 24,888 100

NorthWestern 1,859 23.0 6,233 77.0 8,092 24.7 21,866 88.8 2,365 9.6 400 1.6 24,631 75.3 32,723 100

NorthCentral 1,144 29.9 2,677 70.1 3,821 18.6 13,828 82.9 2,560 15.3 300 1.8 16,688 81.4 20,509 100

Uva 890 25.5 2,598 74.5 3,488 15.6 16,115 85.5 2,410 12.8 315 1.7 18,840 84.4 22,328 100

Sabaragamuwa 1,251 29.5 2,990 70.5 4,241 16.3 19,350 89.0 1,965 9.0 431 2.0 21,746 83.7 25,987 100

Eastern 868 23.5 2,831 76.5 3,699 14.7 18,668 87.2 2,352 10.5 500 2.3 21,420 85.3 25,119 100

Total 18,849 21.7 68,127 78.3 86,976 31.4 166,349 87.5 20,533 10.8 3,235 1.7 190,117 68.6 277,093 100

Table 01: Financing of Provinces: Inter - Provincial Shares 2017

Source: Compiled from data from Provincial Councils

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Budgetwherebothnationalandprovincialspending needs would be competing foravailable resources.

D. Budgetary Competence of Provincial Councils:

The Provincial Councils are competent spendingauthoritiesandhencehavetaxingand spending powers. The powers vested with the Provincial Councils under the Constitution are given procedural effectthrough theProvincialCouncilsActNo.42 of1987.Itestablished,foreveryProvince,aProvincialFund,intowhicharepaid;

a. theproceedsofalltaxesimposedbytheProvincialcouncil;

b. the proceeds of all grants made to such Provincial Councils in respect of the Province, by the Government of Sri Lanka;

c. the proceeds of all loans advanced to the Provincial Councils from the ConsolidatedFundofSriLanka;and

d. all other receipts of the Provincial Council.

The Provincial Fund provides for thespending autonomy of the Provinces. The withdrawal of monies from the Provincial FundisthroughawarrantsignedbytheChiefMinister of the Province. Such a withdrawal is on the basis of such sums having been grantedforspecifiedservicesbyaFinancialStatute passed by the Provincial Council. An “Annual Financial Statement”, must beprepared and laid before the Provincial Council by the Governor of the Province, layingout theestimatesof expenditure soas to be approved by the Provincial Council fortheensuingfinancialyear.

E. Provincial Budgeting Process:

Theprovincialbudgetingprocessistriggeredby the “Guidelines for the Assessment of RecurrentExpenditureNeedsofProvinces”

issued by the Finance Commission.The Guidelines issued by the FinanceCommissionsetoutdetailedinstructionsforthe preparationofestimatesoftherecurrentexpenditureneedsofProvinces.TheFinanceCommission calls for capital expenditureneeds separately. The Provinces estimatecapital expenditure needs in respect tofundsprovidedundertheProvinceSpecificDevelopment Grant, for investment in infrastructure development in respect of twenty-two Sectors. The identification ofinvestments needs is required to take place within a provincial Multi Sectoral ResultsFramework. The infrastructure needs arepositioned within a planning frameworkconstituting a hierarchy of results at fourlevels of disaggregation, moving fromComponents, through Sub-components and Broad Activity Areas, to Specific Activities.Thisexerciseisundertakeninrespectoftheupcomingfiscalyear.

F. Provincial Recurrent Expenditure:

The subject categories of provincialrecurrent expenditure demonstrate thescope and pattern of provincial spendingprioritiesintheprovisionofdevolvedpublicservices.

Table02setsoutthechangesinthepatternof recurrent expenditure between 2004and 2017. Social infrastructure (primarilyhealthandeducation)dominatesprovincialspending. The share of economic services comprising of economic infrastructure, agriculture and industry has been marginal. The share of community services includes grants to local governments forsupportingrecurrent expenditures concerning staffsalaries and wages.

G. Provincial Capital Expenditure:

The main source of funds for capital expenditure is the Province SpecificDevelopment Grant.

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Subject 2004 % 2009 % 2017 %Provincial Establishment 1,234 2.78 6890 6.18 20,492 8.5

ProvincialAdministration 491 1.11 - - - -

EconomicInfrastructure 915 2.06 1827 1.64 4,371 1.8

SocialInfrastructure(primarilyhealthandeducation)

36,910 83.05 87116 78.25 186,027 77.1

Community Services 3,782 8.51 12826 11.53 24,105 10.0

Agriculture 747 1.68 2004 1.8 5,021 2.1

Industry 363 0.82 672 0.6 1,322 0.5

Total 44,442 100 111,335 100 241,338 100

Table 02: Provincial Recurrent Expenditure by Subject Categories – 2004/2017

Source: Finance Commission and Ministry of Provincial Councils

Source: Finance Commission and Ministry of Provincial Councils

Object Category 2004 % 2009 % 2017 %Personal EmolumentsSalariesandWages 27,202 61.2 64,552 58.0 109,344 45.3OvertimeandHolidayPay 869 2.0 3,786 3.4 11,235 4.7Other Allowances 7,936 17.9 18,208 16.4 66,787 27.7Total Personal Emoluments 36,007 81.0 86,546 77.7 187,366 77.6OtherRecurrentExpendituresTravelling 557 1.3 922 0.8 1,530 0.6Supplies 1,509 3.4 2,722 2.4 4,621 1.9Maintenance 1,041 2.3 3,021 2.7 4,835 2.0Contractual Services 1,147 2.6 2,259 2.0 5,281 2.2Transfers 2,307 5.2 15,104 13.6 36,252 15.0Grants 1,344 3.0 - -Subsidies 91 0.2 244 0.2 -Interests 22 0.1 - 1,456 0.6Other 414 0.9 516 0.5 -TotalOtherRecurrent 8,432 19.0 24,788 22.3 53,975 22.4Total 44,439 100 111,334 100 241,341 100

Table 03: Provincial Recurrent Expenditure by Object Categories – 2004/2017

Rs. Millions

Rs. Millions

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The pattern of expenditure incurred fromtheProvinceSpecificDevelopmentGrantisnoteworthy. Roads, Health and Educationare the main spenders of funds under this grant.

Overall, the following features are noteworthy in relation to provincialexpenditure.

a. As much as 75% of provincial expenditure is about personalemoluments of staff. Transfers andgrants to households and institutionscompromise the next largest andaccounts for approximately 15.0%, anestimated half of which are transferstolocalgovernmentinstitutionsforthepaymentofsalariesofstaff.

b. Operational expenditures (travel,supplies, maintenance and contractual services) standing at approximately10.0%haveremainedrelativelyconstant,suggesting a largely stagnant servicedelivery network. The provinces have contained operational expenditures toaccommodate either personnel costs or

Subject 2009 % 2017 % Provincial Establishment -ProvincialAdministration -EconomicInfrastructure 3,198 27.0 3,960 30.2SocialInfrastructure 5,267 44.5 5,263 40.1Community Services 1,180 10.0 1,087 8.3Agriculture 835 7.1 1,414 10.8Industry 213 1.8 251 1.9Other 600 5.1 1,030 7.9RegionalDevelopmentInitiatives 551 4.7 108 0.8Total 11,844 100 13,113 100

Table 04: PSDG Expenditures by Subject Categories –2009/2017Rs. Millions

Source: Finance Commission

transferpaymentsreflectingasituationwhere the scope of provincial service provisionactivitiesisdeterminedbythesizeoftheBlockGrant.

c. Viewed in the context of the stagnantshareofprovincialexpenditure intotalgovernment expenditure, it suggeststhat the flow of resources to theProvinces through the Block grant isrestricting operational expendituresandhencetheexpansionoftheservicedelivery activities through betterdeployment of human resources and expanding service provision in lowspending economic services.

d. In regard to expenditure on capitalitemsEducation,HealthandRoadsarethemajorspendersforallprovincesandaccount for as much as three-quarters of thetotalcapitalexpenditure.Agriculture(including animal husbandry) and industry account for approximately9.00%. The subject shares haveremained largely constant and in the context of the pattern of recurrentspending, the picture that emerges is one of stagnant service delivery.

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e. Apart from roads, provincial capital spending has remained mostly concerned with social infrastructure and services, with only a marginal presence in other sectors where substantial devolution has beenprovided for. The fiscal space forprovincial prioritization in respondingto local needs constitutes a mootpoint.

The pattern of provincial capital spendingraises fundamental questions about therelevanceof fiscal devolution in equalizingcapacity for the provision of the devolved package of services, equitably across the Provinces.

H. Provincial Revenue:

While there are twenty items of revenueassigned to provinces, three sources account forasmuch90%oftotalrevenue.Thesearethe Business Turnover Tax on wholesaleand retail sales,Motor Traffic Fees, StampDutyandCourtFinesthatarecollectedandtransferred to local authorities. Of these,Business Turnover Taxes was suppressed

as a provincial source of revenue in 2011and a revenue sharing arrangement around theNationBuilding Tax, StampDuties andVehicle Registration fees was introduced.TheRevenueSharescompensatethelossinrevenueonaccountofthelossofBusinessTurnoverTax.Onthebasisofcurrentrevenuecollection,approximately60%istransferredtoLocalAuthorities,thebalancemakinguponly06.82%oftotalprovincialfinance.Thetax assignments thus work negatively, astheyrelatetoverynarrowtaxbasesanddonotcreateadequateincentivesforahigherleveloftaxeffortbytheProvincialCouncilsonaccountofthedesignoftheBlockGrant.The dependence of Provincial Councils on Central Government transfers undermines the scope for independent decision making. The inter-provincial variation of revenuecollection isnoteworthy,with theWesternProvince collecting as much as 54.97% ofthe total provincial collection, followedby the North Western, Southern andCentral Provinces in that order, with others having shares of 3.0% to 4.0%. Thus, forall Provinces other than the Western

Source 2004 % 2008 % 2017 %Business Turnover Tax 5,912 44.4 16,641 53.0 29 0.1

Motor Traffic Fees 1,668 12.5 2,812 9.0 9,849 22.4Excise duty 259 2.0 467 1.5 1,720 3.9Stamp Duty 3,761 28.2 6,023 19.2 23,711 54.0Court Fines 579 4.4 1,054 3.4 2,778 6.3Other 1,140 8.6 4,373 13.9 5,827 13.3Total 13,319 100 31,370 100 43,914 100

Rs. Millions

Table 05: Provincial Revenue by Source – 2004/2017

Source: Finance Commission, Ministry of Provincial Councils

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Table 06: Provincial Revenue Collection by Source - 2017Rs. Millions

Province Revenue Collected from Devolved SourcesBTT* Motor

Vehicle Revenue License Fees

Excise Duty

Others **

Stamp Duty

Court Fines

Total %

Western 16 3,988 659 2,452 16,030 993 24,138 54.97Central 3 901 367 490 1,695 96 3,552 8.09Southern 1 1,176 142 563 1,759 448 4,089 9.31Northern 0 324 47 292 648 172 1,483 3.38NorthWestern 4 1,295 141 419 1,869 447 4,175 9.51NorthCentral 1 570 64 501 176 209 1,521 3.46Uva 3 420 102 365 363 115 1,368 3.12Sabaragamuwa 1 712 96 442 695 154 2,100 4.78Eastern 0 464 101 303 477 143 1,488 3.39Total 29 9,850 1,719 5,827 23,712 2,777 43,914 100

Source: Monthly Revenue Reports of Provincial Councils-2016*Collection of due BTT up to 2010

** Others include rents, interests, examination fees, sale of capital assets, betting tax etc.

Province, revenue collection fills a gap inrecurrentexpenditureratherthanprovidingfiscal space for decision-making in service delivery.

I. Contextualizing Provincial Finance:

Inthecurrentgovernanceanddevelopmentcontext,financialflowstotheProvincescanbe considered to be through both transfers and allocations. Financial transfers toprovinces take place within the mechanism as provided for by the 13th Amendment.Financial spending arising from theimplementation of national programs ofthe Central Government’s Ministries andDepartments as well as donor-funded projects constitute financial allocationsfor spending in the Provinces, taking place through the de-concentrated system of governmentadministration.

While financial transfers should providefor discretionary spending, themain grant

items of the Block Grant and ProvinceSpecific Development Grant allow forvery limited provincial discretion in theirspending, arising from central controls over policy,planningandstaffing.

a. The block grant accounting for asmuch as 85% of the total transfersis designed as gap-filling transfers tomeetthedifferencebetweenrecurrentexpenditure and revenue targetprimarily meets the provincial salary bill. The gap-filling design of the BlockGrant creates an inverse relationshipbetweenthehorizontalapportionmentofthegrantandthepercapitacollectionof own-source revenue, setting offnegativeincentivesforefficiencyintheuse of the grant funding as well as for thecollectionofrevenue.Theadoptionofan“actual”asagainsta“normative”basis for its assessment severely limits itspotentialtoequalizeservicedelivery

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capacity across the Provinces.

b. The Province Specific DevelopmentGrantconstitutesthemaincapitalgrantaccounting for almost 80.0%of capitalexpenditure. The aggregate amountfor all Provinces is determined by the fundingimperativesoftheGovernment’sannual budget, though the FinanceCommissionmakes a recommendationin this regard. The apportionment ofthese funds between the Provinces follows a “factor analysis” which does not take into account provincial needs forreducinginter-provincialdisparities.Provincial spending of the funds received is on the basis of provincial project proposals, based on guidelinesissuedbyandapprovedbytheFinanceCommission.

c. The Criteria-Based Grant is on theother hand formula-driven and its horizontal distribution is based uponan objective structure. However, it isrelativelyunimportantduetothesmallamount (less than a sixth of the totalexpenditure) allocated for this grantandinrecenttimesthetendencyonthepart of the Government is to default in its release.

Thus, the intergovernmental transfer systemisrestrictiveofprovincialdiscretionin meeting “the needs of the provinces”.While addressing in some measure thevertical imbalance between revenue andexpenditures, what is significant is thatprovincial expenditures do not reflectexpenditureneeds.Thereisnooverarchingservice delivery policy framework that sets standards for the delivery of services across provinces. The dependence of the Provinces on the centre has taken away decision making responsibilities from the Provinceas to the quantity and quality of servicesthey should provide to meet the needs

of their citizens. Hence it is not possibleto assess the level of resources needed to properly deliver a standard bundle of servicesatthesubnationallevel.Thedesignof the intergovernmental transfer system therefore does not assure adequacy, creates dependency and undermines provincial responsibility and accountability.

The situation is exacerbated by the flowsof allocations from central Ministries,Departments with Donor Projects beingspent outside of the provincial (council) expenditures. There is nooverall financingframework to “meet the needs of the provinces”, despite the constitutionalimperative of funding allocation from theannual budget to the provinces. Financialtransfers and financial allocations work insplendidisolationonaccountofthenationalvis a vis between the provinces and local government. Such a gap between transfers and allocations is inefficient in terms ofthe application of total financial resourcesaccruingtoaprovince,thecommonspatialscale for both the national and provinciallevels.

2.3.3. Local Government Level Financing

The 13th Amendment to the Constitution(1987) in established Provincial Councils withlegislative,executiveandfiscalpowers,radically changing the status of local governance, both in law and in practice.Localgovernmentbecamethe thirdtierofgovernmentwithoutanyadditionalpowersbeing conferred, but with a constitutionalguaranteeofexistingpowersandprovisionfor the enhancement of powers by the provincial council through a provincial statute.

Thus item 04 of the Provincial List on Local Government specifies the scope of theassignment as follows:

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i. Localauthoritiesforthepurposeoflocalgovernmentandvillageadministration,such as Municipal Councils, Urban Councils and Pradeshiya Sabhas as per the constitution, shall have theirform and structure in relation to localauthoritiesdeterminedbylaw;

ii. Supervision of the administration oflocal authorities established by law,including the power of dissolution(subject to suchquasi-judicial inquiriesinto the grounds for dissolution, andlegal remedies in respect thereof, as maybeprovidedbylaw,andsubjecttoprovisions relating to audit as may beprovidedbylaw);

iii. Localauthoritieswillhavepowersvestedinthemunderexistinglaw,anditwillbeopen to a Provincial Council to confer additional powers on local authoritiesbutnottakeawaytheirpowers;

A. The Local Government Framework:

LocalGovernancethroughLocalAuthoritiesisthusestablishedastheprimarytierinthemulti-levelsystemofgovernment.Theyhaveresponsibilityforensuringaconstitutionallyand legally defined sphere of the publicdomain in terms of the respective laws,the Municipal Councils Ordinance No. 29of1947,theUrbanCouncilsOrdinanceNo.61 of 1939, and the Pradeshiya SabhaActNo.15 of 1987, defining their functionalrole and responsibility. Local authoritiesare charged with “the regulation, controland administration of all matters relatingtopublichealth,publicutility servicesandpublic thoroughfares and generally with the protection and promotion of the comfort,convenience and welfare of the people and all amenities”. Local government asthethirdtierofthemulti-levelgovernmentsystem constitutes the unit of devolutionfor democratic governance and hence the state-citizeninterface

B. The Internal Operational Frame work:

Theinternaloperationalcontextisdefinedbythe organizational structure and processesfortheexerciseoftherespectivepowersandfunctions.Intermsoftheconstitutinglaws,powersandfunctionsallMunicipalCouncils,Urban Councils and Pradeshiya Sabhas have similar mandates. They differ in terms ofthescopeandextentofurbandevelopmentof their respective jurisdictions, requiringdifferentiated packages of services. Thus,all local authorities follow a “programmeframework” which prescribes a standard classification of functions from whichservice delivery activities are undertakenaccording to the service delivery need and the availability of resources.

The standard programme framework is as follows.

i. Programme 1 - General Administration and Staff Services: The standard functions under this programmeincludes, General Administration,Finance, Assessment and Collection ofRevenue,andStaffTraining

ii. Programme 2 - Health Services: Functions under this programmeincludes Preventive Services, CurativeServices, Food Sanitation, Solid WasteManagement, Maternity and Child Health Clinics. Urban Councils and Pradeshiya Sabhas usually partners with the preventive health staff,especiallytheMedicalOfficerofHealthin providing maternity and child health care.

iii. Programme 3 - Physical Planning, Thoroughfares, Land and Buildings: Functions performed include PhysicalPlanning, Roads, Drains and Culverts,LandsandBuildings

iv. Programme 4 - Water Services: Only a

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few Municipal Councils provide piped water to households. Some Urban Councils and Pradeshiya Sabhas provide water services through street stand taps.

v. Programme 5 - Public Utility Services: Services provided include establishing and maintaining public markets, fairs, street lighting, crematoria and publicbathing places.

vi. Programme 6 - Welfare Services and Amenities: Services provided usually includes, libraries, community centres, sportsandrecreation,publicassistance,and pre-schools.

C. The External Task Context:

The external task context of LocalAuthorities is defined by the working ofthe intergovernmental relations in regardto service delivery. Within the frameworkof a multilevel system of governmentthe local level service delivery situationbrings together national, provincial andlocal providers. The intergovernmental service delivery arrangements work to the advantage of national level providers andmarginalize local authorities. Themarginalrole of local authorities in the provision of development services also undermines its roleand relevance inpromotingcitizenparticipation and inclusive development.From the perspective of citizens localauthorities provide mainly regulatoryservices, the scope for the provision of comfort, with convenience and welfare beingcrowdedoutbynationalproviders.

Local governments are vested with regulatory as well as provider roles and functions. As regulator local authoritiesareresponsiblefor“controlling”thespatiallocation of development activities toensure an appropriate living environment. As provider, a local authority must raise

revenue and spend to provide the required infrastructures and civic amenities. Bothroles and functions involve planning forthe local authority area. However, a local authority functions under a complex legaland institutional frameworkwhere severalothernationallevelagenciesperformrolesand functions of regulation, planning andprovision of development either directly or through them limiting the competence oftheroleandfunctionsoflocalauthorities.

D. Fiscal and Financial Powers:

LocalAuthoritiesare,subjecttotheoverallsupervision of the (provincial) Minister, competent spending authorities withfinancial and fiscal powers, appropriatingexpenditures and authorizing revenueinstruments through the Annual Budget.Local Authorities derive their financialpowers from the establishment under the respective laws of a “fund” for managinggeneral financial purposes. Thus, theMunicipal Councils Ordinance establishes a “MunicipalFund” (Section185), theUrbanCouncils Ordinance establishes a “Local Fund”(Section158).Similarly,thePradeshiyaSabha Act establishes a “Pradeshiya Sabha Fund”(Section129).

The following monies are paid into the respectivefunds.

a. Finesandpenaltiesimposedundertherespectivelaws.

b. Stampdutiesc. AllocationsappropriatedtotheCouncil/

Sabha by the Minister.d. Rates,taxes,dutiesandfeesandother

charges levied under the Ordinance/Act.

e. Sums realized from sales, leases orothertransactions.

f. Revenue derived from any propertyvestedintheCouncil/Sabha.

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g. Sums and sources of revenue made over totheCouncil/SabhabyParliament.

In addition, local authorities arevested with powers to borrow money.The purposes for which the monies paid into thefundmaybeappliedbylocalauthorities(i.e., local authority expenditures) isspecified. Section 188(1) of the MunicipalCouncils Ordinance, Section 159.1 of theUrbanCouncilsOrdinanceandSection132of the Pradeshiya Sabha Act). Amongst others the law provides for spending out of the fund for all “expenses incurred inthe course of the exercise of its powers”.The fund operations in terms of incomeand expenditure constitute the basis forthe local authority budget, prepared and presented to the Council/Sabha annuallyfor the “subsequent year” containing an estimateofavailablerevenueandproposedexpenditures.Thepracticehasemergedforlocal authorities to prepare a “balanced”budget.

Local government finances comprise ofassigned revenue (own revenues), inter-governmental financial transfers, userfees and borrowings. The main sources of assignedrevenueareratesandtaxes,stampduties,courtfinesandpenaltiesandrents.Stamp duties and court fines have beenassigned to Provincial Councils under the 13th Amendment and hence are collectedby Provincial Councils and transferred to the respective local authorities. LocalAuthorities are provided revenue grantsby the Central Government for the re-imbursement of staff salaries and wageschannelled, through Provincial Councils to betransferredtolocalauthorities.

E. The Local Authority Budget and Budgeting:

The budget is the plan of a local authority, the localauthoritieshavinghistoricallyfocussed

onthestatutoryrequirementofsubmittingabudgetcontaininganestimateofavailableincome and details of the proposed expenditure for the ensuing financial year.Inpreparingsuchestimatesof incomeandexpenditure, local authorities are drivenby imperatives of physical planning, notbeing contextualized as services, bringingaboutadisconnectbetweentheestimatesof income and expenditure and servicedeliveryresponsibilities.Intheabsence of a planningprocessthebudgetmustfulfilbothplanningandresourceallocationtasks.

Budget preparation follows a prescribedprocedure and process. The procedure makes an estimate of revenue beforeproceeding to identify expenditure needs.Pastyears’revenue-expenditureexperienceguides the process of determine the overall limits of expenditure. Inputs are alsoprovided by a Finance Committee of thelocal authority. It is noteworthy that thebudgeting process is rarely informed byplans. Area plans (prepared by the Urban Development Authority), where available, are rarely mainstreamed in local authority budgets. The focus of capital expenditureis on small scale local infrastructure within their fiscal capacity. There is a generalreluctance on the part of local authoritiestoborrow for capitalexpenditure.All localauthorities have adopted the programformat and object categories of incomeandexpenditureinthepresentation of the budget for recurrent and capital categories.

F. Local Authority Finance:

Local authority finances consist of self-revenue (assigned sources), revenue grants from the Central Government, other income streams and borrowings.

Thus, the importance of the above sources of revenuevariesaccordingtotheurbanizationsituation of the local authority, for mostLocal Authorities Central Government

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transfers (referred to as revenue grants) reimbursing the costs of salaries and wages of staff average at around 35% of thetotal income. For small local authoritieswith limited revenue capacity the share of central transfers can increase up to half of all income. Stamp duty and court fines leviedandcollectedbytheProvincialCouncilaccountsforasmuchas17%inthecase of Pradeshiya Sabha incomes. There areother external sourcesof income suchas allocations from Decentralized Budget(DCB), significant especially for PradeshiyaSabhasandaveragearound10%foralllocalauthorities. External sources of revenuethus become a significant factor in thefinancingoflocalauthorities.Amountsvaryfrom around 45% for Municipal Councils,60% for Urban Councils and as much as77% for Pradeshiya Sabhas. Borrowingsdo not figure prominently in the financesof local authorities. Local authorities withaweakfiscalbasearebecomingincreasinglydependent upon Central Government transfersformeetingthesalariesandwagesofstaff.

Source/LGIs

Municipal Councils

% Urban Councils

% Pradeshiya % Total %

Revenue 9,460,336 40.5 1,928,181 30.8 8,420,994 29.4 19,809,511 34.0Other Income

4,661,401 20.0 1,255,084 20.1 3,716,861 13.0 9,633,346 16.5

RevenueGrants

8,233,336 35.3 2,515,110 40.2 10,049,106 35.1 20,797,552 35.7

Borrowings 305,717 1.3 - 115,941 0.4 421,658 0.7Capital Revenue

694,204 3.0 560,688 9.0 6,338,426 22.1 7,593,318 13.0

TotalIncome

23,354,994 100 6,259,063 100 28,641,328 100 58,255,385 100

Table 07: Financing of Local Authorities - 2017 Rs. Millions

G. Local Authority Expenditures:

Theexpenditurepatternoflocalauthoritiesalso varies as between Municipal Councils, Urban Councils and Pradeshiya Sabhas. Thus, recurrent expenditure is lowest forthe Pradeshiya Sabhas which also have external sources of financing, which aremore important in the overall financing ofthe respective local authorities. However,in the case of Municipal Councils where external sources of income account fora significantly lower share of financing,recurrentexpendituresaccountforahighershare of the total expenditure. Thus, thepatternofexpenditureislargelydeterminedby the pattern of financing and does notcreatenewfiscalspaceforlocalauthoritiesto provide improved services whether in termsofquantityorquality.

H. Constraints and Challenges of Local Authority Financing:

The financing of the functions assigned tolocalauthoritieshasturnedouttobemorecomplex than amere taxing and spending

Source: Statistical Abstracts 2018, Department of Census and Statistics

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Rs. Millions

Source: Statistical Abstracts, Department of Census and Statistics

Expenditure /LGIs

Municipal Councils

% Urban Councils

% Pradeshiya Sabhas

% Total %

Recurrenti Personnel 17,551,682 77.9 2,639,789 62.0 9,357,625 68.4 29,549,096 73.0ii Other 4,974,133 22.1 1,619,511 38.0 4,329,179 31.6 10,922,823 27.0Total 22,525,815 81.9 4,259,300 82.3 13,686,804 64.3 40,471,919 75.0Capital i Capital 4,749,920 95.5 873,758 95.3 7,370,645 96.8 12,994,323 96.2ii Loan Payments

224,213 4.5 42,652 4.7 241,523 3.2 508,388 3.8

Total 4,974,133 18.1 916,410 17.7 7,612,168 35.7 13,502,711 25.0TotalExpenditure

27,499,948 100 5,175,710 100 21,298,972 100 53,974,630 100

Table 08: Expenditures of Local Government Institutions-2017

affair. Local authorities are faced withdemands for new and enhanced services inmeeting the “comfort, convenience andwelfare of the people”. The provision of services to meet the “comfort, convenience and welfare of the people” must also take place within a more complex publicsector service delivery context. Despitethe devolution of power to the provinces,intergovernmental fiscal relations arebeingestablishedwithinacentralizedfiscalmanagement regime. Additionally, localauthoritiesarefunctioninginanincreasinglycompetitive political environmentwhich isseriouslyaffectingdecisionsregardingfiscaloperations.

There are several implications arising outof this situation for the financing of localgovernment services by local authorities.Local authority financial operations takeplace within the framework of central controls,especiallythecentraldeterminationand approval of staffing. Dependence oncentral transfers financing local authorityexpenditures, bymeeting costs of salariesandwagesarecreatingperverseincentives

that restrict choices for the delivery of servicesandinturnaffecttheefficiencyofservice delivery operations. While on theone hand local authorities have becomedependent upon the salary reimbursement transfers, there seem to be no compelling reasonsforlocalauthoritiestoenhancethecollection of revenue. Reviewing propertyrates periodically has become politicallydifficult,restrictingpotentialrevenuespacearising from enhanced property values.

An increasing demand for services calls for accessingfinancesfromnewandinnovativesources.Localauthoritiesseemreluctanttomoveon tosuchsources infinancing localservices. The share of borrowings reflectstheextent towhich suchoptionsareusedby local authorities. Imbalances in fiscalcapacities require central fiscal supportto ensure the maintenance of minimum standards of services. In a situation oflimitedfiscalspaceforimprovingthequalityandquantityofservices,theoperationandmaintenanceofexistingassetsandservicesremain their major service provision roleandfunction.

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I. Issues of Local Financing - Context and Capacity:

Thecreationof localgovernmentsisbasedin part on the assumption that benefitsof particular types of public services arelargely confined to local jurisdictions, andthattheappropriatemixofservicescanbedesigned and delivered to suit local needs and preferences. The ability to respond to local needs and preferences is determined by two factors.

First is the clarity in the responsibilitiesassigned to local authorities within themulti-level system of government. A clearallocationoffunctionsamongthedifferenttiers of government – central, provincial,and local is necessary. However, the shift to multi-level governance followingthe 13th Amendment took place withinthe framework of existing structures forcentralized governance, resulting in adualistic presence of devolved and de-concentratedentitieswithresponsibilityforlocal-level development.

Second is the financial capacity of localauthorities. To the extent that localauthorities are dependent upon externalsources there is lack of predictability in income entailing financial relations usuallybeyond its control. In fact, the channellingof financial transfers to local authoritiesthrough Provincial Councils introduces uncertainties in terms of delays in thereleaseoffunds.Furthertransfersofstampduty and court fines that are collected byProvincial Councils and transferred to local authorities encounter long delays in beingreleased. Provinces have little incentivestoenhancecollectionofstampdutywhereundervaluation of properties prevents therealisationof the revenuepotentialarisingfrom spiralling land values especially in urban areas. The delays introduced by the

mediationof theProvincialCouncils in thetransferof funds to localauthorities is theresult of a cascading effect on the partof the Central Government in releases to Provincial Councils. The local authoritiesarethuspenalizedbeingtheprimarytierina fiscal regimewhere the lowertiers havelarge budget gaps.

Thirdisthequestionofincentivestocollectrevenue. As already noted, the scheme of the Revenue Grant for reimbursement ofsalaries works negatively and has createddisincentives for enhancing own revenues.On an international comparison, Indiacollectspropertytaxonanaverageat0.16%of GDP (2012) compared with Sri Lankacollectionof0.07%ofGDP(onthebasisofcollection figures for 2014). Property taxconstitutes the main item of own sourcerevenueandaccording to the comparativesituation Sri Lanka could double thecollection of property tax. Property taxcurrentlyaccountsforapproximatelyathirdof local authority income.

Fourth is the absence of amechanism forequalization of fiscal capacity across localauthorities towards creating the basis foramoreequitabledistributionofresources.In the current scheme of financing localauthorities,suchequalizationisprovidedbycentral control over cadres. This proxy forequalizationworksnegativelyandfunctionsasadisincentivetobecomingmoreefficientinfinancialperformance.

The financial status of a local authoritydetermines the capacity to respond to service delivery needs of the citizens in apredictable and responsive manner. Local authorities have tremendous potential forimprovingtheefficiencyandaccountabilityof the growth and development process. Within a proper intergovernmental publicsector framework, local authoritieswill be

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able to plan, budget, implement and monitor their assigned governance and development functions. To effectively contribute, localauthorities must be given both clarity intheir assigned roles and responsibilities,as well as legitimacy, authority, capacityand the required resources to implement those responsibilities in an efficient andaccountable manner. Local authorities have tremendous potential for improvingthe efficiency and accountability of thegrowth and development process. Withina proper intergovernmental public sector framework,localauthoritieswillbeabletoplan, budget, implement and monitor their assigned governance and development functions. To effectively contribute, localauthoritiesmustbegivenbothclarityintheirassignedrolesandresponsibilities,aswellaslegitimacy,authority,capacityandresourcesto implement those responsibilities in anefficientandaccountablemanner.

2.4. Challenges and Strategies for Financing the SDGs at Subnational Levels

While the subnational level is considered the territorial scale for addressing sustainable development, and therefore in the Sri Lankan context, the provincialand local levels of government with taxing and spending powers to offer theinstitutional space for localizing financingof the SDGs, significant deficits in therespective intergovernmental spaces denythe realization of that potential. Theintergovernmental space available to the provincialandlocallevelsdonotallowspatialintegration across economic, social andenvironmental actions towards sustainabledevelopment. To be efficient in financingsustainable development, it is necessary to provide for the interplay between economic,

social and environmental so as to deal with externalitiesandworkoutsynergiesarisingfrom the SDGs. Thus, as demonstrated by the spending patterns of provincial andlocal governments, there are multiplediscontinuities in thefinancing framework.On the one hand are the discontinuitiesin the financing of sectoral outputs asagainst sustainable development outcomes negating balance across economic, socialand environmental. On the other, are discontinuities between the sectoralfinancing of national, provincial and localservice deliveries. These discontinuitiesundermineverticalcoherencebetweenthesectoral and spatial as well as horizontalcoherence of the sectoral for spatialsustainable development outcomes.

Subnational financing of SDGs, provincialand local,doesnotperform in isolationofthenationalfinancingofsectoraloutcomes.Indeed, the national sectoral financingframeworks provide the national policyframework for provincial and local level financingof services.Discontinuities in thefinancingframeworkatthenationalextendtotheprovincialandlocallevels.Whilethespatial scales at national, provincial and local levels should have distinct SDGorientations in terms of contribution tooutcomes and therefore the financingimperativeattheprovincialandlocallevel,that finance should follow such roles andresponsibilities, even though the realityis a static financing framework that drivessubnationalSDGactionsandactivities.

2.4.1. Challenges for Financing the SDGs

Sustainable development action atthe subnational level is set within theframeworkofmultilevelgovernance.Thus,the subnational levels do not and cannotwork in isolation. The fragmentationacross the various sectors of services,

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levels of government, and agencies create centresofpower leading toacontestationfor resources resulting in an unequaldistribution of wellbeing. The challengeof sustainable development action at thesubnationallevelpointstoontheonehand,bringing to bear at the local level a whole of government approach in addressing complex and interdependent problems ofdevelopment. On the other hand, is the institutional imperative of moving awayfromtheextantprimacyofthepublicsectortoonethatisawholeofsocietyeffort,withpartnerships across government, the private sector and civil society.

A. Lack of a Focus in Provincial and Local Government Finances on SDGs:

An analysis of ensuing expenditureresponsibilities with SDGs point toambiguitiesinwhoisresponsibleforwhat.

• 52 targets do not have a relatedintergovernmental expenditureresponsibility

• 68targetsareprovincialandanother28are local

• 56 targets are reserved for the centre and 57 are concurrent (in practicecentral)

• 48 targets (within Goals 1-16) overlap between the centre and provinces or local

This expenditure assignment raisesquestions about, coherence inimplementational responsibility, thecomprehensiveness for an outcome focus, as well as the allocative efficiencyof expenditures for the implementationof SDGs. Becoming inclusive and “leavingno one behind” requires a localised and integrated allocation of resources, to beable to address spatial inequalities in SDGattainments.

Despite the constitutional responsibilityof Provincial and Local levels in respect of the SDG targets, the reality of the status of the devolved provision of services is shownbyintergovernmentalsharesand/orexpenditureandrevenue.

B. Lack of Coherence in Service Delivery Roles and Responsibilities Between National, Provincial and Local Levels:

Theshifttomultilevelgovernmentinvolvedthe introduction of a provincial levelof government and administration bytransferring to Provincial Councils district level servicedeliveryoperations in respectof subjects and functions assigned to theProvinces.Thereservationofnationalpolicyas a subject at the centre allowed pre-devolutioncentral sectoraldepartments toextend their respective policy/programmeoperations in parallel with devolvedprovincialservicedeliveries.Theexpansionof centralized service deliveries precededthe13thAmendmentasthelocallevelwasconcerned with resulting in contractionrather than expansion of the domain oflocal service delivery, especially in the area ofpublicutilities.The13thAmendmentdidnot lead to a re-ordering of the assignment of service delivery responsibilities acrossnational, provincial and local on the basisof subsidiarity. The result has been a poly-centric service delivery system at the local level lacking in accountability for development outcomes. The absence of a clear accountability framework for development outcomes across the subnationalsystemremainsachallengeforachievement of sustainable development outcomes.

C. Absence of a Thematic Outcome-Based National Development Framework:

Thelacunainmultilevelpolicyandprogramcoherence arising from the failure to follow through with the governance imperatives

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of amultilevel system of government, hasbeen exacerbated by the inability to havean institutionalized, integrative nationalplanning process in creating positive-summultilevel partnerships, both sectoraland inter-sectoral. Indeed, in the post-devolution situation, national planninghas taken an increasingly project-orientedapproach,makingforshort-termexpediencyin managing public expenditure against alonger-term outcome focus.

D. Short-Term Focus of Development Results on Outputs:

Such a short-term focus on outputs was a large measure that was the result of the New Public Management (NPM) focuson agency-based results as against more complexdevelopmentoutcomes.Thus,theapplicationsofResultsBasedManagement(RBM)throughAgencyResultsFrameworks(ARFs) in managing agency performancemade for a narrow focus on funding outputs to the neglect of financing outcomes. Aperformanceframeworkbasedonprojects,projectoutputsandprojectindicators(asisdemonstrated by the general informationon Ministerial operations presented inthe Government Estimates precedingeach Ministry) is inadequate for designing programs, program outcomes and program indicators that would be necessary for managing sustainable development interventions.

E. Ineffectiveness in the Practice of National Budgeting for an Overarching Policy Framework on Public Expenditure:

The parameters set in the Budget Call forguidingandmanagingtheprocessofsettingannualexpenditureframeworksbySpendingAgencies suggests an accounting ratherthanallocativeframework,wherethefocusis more on control of expenditures than

outcomes of policy. The linkage between theintendedperformance-basedbudgetingframework for allocating resources on thebasisofindicatorbased“specificallydefinedmeasurable outcomes” is not borne out by the practice of estimation or estimates ofexpenditure.Estimationaswellasestimatesof Spending Agency expenditures remainoutput-based and project-focussed and donotmoveontooutcomes.Itistobenotedthat outcomes are not within the control of a single Spending Agency, and hence budgets mustremainatoutputorprojectlevel.Thus,despite the national policy status of thenational budget, it remains an instrumentof financial control of agency spendingrather than a mechanism for definingagency outputs towards policy outcomes. Imperativesofpublicaccountabilityrequirea focus on what is done with the money that is spent, going beyond how expenditures are controlled. To meet the challenge of sustainable development, Sri Lanka should movetooutcome-basedbudgeting.

F. The Imperative of a UnifiedExpenditure Classification System and the Practice of Focusing onIntegrated Funding and Financing of Development Outcomes:

A focus on outcomes requires a budget framework that is internally consistent, especially where current and capital expenditures are consolidated within asingle unified classificatory framework,facilitatingrationalexpenditureallocations,clarity in terms of outputs to be delivered, as well as subsequent monitoring and controlofbudgetimplementation.Thus,anexpenditureclassificationsystemprovidesanormative analytical framework for policydecisionmaking,budgetadministrationandaccounting,plusaccountability.Budgetingatnational,provincialandlocallevelsseparaterecurrent from capital expenditures, i.e.,operational from investment, and service

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deliveryfromimprovementsinthequantityandqualityofservicedelivery.Thetargetingof services where there are gaps in delivery requiresaholisticapproachcombining theconsideration in tandem of recurrent andcapitalexpenditures.

G. Restrictive Intergovernmental Fiscal Framework:

Thefiscalrelativitiesbetweenthenational,provincial and local demonstrates the marginal role of the provincial and local in thelocalizationofservicedelivery.

Thus, the Central Government dominates the public expenditure scene accountingforasmuchas88%ofthetotalgovernmentexpenditure.Theprovincialandlocalshares

ofthetotalgovernmentrevenuereflectthissituation.

As per the Tables 09 and 10, Provincial CouncilsandLocalAuthoritiesarerequiredto perform in an increasingly centralizedpublic sectorservice delivery context withintergovernmental fiscal relations beingestablished within a centralized fiscalmanagement regime. Within this servicedelivery system, Provincial Councils and LocalAuthoritiesaremarginalplayers.

H. Institutional Space for Managing Integration at the Local level:

Further,itisnoted,thatsofar,thenationallevel has not demonstrated any movement towardspolicyandprogramme integration

2008 % 2017 %Central 945,247 88.3 2,573,056 88.7Provincial 101,173 9.5 275,079 9.5Local 23,894 2.2 53,474 1.8Total 1,070,314 100 2,901,609 100

Table 09: Central, Provincial and Local Expenditure:2008/2017

Source: Government Estimates, Ministry of Provincial Councils and Finance Commission

Table 10: Central, Provincial and Local Revenue:2008/2017

Source: Government Estimates, Ministry of Provincial Councils and Finance Commission

2008 % 2017 %Central 699,388 93.4 1,831,531 92.7Provincial 23,915 3.2 86,976 4.4Local 25,804 3.4 57,280 2.9Total 749,107 100 1,975,787 100

Rs. Millions

Rs. Millions

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that would allow prioritising the financingof service delivery for development outcomes. Thus, the national level policyand programme disconnects in planning and budgeting which translates intofragmentation at the subnational level,in systems, structures and processes for planning and financing the targeting ofservice delivery to meet development outcomes for leaving no one behind. Localising the SDGs involves translatingthe SDGs into development prioritiesin a manner that makes them relevant to economic, social and environmental development needs of the local territorial system in an integrated manner. The local level offers the spatial scale for workingout both, the effects of externalities ofdevelopmentactivitiesandthepotentialforsynergies in addressing human wellbeing around a whole of government and a whole of society approach. I. Managing a poly-centric service delivery system for localized engagement with SDG implementation:

One is faced with a complex legal andinstitutional framework at the local levelwhereseveralothernationallevelagenciesperformtherolesandfunctionsofregulation,planning and the provisions of development either directly or through them. Here lies the fundamental problem of the roles and functionsoflocalauthorities.Thus,therearemultiplechannelsoffundingthatarespenton local development activities withoutany reference to local authorities. Thereis a need for a strategy that will delineate theelementsof thedesignoforganizationfor local development. There is a need to link the physical and financial aspects ofthe provision and delivery of development. Ideally implementation should then bemanaged as a single system so as to ensure

the achievement of the intentions of localdevelopment. Important in this contextwill be integrative roles that can ensurecoherence in the activities undertaken bythe many actors that will take part in the local development process.

J. Financial Capacity of the Local Level:

Local level service delivery is essentiallyof an urban nature, whether municipal, urban or pradeshiya. However, the local level account is less than 2% of the totalannual Government expenditure. Whenexamined in the context of the spendingrelativitiesbetweennational,provincialandlocaltiersofgovernment,theshareoflocalexpenditureisinadequateforasubstantivelocal engagement in the provision of local (urban) services. In terms of budgetaryoperations, local authorities focus almostexclusively on maintenance operationsrather than on capital development. The balanced budget practice of localauthoritiesimpartsafocusonbudgetingforincomeandexpenditureratherthanonthefinancingofdevelopmentplans.Theoverallfinancing of Local Authorities suggests anincreasing dependence on transfers, and an unwillingnesstolookforalternativesolutionsto finance capital expenditures. LocalAuthorities also demonstrate a reluctanceto look for external sources of financingwhether in terms of partnerships with the privatesectororborrowings.Lowfinancialcapacities reflect a complex performanceprobleminlocalauthorities,importantlythefocus on short-term expediency of a four-year term of the Councils.

K. Incentives for Localisation:

The allocation of functions across tiers ofgovernment guarantees Local Authoritiesretainingtheirpowersandfunctionsunder

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the existing laws. However, in practice,theexerciseoffunctionsacrossthetiersofgovernment constitutes a complex realityof adjustment between imperatives ofcentralization and de-centralization. Thescopeofservicesprovidedbylocalauthoritiesde facto depends upon the respectivefinancial situation. Central Governmententitieshaveovertimetakenoversomeofthe public utility functions that had beenassignedtoLocalAuthoritiesbylaw,suchasthe provision of water supply, and brought themundercentralcontrol.Localauthoritiesgenerallyretainresponsibilitiesforprovisionofbasicamenities,drainageandsolidwastemanagement. The resulting ambiguity inthepublicsector’rolesandresponsibilities,combinedwiththeinvolvementofmultipleagents in the provisioning of public services, hascreatedasub-optimalenvironmentforthe management of local services and has undermined the scope of the functionsassigned to local authorities. While theconstitutional amendment provided forenhancementofpowersoflocalauthoritiesthrough Provincial Councils, so far, the demonstrated concern of the provincial authoritieshasbeentotakeoverthepowersof central control relating to supervisionof local authorities. In this context, localauthoritieshavetendedtoworkwithinthe“system”.

L. Governance Beyond Centralised Government:

The foregoing analysis of challenges for sustainable development at the local level demonstrates institutional incoherenceat the subnational level, in terms of both,vertical and horizontal integration. Whentakenattheprovinciallevel,thesubnationalincorporates the concurrent presence of the centre,theprovinceandthelocalmultilevelsystem. The reality of the intergovernmental relativities marginalizes the provincialand local levels to sub-optimal operation

threateningtheveryrationaleofdevolution,i.e., the efficiency in meeting local needs,problems and gaps in development. Governanceatthesubnationallevelshouldbe able to take into account the contextof local conditions and circumstances intargeting and re-prioritisation of servicedeliveries, whether national, provincialor local. The fundamental purpose of a subnationalgovernancesystemshouldbetoensure relevance and it will require decision making spaces to plan joint interventions.The design of central, provincial and local service delivery programmes should provide for subnational re-ordering of priorities inordertobetteraddresslocalconditionsandcircumstance on an outcome basis.

2.4.2. Public Investment Strategies for SDGs

The public investment framework at the subnational levels is defined within thenational public finance framework as setannually by thebudget call. In aplanning-budgeting situation where finance drivesplans,thenationalpublicfinanceframeworkbecomes restrictive of the subnationalallocativespaceskeptforplannedoutcomesand hence the jurisdictional discretion toaddresslocalisedSDGpriorities.Atthesametime, the annual budgeting cycle doesnotprovide the necessary temporal space, as may be required to address longer term SDG outcomes. While the budget call providesfor a medium-term financing perspective,theextantaccountingpracticesrestrictsthetemporal financing focus to the “financialyear”.

Thus, the systems and procedures for public investmentatsubnationallevelsdonotallowlocalizedSDGoutcomestodrivelocalpublicinvestments.TheeffortsonthepartoftheFinanceCommissiontointroduceaMedium-Term Sectoral Framework is noteworthy.

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However, while providing for a medium-term investment framework, the initiativetrapsprovincialpotentialinvestmentwithinthe sectoral framework. The multiplesourcesandchannelsofsubnationalpublicinvestment undermines the medium-term investmentfocusintroducedbytheFinanceCommission on account of the absence of institutional mechanisms for integratedpublic financing at the subnational levels.The following review of public investment at the subnational level brings out thefundamental incoherence in financingsubnationalinvestment.

A. Context of Public Investments:

Strategic public investment for sustainable development so far has been tokenistic.Working within the public expenditureframework, the strategic approach (as setout in theBudgetCall 2019) envisagesthe achievement of the SDGs as “merely depending on the allocation of adequateresources for precise projects”. Thus, theBudget Call directs Spending Agencies to“mainstream the SDG goals within the current and future development activities,inordertoensurethatsufficientallocationshave been made to achieve the set targets”.

However, as discussed above, the reality of the practice of budgeting by SpendingAgencies is one of financial control ofbudgetary appropriations, rather thanfollowing up on results of service delivery. Indeed, the performance challenge is oneofaligningaccountability(financialcontrol)for financial appropriationswith results tobe achieved through such appropriations.The imperatives of controlling on theinput-sidehavecontinuedtodominatethebudget architecture through the shift tothe performance-based budgeting. In theabsence of clarity in regard to what public services are being delivered by which budgetary appropriations, relating the

programme framework for classificationofexpenditures with the SDG framework ofoutcomes is incoherent.

In the context that the Budget Call isaddressed to Chief Secretaries as well, compliance is required in the provincial publicinvestmentprocess.Thus,theFinanceCommission, in its guideline for“Annual Provincial Capital Needs 2021” lists asone of the criteria for identifying projects,the “achievement of the Sustainable Development Goals declared by the United NationsandadoptedbytheGovernment”.

Thus, provincial public investment for sustainable development is set within the capital expenditure needs assessmentprocess, which is extended to identifyingthe SDG targets that the items of capital expenditures relate to. However, theguideline is not extended to the LocalAuthorities as the Finance Commission’smandate is about the needs of the Provinces. While, the 13th Amendment vests thesupervisionof theadministrationofLocalAuthoritieswiththeProvinces,theprovincial authorities, i.e., the Minister incharge in the Province and the Provincial Commissioner of Local Government, is yet to engage with Local Authorities on theimplementationoftheSDGagenda.Asnotedearlier, Local Authorities have a significantservice delivery role in the achievement of SDGs.Accordingly,LocalAuthoritiesdonotstrategizeinvestmentstoachieveSDGs.

There is a significant area of investmentsthat take place within the provincial and local jurisdictions by other public sectoragencies, notably national level agenciesand donor funded projects, independentlyof the provincial and local governments. Such financing by central playersconstitutes another aspect of the working of the intergovernmental fiscal relations.

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Financing by central players would be complementary or supplementary to provincial and local finance, and hence toprovincial and local sustainable development outcomes. While some of such financing

President Parliament

Cabinet

Finance Commission

Ministry of Finance

Annual Budget

Ministry of ProvincialCouncils and Local Govt.

Line Ministries

Departments & Staturoty AgenciesProvincial Council

District Secretariat

ProvincialProjects

ProvincialAgencies

LocalAuthori�es

DivisionalSecretariat

SectorProject

Grants Alloca�ons Project Finance

Consulta�on/Observa�ons/Recommenda�ons/Approval

Na�onal Level

Na�onal Level

District Level

Local Level

Figure 02: Subnational Financing

may be disbursed through the provincial and local government, the moot point is as to whether such investments come into the planning-budgeting systems at provincialand local levels.

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B. The Working of Public Investment Strategies at the Provincial and Local Levels:

The public investment at provincial and local levels take place within the framework of intergovernmental fiscal relations andensuingrelativities.Itconfinestheprovincialand local levels to a set of sectoral service deliveries,marginalizing theprovincial andlocal levels from engaging with the multi-dimensionality of sustainable development. The localized service delivery mandateis undermined by the working of the intergovernmentalfiscalrelationsinmultipleways. It undermines the accountability ofprovincial and local levels for sustainable development results, arising from the lack of clarity as to the responsibility between national,provincialandlocalforsustainabledevelopment outcomes. The reservationof national policy at the centre givesprimacy to national level interventionsundermining the very rationale for theprovincial and local levels to be providers of public services. The accountability gap in the working of the intergovernmental fiscal relations leads to the underminingof the autonomy of the provincial levels of government - the fundamental imperativefora localizedservicedeliverysystem.Thede jurecompetenceofprovincialand locallevels of government is compromised by de facto central controls restricting suchcompetence. In turn, these restrictionslead to problems in the adequacy of service delivery, engagement of the provincial and local governments. On the one hand, there is a problem of the quantityof resources available to provincial and local governments while on the other, the resource inflows into the respectivejurisdictions do not get worked into therespectiveplanningandbudgetingsystemsand processes. The working of the systems, structures and processes of provincial and local governance prevent coherence in the

applicationofpublicinvestmentstoachievesustainable development outcomes.

C. The Expenditure Framework at Provincial and Local Levels for Public Investments:

Mainstreaming public investment for sustainable development outcomes, requires takingintoaccounttwoconsiderations.Thefirstisthethematicprogrammeframeworkcoherently identifying and clearly linkingservice delivery outputs to thematicprogram outcomes. The second is about the accountability framework, where the programme framework and the ensuing schemefortheclassificationofexpenditurecanbe related toagency structures. Itwillrequireclarityastothematicdevelopmentoutcomes and service delivery objectivesat the level of the Heads of Expenditure(individual Ministries or Department) as wellastheSystemsofHeadsofExpenditure(clusters of Ministries and Departments), onethatisunifiedintermsofrecurrentandcapitalexpenditureswithinalogicmodelofresults.

Both, provincial and local levels lack suchexpenditure frameworks structured at amacro -thematic program level as wellas micro – sectoral agency planning andbudgeting levels. Public investmentsstrategies must provide for responsibility inrespectofthematicoutcomesaswellasaccountability for agency outputs.

a. Micro Planning-Budgeting Alignment:

Structuring planning - budgetingalignment is essentially about establishingSpending Agency planning-budgetinginformation systems around the servicedelivery system. This would involve linking agency service deliveries to the results chain intermsofactivities,outputsandoutcomesand identifyingkeyperformance indicatorsat each level. Managing for the SDG results

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would eventually need to go beyond a simpleinput-outputcontributiontoafocuson attribution of results when dealingwith Outcomes and Goals as portfolios ofresults. However, initially moving towardsintegrated budgeting should focus onoperational and organization performanceof Spending Agencies in delivering on SDG Targets. From an SDG implementationperspective, information linkages betweenexpenditureclassification,resultschainandSDG targets should be established to make the expenditure classification outcomeoriented. The reality is that neither the plan nor the budget has a focus on service delivery which prevents communicationbetween the provincial/local plan and

the budget. What is available are capitalexpenditurebudgets.

b. Macro-level:

At the macro level, strategic public investment is about providing an overarching results framework within which Agency planning-budgeting can be positioned toinform such investment in regard to results to be achieved from said investments. As notedintheprecedingsections,neithertheprovince nor the local have comprehensive area plans.

The macro level alignment of agency planning-budgeting with the vision of

Expenditure Classifica�on Results Chain

Head of Expenditure Outcomes

Objec�vesProgram

Opera�onal/Development

Project

Sub-Project

Category/Object

Outputs

Ac�vi�es

Inputs

ServiceDelivery

PerformanceIndicators

Figure 03: Spending Agency Planning - Budgeting Alignment

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Figure 04: Logical Framework Model for Macro Level Integration

Sustainable Development Vision

Thema�c Thrusts/Outcomes

Sectoral Purposes

Organisa�onal Outputs

Organisa�onal Ac�vi�es

Resource Inputs

If T

hen

Theo

ry o

f Cha

nge

HowChange Ac�ons

sustainable development is both, a theory of change, mapping the pathway from organizational outputs through sectoralpurposes and thematic thrusts to thesustainable development vision, as well as, a framework for integrating internalandexternalaccountability in thestrategicchange process. The theory of change is about the transformation involvedin achieving the vision of sustainable development,whereinthedifferentchangeactionsmust be positioned. A pathway toa sustainable development vision will be inherently complex being a composite ofseveral independent elements through interactingactions.

D. Achieving Coherence in Micro-Macro Alignment

The function of macro level alignmentbetween thematic development priorities

(“thrust areas”) is to align Agency level planning-budgeting with the macrolevel thematic development priorities.Information is central to establishing thelink and alignment between the micro level Agency planning-budgeting system andthe Macro level thematic developmentpriorities.Suchinformationisnecessaryforprovider accountability, inter-provider as well as inter-level communication,and thedirectionofoperations through the resultschain.Itisimportanttonotethatthereareinformationflows inandoutof themacroresults chain, from and to other systems andactors.Thecauseandeffectlogicdoesnot make the macro-results chain a closed system.

Theinternalorganizationforservicedeliverydiffers in the extent of independence ofthe operational role and responsibility inplanning-budgeting available to different

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RESPONSIBILITY INFORMATION FLOWS RESULTS CHAIN

Provincial/Local Steerage Development ResultsImpacts and outcomes for which

Providers contribute

Development Partnership ResultsObjec�ves and Outcomes to whichProvider contributes directly or are

a�ributable to providerinterven�ons

Impacts

Objec�ves

Inputs

Provider/Organisa�on Level Results

Organisa�onal opera�on performance of Provider

interven�onsProvincial Agency/Local Government Unit

Provincial Level Ministry/ Local Level Program

Outcomes

Outputs

Ac�vi�es

Figure 05: Framework for Micro-Macro Alignment

(Adapted from, OECD, 2017., Strengthening the Results Chain: A Discussion Paper)

lines of service delivery as between provincial and local governments. Whileindependent spending agencies with responsibility for planning-budgeting ofservice deliveries do not exist as such inlocalgovernment(exceptperhapsMunicipalCouncils),servicelinesfunctionas“projects”within the program budget framework of local government. Therefore, while the extenttowhichthetiersofengagementinproducing results may be differentiated inlocal government, and hence generationof service delivery results, informationmay not be differentiated, definition ofsuch levels of results engagement and informationgenerationarefundamentaltothe alignment of planning-budgeting withthe achievement of outcomes and impacts.

Whiledifferentlevelsofplanning-budgetingengagement with the results chain can be definedintermsofprovision,partnershipinprovision,anddevelopmentasdistinctlevels

of operations in the provincial and localgovernments, it is important to recognizethat they are components in a larger system. However, neither the provincial nor the localareclosedsystems.Fromasustainabledevelopment perspective what happensin one will influence the sustainabledevelopment outcomes being delivered by the other.

2.4.3. Way Forward in Localizing the Financing of SDGs

Aframework for localizing thefinancingofSDGs should provide for coherence across multiple dimensions. First is coherence oflocalized financing with local sustainabledevelopment outcomes. This requires coherencebetweenlocalizedfinancingandnational sectoral financing strategies so asto bring about complementarity between national sectoral financing strategies and

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localizedfinancingimperativesoftheSDGs.The second is about coherence between different financing policies in terms ofaddressing trade-offs and synergies,especially in terms of integrated financingof local SDG outcomes. The third area of coherence is institutional, facilitatingintegration, coordination and cooperationbetween different financing roles andresponsibilities. Institutional coherencealso involves structures and processes for social accountability of localised financing.It is imperative that such coherence is notworked out in a manner that is compliance oriented. Rather, coherence should createfinancing space to implement localizedSDG outcomes for leaving no one behind inthespatialscale.Thus,coherenceshouldbe dynamic in creating financing spacefor the required SDG actions and hencetransformationalinscopeandcontent.

Coherence and cohesion in service delivery, economic, social and environmental, is the necessary basis to ensure that outcomes are in focus, realistic and affordable. Itrequires a framework of systems, structures and processes for not only integratingdisconnects in financing across the triplebottom basis of sustainable development. SuchlocalizingofafinancingframeworkforSDGsshouldgetinstitutionalizedaroundthefollowingelementsofgovernanceactions.

A. Localising SDGs around integrated planning into a set of provincial development priorities.

Thisactionwillinvolvealigningthesectoralplanning framework around provincial development issues for localising the SDGs into a set of development priorities atprovincial spatial scales. These prioritieswillconstituteanoverarchingframeworkofprovincial development outcomes guiding service deliveries of both de-concentrated and devolved structures and agencies.

It will, for a coherent and cohesivesubnational (both devolved and de-concentrated)servicedeliveries;

i. inform the prioritization of sectoralagencyoutputsandoutcomes;

ii. provide the basis for informing respectiveplanningandbudgetingrolesandresponsibilities;

iii. identifythesetofindicatorsfortargetingand monitoring the subnationaldevelopmentpriorities;

B. Localizing the provincial development priorities to a local spatial scale service delivery system.

The framework of provincial development outcomes will be localized to guide locallevel service delivery of the divisional administrations and local governmentinstitutions. It will allow aligning agencyoutputs with localized subnationaldevelopment outcomes and development priorities. Such a local level development framework will provide the basis for aligning privatesectorservicedeliveryactivitieswiththesubnationaldevelopmentpriorities.

C. Designing a localized targeting and monitoring system for tracking excluded households.

The fundamental purpose of localizingthe provincial development priorities tothe local level is toenablethetargetingofservice deliveries so as to deliver on the SDG promise of “leaving no one behind”. This actionwillinvolve:

i. establishing the local baseline of integratedprovincial/localdevelopmentoutcomesfortargetingservicedelivery;

ii. theidentificationofgapsinattainmentsof development priorities and theassessmentoflocaldevelopmentneeds;

iii. formulating annual service delivery

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plans for integrating agency servicedeliveryoutputs;

iv. aligning private sector and non-governmentservicedeliveries;and

v. designing a local level monitoring system.

D. Institutionalizing a stakeholder partnership for financing and implementing localized development outcomes.

A localized framework of developmentoutcomes inturndefinesthedevelopmentspace for establishing partnerships in

financingandimplementingthelocalservicedeliveryplan.Theactioninvolvesformulatingmedium-term service delivery plans around a set of local service deliveries around roles of the divisional administration and localgovernment institutions for identifyingprivate sector and non-government financing and implementation roles andresponsibilities. The service deliveryplans will be aligned with the localizeddevelopment outcomes. This will allow for the clustering of government, private sector and non-government partnerships around subnationaldevelopmentoutcomes.

CHAPTER03:

THE FINANCING CONTEXTAn Analysis of Domestic and International Financing for implementing the SDGs in Sri Lanka

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THE FINANCING CONTEXT

3.1 IntroductionAsasignatorytothe2030Agenda,SriLankaisexpectedtoalignitsfinancingpolicesandstrategiesinpreparationforatransformationtowards sustainable development. The United Nations Secretary General’sRoadmap for Financing the 2030 Agendafor Sustainable Development 2019 – 2021designed to transformthefinancial systemfrom global to local levels, focuses on three objectives. These include aligning globaleconomicpoliciesandfinancialsystemswiththe 2030 Agenda, enhancing sustainablefinancing strategies and investments atregional and country levels, and, seizingthe potential of financial innovations, newtechnologiesanddigitalization.Thisstrategywas developed to address the barriers that constrain channelling finance towardssustainable development and leveraging opportunities to increase investments inthe SDGs. Early assessments by the United Nations Economic and Social CommissionforAsiaandthePacific (UNESCAP)suggestthatSriLankawillneedanannualadditionalinvestment of 4.4% of the 2018 GDPthrough2030toprovideasocialprotection(1.7%),povertygaptransfers(0.2%),qualityeducation (1.6%) and climate-resilientinfrastructure(0.8%).

However, Sri Lanka is yet to formulate a national financing architecture towardsaligning itseconomicpoliciesandfinancialsystems with the 2030 Agenda. Thegovernment has not conducted a proper assessmenttoidentifytherequiredfinancialcommitment towards implementing theSDGs. Therefore, it has not been able to assess the potential benefits that canbe drawn from such a transformativeinvestment. A proper assessment or planning process will require an inquiry of the current stateof theeconomyandcontributionsbyall stakeholders including internationaland domestic partners. Considering the

limitations of international developmentfinancing for the SDGs, Sri Lanka needs topursueall domesticfinancingavenues. Aspublic finance alonewould not be able toentirely drive a transformation, enhancingthe potential of private sector and othernon-state sector actors from national tosubnationallevelswouldbevital.

A poorly managed economy, with a constant budget deficit and increasingsocial and economic inequalities, raisescriticalquestionsastoitscapacitytoadopttransformative action, as required by the2030AgendaforSustainableDevelopment.The analysis of the financing contextprovides a review of the prevailing economic environment including the resilience, readiness and support for domesticresourcemobilisationfortheSDGs.Besidesrestructuring public financing, an analysisinto international support, private sectorinvestment, non-profit sector action, andthe readiness of the banking sector will provide insight into evolving a domesticresourcemobilization framework for SDGsin Sri Lanka.

3.2. National Economic Environment for Implementing the SDGs

TheWorldBank,whichclassifiedSri Lankain the upper-middle income category in 2019, downgraded it in June 2020 tolower-middle income status. Despite many interventions, export earnings and FDIinflowshaveremainedbelowpotential.Thelow improvement in investment efficiency,including infrastructure,publicfinanceandmanagement systems, has not helped with achieving the desired results. Relativelylowleveloftaxrevenueandincoherenttaxpoliciesareseenasconstrainingfactors;asof 2019, tax revenues have fallen due to

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weak collection of VAT, excise, and importtaxes. Meanwhile, the country’s access toconcessionaryfinancehaddeclinedwhenitwaselevatedtomiddle-incomestatus.Whenconsidering the growing demand for public investment in addition to the continuedriseofpublicdebt,Sri Lankaneeds tofinda more resilient and sustainable model for domesticdevelopmentfinance.

3.2.1. A Statistical Analysis of the State of the Economy

WhileSouthAsiahasemergedasthefastestgrowing sub-region in the world, with an annual average growth rate slightly over 7%,SriLanka’sgrowthhasbeenonly3.5%.The Gross Domestic Product (GDP) in SriLanka was worth 84.01 billion US dollars in 2019 and theGDP value of the countryrepresents 0.07% of the world economy.The country recorded a government budget deficitequalto6.8%ofthecountry’sGrossDomesticProductin2019,atrendofthelastdecade that forecasts to continue into theforeseeablefuture.SriLanka’sgovernmentdebtaccountedfor86.8%ofthecountry’sNominal GDP in 2019, and external debtstoodatUS$50.45billioninthefirstquarterof2020.SriLanka’sdebtisoneofthehighestdebt-to-GDPratiosintheSAARCandASEANregions.

71.6 71.1

68.770.8 71.3

78.5 7979.9

83.7

86.890

85

80

75

70

652010 2012 2014 2016 2018 2020 2010 2012 2014 2016 2018 2020

-7

-6.2

-5.6-5.4

-5.7

-7.6

-5.3-5.5

-5.3

-6.8

-5

-5.5

-6

-6.5

-7

-7.5

8

Figure 06: Sri Lanka Government Debt to GDP 2010-2020 (past and forecast)

Figure 07: Sri Lanka Government Budget Deficit 2010-2020 (past and forecast)

Source: Trading Economics Source: Trading Economics

Sri Lanka’s economy grew at an averageof 5.6% during 2010–2019; however, thegrowth has slowed down in the last few years while key macroeconomic challenges such asinflation,unemploymentandbalanceofpayment issues persist. According to the World Bank low fiscal revenues combinedwith largely non-discretionary expendituresuch as salary bill, transfers, and interest payments,couldaffectcriticaldevelopmentspending on health, education and socialprotection. The post 2009 period took asignificantturninthenationaleconomy,andthecountryexperiencedhighgrowthratesrecordedat8%(in2010)and9%(in2011),with the Northern and Eastern Provincesjoining the national economy. However, itishighlyquestionableifthecountryreapedthe peace dividends fully and how that translatedintoeconomicbenefitsatlarge.

Therewere twomainnegativeshocks thatcaused Sri Lanka’s Gross National Income(GNI)tobestagnantinforeigncurrencytermsin 2019. One was the uncertainty createdwithintheeconomicsysteminthefirsthalfof2019,emanatingfromtheconstitutionalcrisis of October-December 2018 andthe lack of a proper budget approved by Parliament for 2019. The second was theseries of Easter bombing attacks onmajorhotelsandChristianchurchesinApril2019and the ensuing security situation acrossthe country. This shock reduced the growth

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momentum of the country in the second half of2019.Additionally,withtheonsetoftheCOVID -19 pandemic in 2020, a slowdownin economic activities especially in thetourism, trade, transport and constructionsectors, combined with the harsh impacts onthesmallandmediumsizedenterprises(SME)isexpected.

SriLanka’sofficialPovertyHeadcountIndexBased on the Official Poverty Line (2016)is 4.1% showing a steady decline over theyears,yet11.9%arereportedasvulnerableinrelationtopovertystatusinSriLankawhichamounts to 2.5 million underprivilegedpeople. There are significant disparitiesacross sectors, provinces and districts. Forinstance, 11.3% of the population residingintheestatesectoraremultidimensionallypoor. While the overall unemploymentwas relatively low at 4.4% in 2018, youthunemployment recorded 21.4%. Due tochanges in the composition of migrantworkers from Sri Lanka a decrease in remittances is expected; this may lead toa lower contribution to household incomeresulting in a drop in the pace of povertyreduction.

One of the main concerns is the wide disparity in income distribution acrosscitizens, and the disparity in the incomesearnedat aprovincial level. In the caseoftheincomedisparityamongcitizens,thetop20%ofthepopulationreceivesalittleover50%of the total incomeof thecountry. Incontrast,thelowest20%receiveonly5%ofthetotalincome.Withregardtotheincomedisparity among the provinces, the majorshare of 37% was earned in the WesternProvince whereas the rest of the country had earned the balance 63%. Accordingly,eight out of the nine provinces were below the minimum income threshold for an upper middle-income country. As such, from the welfare point of people, a large segment ofSriLanka’spopulationhasnotbeenable

toenjoy livingstandardsattributabletoanupper middle-income country.

As for inflation, according to the CentralBank of Sri Lanka, the country’s headlineinflation, asmeasuredby the year-on-yearchange in the National Consumer PriceIndex,increasedto6.2%inDecember2019from4.1%inNovember2018.AccordingtotheCBSL,ithastakenanumberofmonetaryand regulatory policy measures to induce a reductioninmarketlendingrates,enablingthem to reduce the cost of mobilising funds from the general public. However, the demand for private credit has shown limited responsiveness because of low economic activity.

Public debt levels are high in Sri Lanka with atotaldebttoGDPratiorecordedat86.8%in2019.Grossofficialreservesareexpectedto remain relatively low as the countryfaces large debt repayments. Sri Lanka, has facedchallengesinitseffortstostrengthenrevenues and while Sri Lanka has raised enough foreign currency funds to manage immediate debt repayments, continuedlarge refinancing requirements make theeconomy vulnerable to global financialconditions. The latest Asian DevelopmentOutlook,notesthatlowerimportsreflectingthereductioninglobaloilpricesandenergydemand, subdued domestic demand, andrestrictions imposed on imports by theCentralBankofSri Lankawillhelp tokeepthecurrentaccountdeficit incheck,whichisexpectedtowidento2.8%ofGDPin2020beforefallingto2.6%in2021.

Both the International Monetary Fund(IMF)andWorldBank(WB)havecalledforcontinuedfiscalconsolidation,i.e.concretepolicies aimed at reducing government deficits and debt accumulation, throughbroadening the tax base and aligningspending with priorities. In Sri Lanka, taxrevenue has consistently stagnated due

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Year GDP (USD billions)

Total Debt to GDP

% of Total Debt % of Total Foreign debt % of Total Foreign debt

Domestic Foreign Concessional NonConcessional

InternationalSovereign bond issuance

2015 80.6 76.0% 58% 42% 49% 51% 27%2019 84.0 86.8% 51% 49% 43% 57% 43%

Table 11: Comparative Summary - Country’s Debt Position

tothelimitedtaxbase. Inaddition,adhoctaxes introduced to fill the revenue gaphave served to complicate the tax system.The Government has taken steps to improve revenuecollection.OnesuchinitiativeistheenactmentandimplementationofthenewInland Revenue Act, No. 24 of 2017, withtheobjectiveofimprovingdirecttaxincomethrough rationalising and simplifying theexisting income tax structure, broadeningtheincometaxbase,andstrengtheningtaxadministration.Inaddition,thegovernmentintroduced amendments such as lowering the registration threshold and removingexemptionstotheVATandNationBuildingTax(NBT)Actsin2016,toimproverevenuecollectionrelatedtoVATandNBT.However,the persistent revenue shortfall over theyear, indicated by the fiscal deficit, showsthe need to further strengthen domesticresource mobilisation. Currently, thegovernment depends heavily on borrowing tofinancethebudgetdeficit.Asmentionedearlierthisfigurewhichisover80%ofGDPisdeemed very high. Across the past decade, the total revenue of the Government has ranged from 11% to 15% of GDP. Thecurrent government revenue as a share of GDPis13.8%andtaxrevenuehasstagnatedaround 12% of GDP from 2015 onwards.This is a cause for concern considering that, overtheyears,taxrevenuehascontributed

around 86% of total government revenue.In fact, according to 2017 estimates, thetotaltaxrevenueaccountedfor91%oftotalrevenue, with Value Added Tax (VAT) andincome taxes accounting for 24%and15%ofoverallrevenue,respectively.

Moreover, if countries are able to reform their tax systems correctly, then thiswould be one of the important sources of development financing available. Notonly will this help to generate the revenue needed to pay for the SDGs and fund normal governmentoperations, itwillalsohelp tobuild and/or reinforce the social compactbetween governments and their citizens.According to the World Bank, Sri Lanka’scapital investments as a percentage of GDP from2015-2018hasamountedto31.18%,27.85%, 28.83%, and 28.58% respectively.Thisisahealthycapitalinvestmentratiofora healthy economic growth for a country withabudgetdeficit.Whencomparingthetradedeficit andcapital investment trendsofSriLanka,itisobviousthatinternationalinvestments/funding play a significant rolein promoting capital investments orientedtowards sustainable development.

The World Bank in its Sri Lanka countryprofile furthermentions that the followingare priority areas: (a) shifting to a privateinvestment-tradable sector-led growth

Source : Based on CBSL annual reporting

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model by improving trade, investment, innovation and the business environment;(b) improving governance and State Owned Enterprise (SOE) performance; (c)addressing the impact of an aging workforce by increasing labour force participation,encouraging longer working lives and investing in skills to improve productivity;and(d)mitigatingtheimpactofreformsonthe poor and vulnerable with well-targeted socialprotectionspending.

ThemainconcernforSriLanka’seconomyisthat it is not growing fast enough to produce domestic resources while also sufferingfrom poor efficiency; the services sectorin 2018 accounted for about 56% of theeconomywhileemployingonly46.6%oftheworkforce.Incontexttheagriculturalsectoraccountedforabout7.9%,whileemployingover25%ofthelabourforce.SriLankahasapoorlabourforceparticipationrate,whichis another sign of inefficiency. In 2018,the labour participation rate was a mere51.8%; female labour force participationwas even lower at 33.6% according togovernment data, well below its peers in the same income category. Sri Lanka’seconomic complexity has also worsened;the economic complexity of a country is

40

35

30

25

20

19851988

1991 19941997 2000

2003 20062009

2012 20152018

Figure 08: Sri Lanka’s Capital Investments 1985-2018 as a Percentage of GDP

Source: World Bank

calculatedbasedonthediversityofexportsa country produces and their ubiquity. In2018, Sri Lanka’s Economic ComplexityIndex(ECI)was-0.65andwasranked97outof137countries.SriLankawasthenumber64 economy in the world in terms of GDP (currentUS$), number 84 in total exports,number 80 in total imports, and number 97 meansa‘mostcomplex’economyaccordingtotheEconomicComplexityIndex(ECI).

Together, these inefficiencies have led toa serious weakness in the trade-positionof the economy. This is highlighted by the ongoing COVID-19 pandemic, which hasforced the country to restrict imports in an effort to preserve its foreign exchangereserves.Thelackofcomplexitycontributestoasignificanttrade-deficit,morethanhalfofwhichisfinancedthroughtheremittancesof migrant workers (especially low-skilled workers). In 2018, these remittancesamounted to more than $7 billion, one of themost important foreignprivate inflowsandamajorcontributortotheeconomyofSri Lanka. The 7$ billion the country received inremittancesweremostlyflowsdirectlytothe families for workers employed abroad. These workers range from low-skilled workers employed as maids to high-skilled

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workers who may be employed in the knowledge sectors of foreign economies. WorkerremittancesconstituteanimportantcomponentintheBalanceofPayments(BoP)accounts inSriLankaaswell.Forexample,in 2017, foreign exchange earnings fromworker remittances stood at $ 7.2 billion,wellaheadofothermajorforeignexchangeearners, such as apparel ($5 billion) and tourism ($3.9 billion). As a share of GDP,worker remittances accounted for 8.6 %,andmoreinterestingly,workerremittancesalone covered 96% of the trade deficit in2017.

TheUnitedNationsclaimsthatremittancescan contribute to reaching the SDGs in a variety of ways: at household level, by recognizing the positive socioeconomicimpactofremittancesonfamilies’wellbeing;at community level, by supporting policiesand specific actions to promote synergiesbetween remittances and financialinclusion, encouragingmarket competitionand regulatory reform, andmitigating anynegative impact resulting from climatechange; and at international level it canensure revitalised Global Partnerships for Sustainable Development. Thus, a pandemic or a similar shock, which forces these migrants back to Sri Lanka, who cannot be efficiently employed, has the potential toleave the Sri Lankan economy dangerously vulnerable. Without remittances, thecountry also cannot fund its trade-deficit,and it must cut-down imports and restrict investment.Thesecutswillinvariablyaffectits export sector because many of thosesameimportsareusedasinputsforexportproducts; the cycle is one that reduceseconomic growth.

The slow growth rate of the economy, serious inefficiencies, low labourparticipation and low complexity, raisesconcernsfordomesticresourcemoblisationfor the implementation of the SDGs. The

country appears to struggle to generate adequate resources to pull people out of poverty, produce the public goods to keep them out of poverty, and transit towards a more socially inclusive and environmentally sustainable economy.

3.2.2. External Flows towards Strengthening Domestic Financing

Beinga countrywith a continuednegativebudgetbalance,internationalfinanceflowsplay a crucial role. To a degree, it could compensate for a weak national economythat cannot generate enough resources to invest in the SDGs. In this context, theinternationalsystemconsistsofthefullsumof bi-lateral funding, multilateral fundingandinternationalmarketsthatcouldbeusedtoleveragesuchfinance.Whilegovernmentinvestment is directed towards achieving national security, food security, energysecurity, creatingnew industrial initiatives,publichealth,education,skillsdevelopmentand a knowledge-based economy, the private sector investment is geared towards expanding the value-chains in the exportssectorwhileenhancing localproduction. Itisimportantthattheinternationalfinancesare used in such a manner that it unlocks domestic investments and contributes tosustainabledevelopmenttransformation.

A. Government Borrowings:

From an initial US$500 million ininternational sovereign bond (ISB) issue in2007,SriLankawentontoamassUS$15.3billion in debt from subsequent ISB issuesandforeigncurrencytermfinancingfacilities,from2007to2018.Mostareborrowedfrominternationalcapitalmarketsintheformofsovereign bonds, term financing facilitiesandforeignholdingsofgilt-edgedsecurities.Sri Lanka being unable to implement policies

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to attract non-debt creating capital flows,enhanceproductivity,andachievesustainedgrowth, means successive Sri Lankan governments have used cheap debt markets to finance persistent fiscal and currentaccount deficits. Thus, today the countryappears to be caught up in what is termed a ‘debttrap’.Thecountryisinaclassicviciouscycle of ever-increasing borrowings to pay pastdebtsandfinanceongoingdeficits.

These high interest borrowings now exceeda thirdof Sri Lanka’s totaldebt.Asa result, Sri Lanka faces a record foreign debt repayment which amounted to nearly US$6billionin2019.Withlowreservesandtighteningmarket conditions, findingwaystomeet these repaymentobligations is aneffort.Thesearchforfundshaspushedthecountry to borrow even more from non-concessional sources, including commercial bank borrowings from China, while searching for cheaper funds. In January 2019, theCentralBankannouncedthatSriLankawasseeking to raise nearly US$5 billion through sovereign bonds, a bilateral loan from China andacurrencyswapwiththeReserveBankofIndia.

When combined, international public andprivatefinancerepresentoverUS$10billioninfinanceassets.Thisisequivalenttoabout10% of the economy and flows directlyto private enterprises and households. Given the weakness in the economy, the international systemcould supplya sourceoftargetedfinanceforSDGrelatedactivities.How these resources are leveraged will depend on the various stakeholders of the national economy, including banks, privateenterprises, and civil society organizations(CSOs).

B. Official Development Assistance:

Over four decades, Sri Lanka has been accessingforeignfinancialassistanceinthe

formof concessional loans, export credits,technical assistance and outright grants under Official Development Assistance(ODA) from bilateral and multilateraldevelopment partners, and also in the form of market borrowings. Sri Lanka benefitssignificantly from bilateral andmultilateralfunding,butthesesourcesarestillafractionof the national GDP. In 2018, the top 4development partners were China, Japan, theADBandtheWorldBank.Inthatsameyear,OfficialDevelopmentAssistance(ODA)disbursed to Sri Lanka amounted to $1.39billion; most of which was concessionalloans, while technical assistance and grants totalled $ 21.6 million. In comparison tothe national economy, which was about$90billionatthetime,internationalpublicfinanceamountstolittleover1%ofthetotalGDP. Moreover, many of these sources, with exceptionssuchastheADBandWorldBank,donot explicitly refer to the SDGs in theirfinancial assistance schemes;nevertheless,their activities are mostly concentrated inprojectsthatcontributetotheadvancementofparticularSDGs.

Borrowingcanleadtosignificantdebt,andin2019alone,SriLankafacedarecordforeigndebt repayment of nearly US$6 billion. However,foreignpublicfinancialassistanceisimportant,especiallywhentryingtoattractfunds for the provision of public goods, which rarely attract international privatefinance.Thepresentborrowingstrategyofthe Government includes borrowing at the lowest possible cost and low risks such as refining, exchange rate and interest raterisks, and ensuring adequate provision to service the existing debt on time. In linewith these principles, numerous strategies are being adopted by the Government to mobilizeexternalfinancingfordevelopmentprojects in the country and include:exploring the possibilities of obtainingconcessionary and non - concessionary funds at a minimum cost and lower risks for

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financing development projects; paymoreattentiontothesectorswhichgeneratecashflowwhenraisingfundsforthefieldswhichare directly related to improving economic infrastructure facilities and productivity inthe economy; obtain loans with a longerrepayment period,maximum grace periodand favourable grant element; assist thestate-owned enterprises to improve their assets by encouraging them to obtain loans directly fromexternal sources undergovernmentguarantees;andusetheCapitalMarket through alternative methods suchastheissuingofSovereignBonds.

Sri Lanka’s graduation to lower-middleincome status in 2010 was accompaniedby a reduction in access to concessionaryfinance. As illustrated below, the totalgrant amount received by the government has decreased over the years, accountingfor 0.1% in 2017. Official DevelopmentAssistancehasdeclinedfrom1.7%ofGNIin2009to0.5%ofGNIin2016.Theproportionof non-concessionary external debt hasgrownfrom7%oftotaldebtin2006to55%

by2017.

The majority of foreign funding to SriLanka is through bilateral and multilaterallending agencies, including the Asian Development Bank (ADB), theWorld Bank(WB) and development partner countriessuch as China and Japan. These funds are not specifically earmarked for the SDGs.However, Multilateral Banks (MLBs) suchas ADB claim to track the links betweentheir projects and the SDGs since 2016.This includes improving monitoring how the projects and programs it finances willsupport SDG targets. Similarly, WB Grouphas produced several tools to help countries prioritize and sequence the SDGs. On thedata side, the World Bank Data Grouphas revamped the interactive Atlas ofSustainable Development Goals.

The Central Government is responsible for deciding where the funds will be distributed to both geographically and sector wise. An important point on concessional loans is that there has to be a counterpart contribution, where the government has

1.80%1.60%1.40%1.20%1.00%0.80%0.60%0.40%0.20%0.00%

1.7%

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0.7%

0.5%

2009 2010 2011 2012 2013 2014 2015 2016 2017

0.3%0.2% 0.2% 0.2% 0.1% 0.1% 0.1% 0.1%

0.6% 0.6%0.5% 0.5%

Grant Income (% of GDP) ODA (% of GNI)

Figure 09: Grant Income and Official Development Assistance received, 2009 to 2017

Source: Central Bank of Sri Lanka annual report various issues / World Bank development indicator database

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toinvestasmallportionoftheirmoney.SriLankaalsohasmultiplebilateralagreementswithmanycountries.Datafor2018showsthat China is the second biggest lender to Sri Lanka, behind the ADB. China hasbecome the largest partner to Sri Lanka in terms of foreign investment, contractingconstruction, tourist volume and foreignaid. Chinese loans are 10% of Sri Lanka’stotalforeigndebtandofthis,60%waslenton concessional terms. In 2018, the ADBcommittedUSdollars1432.5millionintotaltowards Sri Lanka, where loans, grants and others sum up to US dollars 520 million,technical assistance amounting to US$ 5millionandco-financingreachingUS$907.5million. In addition, the World Bank hasinvestedUS$125millionforaclimatesmartirrigatedagriculturalproject inSri Lanka in2019.

SriLankahasmultiplebilateralagreementswith 28 countries according to the BOIguide (2019). Bilateral donor agreementsgenerally have political reasons and oftenalign with the foreign policy of the donor country. As it is necessary to cater towards the sustainable development principles, Sri LankaisdevelopingitsnewmodelBilateralInvestment promotion and protectiontreaties (BIT)accordingly, toattract foreigninvestments. Bilateral donors are alsoproviding sizable capital investments toSriLanka indifferentsectors.Asforcapitalinvestments through bilateral agreements, anexampleistheRajagiriyaflyoverproject(which costs Rs. 4.7 billion), funded by aconcessionary loan from the Government of Spain.

However, bilateral donor negotiationstowards SDGs are yet to take place. On the other hand, Bilateral financing countriessuch as Japan, China and India supportcoal power plants in Sri Lanka; seen asgoing against the Paris Agreement and the 2030 Agenda commitments. There

are some positive signs however, with EUmoving towards greener and sustainable investment.Beingamiddle-incomecountry,the interest from donors to provide grants toSriLankahasgraduallydiminished;98%offundingisprovidedasloansandonly2%asgrantsintheyear2018.

Figure 10: Foreign Financing Disbursements in 2018

Foreign financing is channelled throughpublic, private, and other sectors, yet the public channel is more predominant. Oftentheprivateinternationalinvestmentsflow as “business investments” to profitgenerating investments in the form ofloans,equitiesandguarantees.Theforeigninvestmentsintothesectorsorprojectswillnotgenerateprofitsintheshortrun,butwillcreate a conducive environment to unlock development that are often channelledthrough the public sector. A small portionForeign financing is channelled throughpublic, private, and other sectors, yet the public channel is more predominant. Oftentheprivateinternationalinvestmentsflow as “business investments” to profitgenerating investments in the form ofloans,equitiesandguarantees.Theforeigninvestmentsintothesectorsorprojectswillnotgenerateprofitsintheshortrun,butwill

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Development Partner Amount Disbursed (USD Mn) Loan Grant Total

Bilateral 475.99 57.00 532.99

Australia 25.10 25.10

France 50.88 50.88

Japan 95.78 2.30 98.08

Korea 14.00 7.50 21.50

SaudiFund 15.83 15.83

Netherlands 59.07 59.07

Austria 30.38 30.38

India 45.27 45.27

USA 22.10 22.10

China 164.78 164.78

Multilateral 632.68 75.92 708.60

Bilateral 475.99 57.00 532.99

Australia 25.10 25.10

France 50.88 50.88

Japan 95.78 2.30 98.08

Korea 14.00 7.50 21.50

SaudiFund 15.83 15.83

create a conducive environment to unlock development that are often channelledthrough the public sector. A small portionof investments comes from foreign donors and charities through other stakeholdersincluding non-governmental organizations(NGO’s)andothercivilsocietyorganizations(CSOs)ofwhichthecumulativedata isnotpubliclyavailable.Whiletheseamountsmaybe small, the impact on social, environmental aswell asmicro-enterprises are significantand needs to be fully accounted towards assessing resource mobilization for theSDGs.

C. Foreign Direct Investment

Sri Lanka, like most countries cannot meet their total capital requirements from internal resources alone, they turn to foreigninvestors.Foreignprivateinvestmentincludingforeigndirectinvestment(FDI)andforeign portfolio investment (FPI) are themain approaches to domestic investment.In Sri Lanka, the FDIs are facilitated andregulatedbytheBoardofInvestment(BOI)ofSriLanka.TheBOIhasidentifiedkeytargetsectorswhereinternationalinvestorsshouldfocus upon, and include manufacturing of

Source: Department of External Resources, Ministry of Finance

Table 12: Foreign Financing Disbursements in 2018

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highvalueadded/hightechandapparels;it-enabled services, tourism, food processing, logistics, education and large-scaleinfrastructure.

Sri Lanka experienced a growth in FDIinflows in 2018 which amounted to USdollars 1.6 billion in comparison to US dollars 1.3billionin2017.AccordingtotheBOIofSri Lanka, international investments arecategorisedunderfoursectors;agriculture,manufacturing,servicesandInfrastructure.The Agriculture Sector observed a decrement in the FDI to $ 0.5 million in2018incomparisonto$1.4millionin2017.IntermsofIndustrialsector,manufacturingexperiencedacontractionin2018to$291.5million in comparison to $317.8million in2017, whereas infrastructure increased to$1773.7millionin2018whencomparedto$1043.5millionin2017.In2018,FDIinflowswerechannelled largelytoprojectsrelatedtoports, telecommunications,housingandproperty development and hotels, while FDI inflows to the manufacturing sector

remained moderate.

The Asian Development Bank too notes,that FDI increased noticeably during thefive years following the end of the civilconflict in 2009. The inflows have beenheavily concentrated in tourist hotels and no tradable sectors; mostly real estate. Infact, FDI in export-orientedmanufacturingaccounted for less than 30% of totalapproved investment during 2010–2015.Stable economies with high growth prospectsoftenattracthigherlevelsofFDIs.AccordingtoaWorldBankblog,the largershareofFDIinflowstoSriLankahavebeenfocused on infrastructure, which helps with jobs and growth temporarily during theconstruction period but not over the longterm. Moreover, high infrastructure FDIrelies on a few, large infrastructure deals thatareunlikelytobereplicatedovertime.Manufacturing and services hold a betterpromise for the long run, but a large share of FDI is linked to traditional sectors andlocal market-oriented activities with low

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Figure 11: Foreign Direct Investment in Sri Lanka

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value-addition and smaller productivitygains.Only a relatively small proportion inexport-orientedmanufacturing and serviceactivities, reachingsectorsof theeconomythat are associatedwith global productionnetworks.

D. Development Financing

SDGtarget17.1callstostrengthendomesticresource mobilization, including throughinternational support to developingcountries, to improve domestic capacityfor tax and other revenue collection.Internationalfinancing is imperative forSriLanka to achieve the SDGs. However, the Government of Sri Lanka is responsible for defining the volume, instrument andinvestment priorities. Without assessingthe investment priorities in implementingthe SDGs, it will be difficult to channelinternational investments effectively. AnassessmentoffinancingfortheSDGsinSriLankashouldincludetargetingdevelopmentfinancenotavailabletosupportdevelopingcountries.

Development finance can be broadlydefinedastheuseofpublicsectorresourcesto facilitate private sector investment in low- and middle-income countries, where the commercialorpoliticalrisksaretoohightoattractpurelyprivatecapital.Developmentfinance institutions (DFIs) usedirect loans,loan guarantees, equity investments, and a variety of other products to support and enabletheseinvestments—andtomitigatepolitical and commercial risk. In recentyears,developmentfinancehasemergedasanincreasinglyimportanttooltofightglobalpoverty and reduce income inequality. Inmany cases, it has become an important complement to ODA and integral to achieving the SDGs. Ramping up the engagement ofDFI’s and Multilateral Development Banks(MDB’s), to facilitate additional privatecapital investment in developing countries

could result in dramatic progress towardsinclusive economic growth and opportunity. Mostoftheinternationalfinancesarenowtrying to strike a balance in economic, social, and environmental aspects in development rather than only looking at the economic benefits.Most of theMDBs have adoptedstrong social and environmental policies and have incorporated into the compliance frameworks of their funding process. Therefore, governments are compelled to follow these policies in accessing the financesprovidedbythem.

Blending with domestic finance,international finance has the potential ofcreating an enabling environment throughwhich to unlock domestic financing. Itis important to look at the policies of international donors, especially countrieswith strong policies towards sustainable development, as it can path Sri Lanka towards sustainable development. As such, international donors will impose a higherlevel of compliance responsibilities on therecipients. Sri Lanka will need to present stronger social and environment standards that will bring about the appropriate blend with economic aspects.

3.3. Private Sector Investment in Achieving the SDGs

Stakeholders of a national economy, bothpublic and private, are vital for mobilizingdomestic resources towards implementingthe SDGs. The private sector, defined asthesegmentofanationaleconomythat isowned, controlled, and managed by private individualsorenterpriseswithamotivationofprofitmaking,includessmallandmedium-sizedenterprises(SMEs),microorhouseholdbusinesses, corporate firms, multinationalcorporations(MNCs),institutionalinvestors,individuals enterprises; basically, all

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who are not owned or controlled by the government. The Registrar of Companies’website notes the registration of 103,832local private companies and 1,603 foreigncompanies; most of which fall under theabove definition. Their activities, whetherexplicitly or implicitly associated with theSDGs, will determine the success of the 2030AgendaforSriLanka.Amiddle-incomecountry like Sri Lanka will need all the support available in achieving the SDGs and the private sector has an irrefutable role to play.However,domesticprivateinvestmentis yet to become a significant financesource driving Sri Lanka’s effort towardsachieving theSDGs.At the sametime, thegovernment’s task lies in encouraging andcompellingtheactionsoftheprivatesectorwithin a domestic resource mobilisationframework for the SDGs, including through Public Private Partnerships (PPP).

3.3.1. Policy & Regulatory Environment for Private Sector Investment

Agenda 2030 recognizes that the privatesector is not only a source of capital, but also a source of jobs, innovation, technology,knowledge and practical experience.According to the World Bank, Sri Lanka’seconomy is transitioning towards a moreurbanized economy, oriented in favour ofmanufacturing and services. To achieve the SDGs as outlined in Agenda 2030, UNDPbelieves that will require actors across the public and private sectors to work togetherat scale. Thequestion iswhetherthe private sector in Sri Lanka is aligned withtheobjectivesofthe2030Agendaandready to implement the SDGs? Called the engineof growthof thenationaleconomyfor decades, the private sector still needsto demonstrate a greater interest and commitment as partner of the government, towardsadvancingthetransformation.

To attain the objective of becoming anupper-middle-income economy, the governmentfrom2015-2019hadrecognizedthe need to foster the private-sector and increaseexports.Therefore,thegovernmentplanned to leverage the country’s manyadvantages such as its natural resource base,strategicgeographicalposition,highlyliterate workforce etc. for sectors such as tourism, logistics, information technology-enabled services, and high-value-added food processing and apparels. In 2017, ForeignDirectInvestment(FDI) intoSriLankagrewto over $1,710 billion. This included foreign loans received by companies registered withtheBOImorethandoubling fromthe$801 million achieved the previous year. The National Budget of 2018 also claimedto continue to facilitate the private sectorthrough the implementation of reformmeasures in identified sectors, promoteexportsthroughforeigncapitalinfusion,andrevive local entrepreneurs. The budget was introduced under the theme ‘Blue GreenBudget’,withtheexpectationofsupportingthe achievement of medium-term targets suchasPerCapita Incomeof$5,000,onemillionnew jobs, FDI inflowsof$5billionandthedoublingofexportsto$20billion.

The World Bank had proposed strategiestowardsattractingmoreFDI.Theseincludedreworking the trade policy, improving logistics and trade facilitation, promotinginvestments and enabling regulationswhile avoiding policy uncertainty, boostinginnovation by way of competitive productand financial markets, addressing labour-related issuesandgettingwomentowork,and providing enabling logistics and therightinfrastructureenvironment.SriLanka’sInvestmentGuide for2019too,states thatthe country’s investment policy is gearedtowards the realization of national SDGsand is grounded in the country’s overalldevelopment strategy.

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3.3.2. Expectations for Private Sector Investment

Private investment rose immediately afterthe end (in 2009) of the Civil War, butstagnated thereafter from 2012 onwards;private savings declined sharply in 2011but have recovered since then. According to the ADB, Sri Lanka’s Private Sectorinvestment has remained constrained because the business environment has not been conducive and also due to the dominant role played by the state sector. Sri Lanka’sinvestmenttoGDPratioforpastfiveyears hovers around 30%, which is madeup of 24% Private Sector Investment, 5%Public Investment, and 2% Foreign DirectInvestment. The Private Sector borrowsfrom local and international banks andalso frommultilateral lending agencies oncertain criteria.

The ‘Sri Lanka Economic AccelerationFramework 2020-2025 of the CeylonChambers of Commerce (CCC), presents a private sector action plan, to guide SriLanka’seconomyfromUS$89billiontoUS$134billionwithinafive-yearperiod.Forthisvisiontobecomeareality,CCC’sexpectationis for the GDP to steadily rise from the current 3% levels to 5%-6% in the nextfew years.With such a strongerbase, it isanticipatedthatgrowthwilltakeoffto7-8%

by2025.Thegrowthisexpectedtobedrivenvia sectors such as exports (merchandisegoodsandservices),tourism,transportationand logistics amongst others. This is to bedone by consolidating and pivoting onfundamentaleconomicstrengths;includingfiscal discipline,macro stability, per capitaGDP,theglobalcompetitivenessindex,globalmarketaccess,SriLanka’sstrategiclocation,international relations, quality of life, thehumandevelopmentindex,globalflagships,societal freedoms, and the country’sresilience. This would require a focus on balanced sectoral growth, establishing growth enablers and accelerators, covering digitisation, education, SME acceleration,energy, and more.

The private sector is also expected tofacilitate the transfer and spread of new business technology, in order to encourage small and medium scale enterprises, which is identified as the largest contributor ofthe sector. Although most of the majorplayersintheprivatesectorutilisethelatesttechnology,asignificantportionofthesmalland medium entrepreneurs are lagging behind in this vital aspect. Therefore, it is imperative for the Government to initiateactionplanstoeducatelowerscalebusinessentities in the use of modern technologyto increaseproductivity.Theprivatesectorhas the strength and is best equipped to use

Major Industry Group Sri Lanka GenderMale Female

Sri Lanka 100.0 100.0 100.0

Agriculture 25.3 23.9 28.0

Industry 28.7 29.4 27.4

Services 46.0 46.8 44.6

Table 13: Employment by Sector

Source: Department of Census and Statistics 2018

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technology to enhance productivity muchmore than the public sector. Technological developments in areas such as health, education,andinfrastructurecancontributetowards economic growth and prosperity in the long run.

Inthiscontext,theprivatesectorinSriLankaas a key stakeholder in national economicdevelopment, is a primary job creator inthecountry,providingover85%ofthetotalemployment.AsperGovernment statisticsin2018,thetotalnumberofprivatesectoremployees was 8.3 million, contributingto tax revenuesand theflowof capital. Incomparison, public sector employment is approximatelyover1.1millioninSriLanka.Further,thereareoveramillionmicro,smalland medium scale entrepreneurs in Sri Lanka with over a three million strong workforce in the private sector. However, the private sector faces a consistent lack of labour, particularly in skilled labour and minoremployment categories. Approximately,over 5,000 employment vacancies are collectively being advertised weekly but itis not easy to recruit candidates that are ideally suited to the available vacancies.

The Government of Sri Lanka recognizesSMEs to be the backbone of the economy,

Employment Status Sri LankaNo

Sri Lanka 8,040,740Employee 4,547,822Public 1,063,775Private 3,484,047Employer 225,203OwnAccountWorker 2,633,377ContributingFamilyWorker 632.302

Table 14: Employment Status in Sri Lanka

as it accounts for more than 80% of thetotal number of enterprises, providing 45% of the total employment andcontributingto52%of theGrossDomesticProduction (GDP). SMEs promote broadbased equitable development and provide more opportunities for women andyouth participation within the economicdevelopment framework of the country. However, among the many challenges faced by SMEs, is that development literature identifiesaccesstofinanceasoneofthemainconstraints. While contributing immenselyto the national economy and servingthe “bottom of the pyramid” sections ofsociety,unfortunately, there isnostatisticsor documented public information abouthow the SMEs are engaged with the SDGs. In thedrive forprosperity,SriLankaneedsto assess the critical contribution SMEscould make towards advancing the SDG’sandprovideallthenecessaryincentivesandsupport.

3.3.3. Private Sector Investment Opportunities in the SDGs

Sri Lanka’s private sector, especially thelarger corporates, appears to approach the SDGs with a more fragmented and

Source: Department of Census and Statistics 2018

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project-based approach that they aremore comfortable with and used to. As such, Corporate Social Responsibility (CSR)and philanthropy has continued to bethe preferred strategic approach towards engaging with the SDGs. This approach to engage in a few philanthropic and charitable activities, environmental conservationprojects, public awareness, and corporatesponsorships provides a comfort zoneto ignore the integrated and indivisible nature of the SDGs. By doing so, thesecompaniestendtodrawsignificantbenefitsincomparisontothe investment: Itbooststhe morale of employees, which helps produce a more productive work force; Itenhances the image of the company, which inturnenhancestheimageofitsproducts;Ithelpstomaintaingoodrelationshipswithallsectorsofthecommunity;Ithelpscreatenew relationships with the government,aid agencies and other private sector companies; It can compensate for thenegative aspects of a company’s activities;and it opens up avenues for receiving taxexemptions and other concessions. Somereports claim that Sri Lanka spends over four billion rupees annually on CSR initiatives,but that these funds are spent on ad hoc projectsundertakenbydisparatecompaniesattheirowndiscretion.

While the private sector needs to gobeyond CSR investments, there is muchscope for the government to wield CSRexpenditure as a complementary tool inreaching pockets of poverty, by providing direction and guidance in identifyingdevelopment needs and marginalised communities.Thegovernment’staskliesinencouragingandcompelling theactionsofthe private sector, within a framework that leads to achieving the relevant targets, for example through tax concessions. PublicPrivate Partnerships are also a source of domesticfinance, thepotentialofwhich is

yettobefullyexploredinSriLanka.PublicPrivate Partnerships (PPPs) are considered as an alternative financing scheme.International investments flow throughPPPswhena foreignpartner joins throughan agreement. Some schools of thought classifyitasaformofFDI,butengagementofgovernmentmakesitadifferentchannel.On the other hand, it unlocks domesticfinances with international partnercontributions.For thispurpose,aPPPUnithas been established at the Ministry of Financein2017.ThePPPunitistaskedwithmanagingprojectselection,implementationand providing project transaction advice.It will also provide oversight in execution,transparency, good governance and the formulationofpolices.

WhilemostofthemediumtolargeSriLankancompanies tend to state sustainability as a coreobjectiveintheirliterature,somehavealigned their corporate communicationstowards ‘Sustainability Reporting’ withintheir annual reporting practices. This isseeninthesomanyCSRandsustainabilityawards schemes in Sri Lanka, offered bydifferent private sector chambers andassociations; for example, Sri Lanka CSRLeadership Awards 2018, ACCA Sri LankaSustainability Reporting Awards, and theBestCorporateCitizenSustainabilityAward.While, these corporate activities andassociatedrecognitionhasprovidedgreaterawareness and sensitising, there is littleevidence to showcase actual leveraging of CSR and voluntary sustainability standardswhich would otherwise result in the implementation of the SDGs or advancingsustainable development.

In order for the country to achievesustainable development, the private sector must take a sustainable approach to profit maximisation, and be mindfulof promoting environmental and socialinterests as well. The private sector needs

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to understand the greater opportunitiespresentedbyengagingandinvestingintheSDGs strategically, and developing strategic partnerships as well. For example, theUNDP plans to deliver on its ambition ofputting the SDGs at the heart of financialsystems, by providing services across seven strategic areas of engagement and taking an approach to strengthening effectivegovernance across their engagements: SDG FinancingStrategiesandIntegratedNationalFinancing Frameworks; Budgeting for theSDGs:IntegratingSDGsintodomesticpublicfinance throughbudget reform;PromotingSDG aligned fiscal instruments; Unlockingprivate finance for the SDGs; Leveraginginternationalpublicfinance;AlignbusinessstrategiesandoperationsfortheSDGs;andImpact measurement and reporting forfinancingtheSDGs.

A voluntary private sector assessment, the StandardCharteredBank’sSDGInvestmentMap, identifies a US$ 9.668 trillionopportunity for private-sector investors across all emerging markets. A combined potential private-sector investmentopportunity in Sri Lanka across the indicators measured as part of SDGs 6, 7 and 9 stands atanestimatedisUS$16.2billion.AlthoughSri Lanka has made significant progresstowardsSDGs6,7and9,substantialfundsare still needed to meet these. Accordingto the report titled ‘Opportunity2030’, thegreatest opportunity in Sri Lanka is found in achieving and maintaining universal accesstoelectricity;akeySDG7 indicator,electricitypresentsaUS$7.3billionprivate-sector investment opportunity. This takes into account the percentage of the Sri Lankanpopulationcurrentlywithoutaccessto electricity (2%), projected populationgrowth, and the growing demand for

power as the economy develops. To achieve universal power access, private-sector investment of approximately US$ 7.3billion is requiredbetweennowand2030,while digital and transport infrastructure development provides a potential private-sector investment opportunity of US$8.7 billion. Substantial investment is alsoneeded to achieve universal electricity accessinSriLanka.Althoughonly2%ofthepopulation currently lack access to power,it will take an estimated US$16.3 billionto bridge this gap and meet the growing electricity demand between now and 2030,withaprivate-sector contributionofapproximately US$7.3 billion. Water andsanitationaccess,meanwhile,iscurrentlyat93%,and itwill takearoundUS$2.1billionbetweennowand2030toachieveuniversalaccess, with an estimated US$ 0.2 billionprivate-sector investment opportunity. ForSDG 9, which encourages improvement in industry, innovation and infrastructure,Opportunity2030 highlights private sectorinvestment opportunities in transport andimproving digital access. In Sri Lanka, theareas needing the greatest investment by 2030 are the two SDG 9 indicators. AninvestmentofUS$13.1billion isneededtosignificantlyimprovethecountry’sLogisticsPerformanceIndex(LPI)infrastructurescore,with the private-sector opportunity standing at an estimated US$4.6 billion. Currently,Sri Lanka’s LPI infrastructure score is 2.49(out of 5), placing the economy 85th in the world.Withacurrentdigitalaccessrateof47%,moreinvestmentisrequiredtosecureuniversal access to mobile telephones and the internet. Achieving a digital access rate of 100% requires an investmentofUS$6.8billion, with the private-sector investment opportunity standing at US$4.1 billion, as seen in the Sri Lanka SDG investment grid.

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3.4. Banking Sector Readiness for Financing the SDGs

Financing the Sustainable DevelopmentGoals (SDGs) will require all nations, roletowards creating guidelines and criteriato encourage investment in SDG related activities; such initiatives have alreadystarted taking form in Sri Lanka.

3.4.1. The Challenge of Financial Innovation for the SDGs

AccordingtotheOrganisationforEconomicCo-operation and Development (OECD),ODA was $142.6 billion in 2016, while

SDG 6: Clean Water and Sanitation

SDG 7: Affordable and Clean Energy

MG 9; Industry, Innovation and Infrastructure

Sector Waterandsanitation Power Transport Digital access

Currentperformance

93%accesstocleanwaterandsanitation

98%accesstoelectricity

LPIinfrastruc-ture score of 2_4

47%digitalaccess

Targetby2030 100%accesstocleanwaterandsanitation

100%access.toelectricity

LGIinfrastruc-ture score of 2_82

100%digitalaccess

Totalinvestmentrequiredto2030

USD2.1bn USD16.3bn USD13.11bn USD 6.8bn

Potentialprivate- sector investment opportunity

USD0.2bn USD7.3bn USD4.5bn USD 6.1bn

Table 15: Investment Opportunity in Achieving the SDGs in Sri Lanka, by Sector Indicator

private sector direct foreign investment was US$523.3billionandpersonalremittancesstood at US$ 383.2 billion in 2015. Theseamounts, however, do not add up to the US$ 5 to US$ 7 trillion needed to address the SDGs. Therefore, private investment might be needed to complement public assistance. According to the Business andSustainable Development Commission, reaching the Sustainable Development Goals(SDGs)willunlockatleast$12trilliona year in economic development by 2030and generate 380 million jobs, much ofthis in developing countries. To unlock this opportunity, the finance sector is requiredto lead the charge to adapt and promote neweconomicandbusinessmodels.Banks

Source: Standard Chartered Bank of Sri Lanka

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must help businesses transition awayfrom practices that undermine SDG goals;commercial banks are essential to financethe substantial investment needed, whichisestimatedtocostbetweenUS$5trilliontoUS$7trillionperyearaccordingtoWorldBankestimates.Blendedfinanceisemergingas the strategic approach of development finance, for the mobilisation of additionalfinanceindevelopingcountries,particularlyto increase private sector investment in sustainable development.

There are many innovative financialtools and strategies that have been adopted internationally, but there is littleevidence that banks and financial sectororganisations inSri Lankaare fullyutilisingthese in an effective mix. For example:Impact investing - Investments that try tocreate a positive environmental or socialimpact; Green bonds - Public or companybonds for environmental investments, such as sustainable infrastructure, clean energy, waterorecosystemservices;Social impactbonds - Bonds that try to involve privateinvestments in solving social problems;Sustainable credit risk assessment - Applying social and environmental risk indicators in credit risk assessment - Green credit: Loans for commercial borrowers with businesses addressing environmental issues; Socially Responsible Investment -Usingpositiveandnegativeenvironmental,social and governance criteria, in additiontofinancial criteria to identify investmentsandrisks;Developmentbanks-Lendingandinvesting in projects and other activitiesaddressing sustainable development;Project finance - Applying the EquatorPrinciples (both social and environmental criteria as well as standardized processesandreporting)tomitigatethesustainabilityrisks of projects; Microfinance - Financingfor the poor to start a business in order to make their living and providing access to finance. The global opportunities and

potential from these financial tools andstrategiesamountstoaround$29.1trillion.Furthermore, the banking industry mayconsiderrecommendationsthathavebeenprovidedbyinternationalexpertsincluding:enhancingcurrentfinancialsectorcodesofconduct by integrating the SDGs; aligningexisting sustainablefinance strategieswiththe SDGs; standardise SDG accountingand reporting to identify the strengthsand weaknesses of, as well as risks and opportunities for, the banking industry inaddressingtheSDGs;anddevelopinnovativefinancial products that address the SDGs.Recommendations for governments andfinancial regulators include; align financialregulation with sustainable developmentand the SDGs; offer financial mechanismstomitigatefinancialrisks inaddressingtheSDGs; and align development banks withtheSDGs.Thefinancialsector inSriLanka,including public and private banks and the regulators, will need to consider all the optionsandopportunitiesavailabletowardsplanningthefinancialstrategiesforinvestingin the SDGs.

3.4.2 Banking Sector Plans for Aligning with the SDGs

Variouspublic andprivatebankingentitieshave come together to establish standards related to sustainable finance. In 2019,the CBSL unveiled a Sustainable FinanceRoadmap for the financial sector in SriLanka. The CBSL roadmap sets out plansto develop sustainable finance in SriLanka, aiming to provide guidance and supporttofinancial institutions inordertoeffectively manage environmental, socialand governance (ESG) risks associated with the projects they finance, and increasesupport to businesses that are greener, climate-friendlyandsociallyinclusive.Whilefocusingonbanksandnon-bankingfinancialinstitutions (NBFIs) regulated by the CBSL,

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the Roadmap reflects commitments andaspirations of the entire financial markettoward sustainability, including banking, capital market and insurance industry. The specificobjectivesoftheRoadmapareto(i)bring policy cohesiveness across Ministries, theCentralBank,otherfinancialregulators,andfinancial sectorparticipantswhilealsoaddressing specific ESG issues (ii) enhancethe resilience of financial institutions andenable them to grow and develop in a sustainable manner through effective ESGriskmanagement, and (ii) facilitate green/climate finance products and servicesinnovation to mobilize predominantlyprivate capital for sustainable investment, making available the financial resourcesrequired for Sri Lanka to achieve the SDGs. TheRoadmapproposesaseriesofstrategicactivities to implement sustainablefinancein Sri Lanka and revolves around six focusareas;financingVISION2030,ESGintegrationintothefinancialmarket,financialinclusion,capacitybuilding,internationalcooperation,andmeasurementandreporting.

PriortotheCBSLinitiative,in2015,theSriLanka Banks’ Association (SLBA) launchedtheSriLankaSustainableBanking Initiative(SL-SBI).Thiswasanindustryledvoluntaryinitiative. Eighteen banks have signed upwiththeaimtojointlyagreeuponminimalstandards or principles for integratingenvironmental and social considerationsinto operations, as well as to implementthese standards among the signatory banks. It provides a platform to advanceunderstanding and action on responsiblebanking practices that can facilitatesustainableeconomicgrowthinSriLanka.Itjoinsagrowingnumberofsimilarinitiativesacross the financial sector globally, as thesector comes to terms with the role it has to play in achieving the ambitions set outin both international and national policiestackling climate change, greener and more

inclusive economic growth. The SL-SBI hasdrawn up 11 commonly agreed upon Sri LankanSustainableBankingPrinciples(SBP)and includes (i) Environmental and Social Risk Management (ii) Environmental andSocialFootprint(iii)Rightsoftherespectivestakeholders (iv) Financial Inclusion E&SGovernance (vi) Promote ethical finance(vii) Promote ”green economy” growth (viii) Capacity Building (ix) CollaborativePartnerships (x) Promote transparencyand accountability, and (xi) No “race tothe bottom” to undermine competitorson environmental and social (E&S)requirements towards the credit taker.

Other financial entities have also takensteps to address sustainability. The Colombo Stock Exchange (CSE) joined theUN Sustainable Stock Exchanges (SSE)Initiativein2015.In2018,theCSEprovidedguidance to its market on sustainability reporting by launching a publicationtitled ‘Communicating Sustainability’.Meanwhile, the Sustainable Sri Lanka Vision and Strategies 2030 report, prepared bya Presidential Expert Committee in 2018,identified the investment needs in eightsectors: agriculture and food, education,energy, health, marine resources, transport, urban development and physical planning, and water. More recently, at the end of 2019,aNationalConsultationonInnovativeClimate Finance Mechanisms for FinancialInstitutions in Sri Lanka was held. Thisnational consultation was a platform togather feedback on the project and wasdriven by the International Chamber ofCommerce (ICC) Sri Lanka together withUNESCAP, in order to establish the nextmodalities in fostering climate financefor a sustainable future. However, there is little evidence that such efforts haveresulted in clear instruments for sustainable development finance. Nevertheless, banksarealreadyimportantsourcesoffinancefor

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SDGrelatedactivities,even if theyarenotexplicitlypartoftheSDGagenda.

Banksareregularlyfacedwiththequestionof how should the E&S risk managementsystem be designed to ensure that criticalfindings are flagged early on and theappropriate scope of risk assessment determined? For example, mini-hydroschemes have attracted controversy overtheir environmental and social impact, with bankshavecooperatedinfinancingprivatesector projects that are less than 10MW,while the larger hydropower projects aremanaged by the government. In order forsuch projects to be successful, E&S riskassessment and management systems will need to be embedded in the business processforfinancing.

TherearemanyexamplesSriLankanbanksfinancingbusinesspracticesassociatedwithenvironmental and social risks, that result in credit risks.However, thedomesticprivatefinancing sector has not shown muchinnovation and initiative towards financingtheSDGsandinvestingtowardstransformingsustainable businesses and industry. There is very little evidence to show that SriLankanfinancial institutionshaveventuredadequately into impact investment, green bonds, social bonds etc. that are key to a transformation.Also,SriLankahassofarnotdemonstrated significant initiative towardsengaging in blended financing directed atthestrategicusageofdevelopmentfinanceandphilanthropicfunds,inordertomobilizeprivatecapitalflowstoemergingandfrontiermarkets. Sri Lanka needs to strategically align itseconomicpoliciesandfinancial systemswiththe2030Agenda,seizethepotentialoffinancialinnovations,newtechnologiesanddigitalization,toprovideequitableaccesstofinance,andenhancesustainablefinancingstrategies and investments at both regional and country levels. The nation needs tomove fast towards gaining global market opportunitiesintheneweraofsustainable

financing and develop integrated nationalfinancing frameworks, identify andformulate a pipeline of bankable sustainable development projects, improve progress,strengthen partnerships with development andprivatefinanceproviders,soastoinvestindigitalfinancesolutionsfortheSDGs.

3.4.3 Financial Sector Modernization Efforts

TheFinancialSectorModernizationProjectfor Sri Lanka (2017-2022) funded by theWorld Bank contributes to increasingfinancial market efficiency and theutilisation of financial services amongmicro, small and medium enterprises (MSMEs) and individuals. The projectcomprises of three components. The firstcomponent, supporting selected mid-levelreforms through results-based financingimplementation of selected mid-levelreforms, through disbursement-linked indicators(DLIs),thusenablingthesuccessfulimplementationof component2and thus,reinforcing the overall positive impactof the project. The second component,strengthening the regulators’ institutionalcapacity, upgrading the legal and regulatory framework and modernizing the financialmarket infrastructure aims to strengthen the institutional capacity of the financialsector regulators. It consists of followingthree sub-components: (i) strengthening the capacity of the Central Bank of SriLanka for supervision and regulation,and modernizing the relevant financialinfrastructure, (ii) strengthening the capacity oftheSecuritiesandExchangeCommissionof Sri Lanka (SEC) for supervision and regulation, and modernizing the relevantfinancial infrastructure, (iii) strengtheningthe capacity of the Insurance Board of SriLanka(IBSL)forsupervisionandregulation,and modernizing the relevant financialinfrastructure.Thethirdcomponent,project

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implementation and monitoring, aims toprovide support to the Project SteeringCommittee (PSC) and Central ProjectCoordinationUnit(CPCU),inordertoguideandcoordinateprojectoperations,financialmanagement(FM),procurement,socialandenvironmental issues, andM&E under theproject.

3.4.4. Providing Credit and Loans to the Private Sector

Local banks provide significant amountsof capital for domestic spending priorities.For example, in 2018, Rs 52.3 billionwas raised by People’s Bank, NationalSavings Bank, Sampath Bank and Bank ofCeylon to be utilized for Land Acquisition,Civil Construction and Consultancy forConstructionSupervision in relation to theCentral Expressway Project. Local bankshave also supplied continuous large-scalefinance projects. For example, since theyear 2014 the National Water Supply andDrainageBoard(NWS&DB)hasenteredintoloanagreementswithlocalbanksamountingtoalmostRs.71.5billionfor18WaterSupplyProjects.InadditiontothesePriorityWaterSupplyProjects,NWS&DBhasalsoaccessedlocalbankfinancingtomeetpartofthecostofthreeIndianEximBankfundedprojects.

Usinginstrumentssuchasloans,equitiesandguarantees, large corporates and Small and Medium Enterprises are accessing financefrom private sector windows/institutionsunder Multilateral Development Banks(MDBs.) For example, the InternationalFinanceCorporation(IFC)oftheWorldBankGroup provides direct loans for corporates under Central Bank regulations. UnderStrategy 2030, the ADB has also pledgedto expand its private sector operationsdepartment (PSOD) so as to reach one-third of its total operations in number by 2024.TheNon-sovereignoperations includeany

loan, guarantee, equity guarantee, equity investment, other investment or other financing arrangement,which iswithout agovernment guarantee.

The banking sector of Sri Lanka often actsas an intermediary to obtain internationalconcessional finance and as a channelto private sector or individuals through financial products. The recentADBprojectto support rooftop solar PVs and a SMEcredit scheme from IFC are examples ofinternational private financing. There areregulatory mechanisms to control private sector borrowings from internationalsources, where the licensed banks are given preference due to the direct regulatory powers present over the banks by the central bank.

Regulating investments are important andSri Lanka has to review its current process on investments. Private investments could belesseffectiveiftheyarenotalignedwiththe SDGs. Exploring this concept further,one sees that currently, many banks report under two sections, business as usual andsustainable development. However, the concept of sustainable development tends to focus more on environmental matterswith minimal attention given to socialsectors. Some banks have attempted toalign their investments with the SDGs but it is clear that guidance and understanding on the SDGs is required. There is a global movement of Small Medium Enterprises. Having a separate SDG framework is not going to be successful. A process should be established where the subnationalgovernment should be able to convince the central government to create a SDG plan thatbenefitsthecountryasawhole.

“Domestic credit to the private sector”refers to the financial resources providedto the private sector, such as through loans, purchases of non-equity securities, and

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trade credits and other receivable accounts, that establish a claim for repayment. As for SriLanka,wemustrealizethatour‘domesticprivate sector’ is characterized by a largeproportion of SMEs. Relative access tofinance, based on business size is aminuspoint,with largercompaniesfindingeasieraccessroutestobankfinancing,andsmall,medium, and micro enterprises being more likelytoturntoalternativesourcesincludingmoney lenders and family members.

InSriLanka,thebanks‘assetbaseexpandedduring 2017 at an annual growth rate of12.3%–mainlyattributable toan increasein lending to manufacturing (21.9%),trading 19.8%), and construction (19.5%),the total of which accounts for 43% ofthe total credit exposure of the bankingsector. As seen below, there has been an increase in the volume of private sector credit fromSeptember2006toSeptember2019.Contrastingbank sharesofdomesticcredittotheprivatesector,relativetogrossdomesticproduct,canrevealtheimportanceof the role of banks in the economy. An issue, however, is whether this increase in

domesticcreditandavailabilityoffinancialservices is being translated into investment inthedomesticprivatesector.

3.4.5. The Role of Microfinancing for the SDGs

MicrofinanceisdefinedbytheConsultativeGroup to Assist the Poor (CGAP) as the provision of financial services to lowincomepeople;itbringscredit,savingsandotheressentialfinancial services topeoplewho are too poor to be served by regular banks, mainly because they are unable to offer sufficient collateral. Microfinanceis expected to expand and improve theincomegenerationactivitiesandcapacitiesoflow-incomepersons,andisalsoexpectedtoimprovetheirlivingconditions.Accordingto the World Bank, microfinance is a keypovertyreductionstrategyespeciallyforthedeveloping world. However, in the case of Sri Lanka,themicrofinancesectorexpansionisaffectedbymultiplefactors.Lackofliteracy,themoralhazardoftheclients,thelackofinformation technology usage were the

Figure 12: Credit to Private Sector

Source: Central Bank of Sri Lanka

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mostsignificantchallengesandissuesfacedbyboththeinstitutionallevelandcustomerlevel when popularizing the microfinanceconcept among the lower income populace.

SriLankahasalonghistoryofmicrofinance,operating since at least the early 20thcentury. For example, ‘Cheetu’ is stillpracticed within Sri Lankan society as aninformal but effective way of managingsavingsandcapitalaccumulation.Currently,there is quite a diversity of microfinanceproviders in Sri Lanka including licensed banks, licensed finance companies, co-operative rural banks, thrift and creditco-operatives societies, community-basedorganizations, microfinance companies,and non-governmental organizations.While, licensedbanksand licensedfinancecompaniesareregulatedbytheCBSL,othersare regulated under different authorities.Researchonthemicrofinancesectorshowsthat the Non-Bank Financial Institutions(NBFIs)registeredwiththeCentralBankarefollowing the financial systems approachin delivering microfinance services,whilst other providers of microfinanceservicesappeartohaveamixedapproach.Furthermore,microfinanceclientsarebeingserviced by over 11,000 other institutionsand individual lenders at present. According to the Central Bank, there are more than40 NBIFs registeredwith the Central Bankof Sri Lanka, and of this amount, about 10 NBFIshaveamajorshareoftheirportfoliosinmicrofinance.

There is evidence that when targeted, access to finance and savings leads topositive economic outcomes for women,including increasing productivity andprofits and greater investment in theirbusinesses, family wellbeing and children. Having savings also makes women less likely to sell assets when addressing health emergencies, stabilising their incomes in times of economic shocks, and providing

greater controlover their funds. In theory,microfinance can be a tool to addressmany of the inequalities and disparitiesthat the SDGs are trying to achieve, for exampleSDGGenderEquality; inSriLankaasmuchas73.7%ofwomenarenotinthelabourmarketandwithverylittleaccesstofinancing and decision-making processes.There is also independent research claiming that an estimated number of over 2.8millionactiveborrowers,85%ofwhomarewomen,withatotalloanportfolioofRs.94billionrupeeswereinvolvedinmicrofinancebetween2017and2018.

Microfinancewasmeant to be a pro-poormechanism to support those who are not served by traditional banking and supportsystems, and to start income generationprojects that allows such individuals toinitiatesavingshabitsandmicroinvestments.However, this has also lured the poorest and most vulnerable women through higher interest rates. In fact, microfinancelending under the guise of creatinglivelihoods have mushroomed without proper regulation resulting in an increasefrom indebtedness of vulnerable rural communities. Particularly in the aftermathoftheCivilWarintheNorthernandEasternprovinces, women seeking avenues of credit werepreyeduponbyruthlessmicrofinancecompanies. Recognising the large profitsto be made, numerous companies entered the microfinance business. Using publicinstitutions, religious places and women’shomesascentresfordebtcollection,loanswere provided in return for weekly and even daily instalment repayments. According to the report of the UN Expert on DebtandHumanRights, inexcessof2.4millionwomen in Sri Lanka, have taken loans from microfinancing institutions whichchargehighinterestrates(30%-220%).Theproliferationof these loans createdadebttrap, where new loans were taken or money was borrowed from informal sources to

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pay back previous loans. Caught in a debt trap, the lingering war-time trauma wasintensified by the fear and abuse of debtcollectors, with a worrying increase in suicides.

Asamajorityofthemicrofinanceprovidersareoperatingfreewithoutbeingregulated,by the CBSL, theGovernment of Sri Lankapassed a bill in the parliament in 2016.It is not clear whether the authoritiesin Sri Lanka can achieve their desired objectivesbyimplementingsuchlegislation.Rather than promoting the growth ofthe microfinance sector and increasingaccess to financial services for micro andsmall enterprises and for low income households as intended, the results of the analysis indicate that the passing of the microfinance regulations is more likely tohave the opposite effect. The impact of alegislativeframeworkonthesustainabilityof development-oriented microfinanceinstitutions (MFI’s) and povertyalleviation requires careful thought.The supervisory authority must study the possible areas for inefficiencyof such regulatory instruments and regulatory-substitutions, as well as theadverse effects of the regulation onmicrofinanceinstitutionsandtheirclients.

Iffacilitatedwell,microfinancehasacriticalrole inadvancingtheSDGsand isexempli-fied in the2030Agenda strongly featuringacross eight of the seventeen goals. These includeSDG1,oneradicatingpoverty;SDG2onendinghunger,achieving foodsecuri-ty and promoting sustainable agriculture;SDG3onimprovinghealthandwell-being;SDG 5 on achieving gender equality and eco-nomicempowermentofwomen;SDG8onpromotingeconomicgrowthandjobs;SDG9 on supporting industry, innovation, andinfrastructure;andSDG10on reducing in-equality.Additionally; SDG17on strength-eningthemeansofimplementationimplies

aroleforgreaterfinancialinclusionthroughgreatersavingsmobilizationforinvestmentandconsumptionthatcanspurgrowth.

3.5. Civil Society Action for Achieving the SDGs

Civil society is often on the frontlines,protecting the most vulnerable in ourcommunities, as well as our naturalresources.While civil societyorganisationsoftenplayan important roleaswatchdogsby holding governments accountable, they are also often some of the primaryimplementing partners working withgovernments to achieve most of the SDGs, from health to equality to climate change. Yet, repression of civil society by some governments and the failure to recognisesuchcontributionstosustainabledevelopmentcontinuesatthenationallevel.While the quantity of finances providedby Civil Society Organisations (CSOs) maybe low and limited, the impact of these investments at national, subnational andcommunity levels is high and significant.Inkeepingwiththecentralprincipleofthe2030 Agenda, “leave no one behind”, thecritical role of Civil Society Organisations(CSO) in domestic resource mobilisation,geared towards advancing the SDGs in Sri Lanka provides a complex but necessarypoliticalanalysis.

3.5.1. The Complex Case of Civil Society Organizations as Development Partners

AsaresultofthedeepinvolvementofNGOswhichconstitutealargepartofcivilsocietyactivism,inpoliticalandsocialaffairs,suchastheyouthunrestintheSouth,escalatingconflictintheNorthandEast,duringthelate90s,civilsocietyactivismbecameasubjectof controversy in Sri Lanka. At present Sri Lanka’scivilsocietyremainsuncoordinated,

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andunderpoliticallymotivatedgovernmentscrutiny. However, it is important tonote that the inclusion of CSOs in the implementationoftheSDGswillenrichthedebate and build the awareness, knowledge and expertise needed around the 2030Agenda. The CSOs primarily ensures the principle of “leaving no one behind” by amplifyingandaggregatingthevoicesofthepoorest and most marginalised, channelling themintoconversationstakingplaceatthelocal, national, regional and global levels.Henceaconsiderableflowoffinancialandtechnicalresourcesaspartofthedomesticresource mobilization efforts which havebeen undermined and undervalued in the face of the ongoing challenges the sector has been enduring both administrativelyandpolitically.

ForcivilsocietyactorstoeffectivelyplaytheirroleintheimplementationoftheSDGs,anenabling environment needs to be in place. Such an environment should acknowledge and seek to nurture civil society’s role inservice delivery, humanitarian assistance, research, public participation in policydevelopment, accountability and be a watchdog, monitoring and amplifying the voices of the vulnerable, among other roles. The legitimacy of the role of civil society,foundedinlawandpractice,providesasolidbasisfortheactiveparticipationofgroupsindevelopmentprocessesonanequalfootingwith other sectors. This will require a strong politicalwillandleadership.

Finance coming into Sri Lanka throughinternationally and domestically financedprojectsforCivilSocietyOrganizations(CSO)is not recorded or even properly accounted for inthenationaldevelopmentprocesses.Underestimated,undermined,undervaluedandsometimessuspiciouslylookedat,CSOsare being pejoratively viewed and labelledas “non-governmental organizations”(NGOs) particularly by nationalist media

elements and subsequently by the public. CSOs in Sri Lanka also suffer from limitedinstitutional capacity, loosely placedgovernance structures, weaknesses in strategic planning, depend heavily on donor funding streams, do not utilize costrecovery strategies, and lack domesticfundingsources.OnlyasmallportionoftheCSOsectorutilizesstrategicplanning.Inthisbackdrop,anentirecomponentcontributingto domestic financing of social wellbeing,environmentalconservation,andadvancingthe transformation towards sustainabledevelopment has not been integrated into thenationaleconomicprosperitydrive.

Almost all CSO activities can be linkedto the 17 SDGs and found widely across the 169 targets. As CSO programmes and projects are funded by internationally orlocally operated donors, these tend to haveapositiveimpactontheSDGsaswell.However,questionremainsastoifsomeoftheseactionsareincoherencewithnationalpolicies or government development plans. Human rights advocacy, public interest litigationorevenenvironmentalcampaignshavegenerallyirritatedpoliticiansandpublicofficialswhotendtobeaversetodissentingopinion.However,activitiesrelatedtosocialwellbeing and community development, including extension services to education,health, agriculture, water and sanitation,etc. have become key strategic components of local level development that eases the burden of the public service delivery. Micro-credit, skills development, technical capacity enhancement or professional service extension for various development sectorshave all contributed to socio-economic progress, that appears to be lightly reported and accounted to a limited extent in thenationalstatisticalsphere.CSOsareyettobefullyintegratedaspartnersofimplementingtheSDGs.Whilepublic-privatepartnershipsare talked more as a way of generatingimpact investments, the role of CSOs need

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to be provided with greater space in the drivetowardsaninclusivetransformation.

3.5.2. The Role of Civil Society Organizations in Implementing the SDGs

The commonly used definition created byCIVICUS, which conceives civil society asthe arena outside the family, the state, and the market, which is created by individual and collective actions, organizations, andinstitutions to advance shared interests.According to theWorld Bank, Civil societyrefers to a wide array of organizations:community groups, non-governmental organizations [NGOs], labour unions,indigenousgroups,charitableorganizations,faith-based organizations, professionalassociations, and foundations. Non-State,not for profit, voluntary entities formedby people in the social sphere that are separate from the State and the market. CSOs represent a wide range of interests andties.Theycanincludecommunity-based organizations aswell as non-governmentalorganizations(NGOs).InthecontextoftheUNGuidingPrinciplesReportingFramework,CSOs do not include businessesorfor-profitassociations.AccordingtotheADB,themaincategories of CSOs operating in Sri LankaincludeINGOsinvolvedinhumanitarianandpost-conflictactivities,INGOsanddomesticCSOsinvolvedinadvocacy,NGOsconcernedwithpovertyalleviation,inconjunctionwithgovernmentprograms,LocalNGOsandCBOsinvolved in grassroots level development. The landscape and diversity of CSOs in Sri Lanka provides a greater understanding of theircontributionstodevelopment;

A. Civil Society Organisations: In SriLanka, CSOs, including community-based organisations (CBOs), can register throughone of many legal paths; the Societies

Ordinance of 1891; the Companies Act of2007;theCo-operativeSocietiesActof1992;the Voluntary Social Service Organizations(VSSO) Act; and an Act of Parliamentsponsored by a Member of Parliament throughaPrivateMember’sBill.While,anaccurateestimateofthenumbersofCSOsinSriLankaisnotavailable,guesstimatesvaryfrom20,000to50,000.TheADBstatesthatarapidincreaseofNGOswasseenfollowingthe2004TsunamiinthecountryandaftertheconclusionoftheCivilWarin2009whichwassucceeded by an unprecedented inflow offunds.AccordingtotheNationalSecretariatforNon-GovernmentalOrganizations (NGOSecretariat), there are currently 1,439NGOsregisteredwiththeSecretariatunderthe Voluntary Social Service Organizations(VSSO) Act of 1980. The VSSO also covers arangeoforganizationsbesidesNGOs,butofficial statistics on such other registeredorganizationsisnotavailable.SriLankaalsoidentifiesacategoryofQuasiOrganizationswhichareusuallyfurtheridentifiedasCBOs;these includeGramasanwardana Societies,Women’s Societies, Suwashakthi Societies,Elders Societies, Children and ProbationSocieties,EarlyChildhoodSocieties,CulturalSocieties,LibraryAssociationReadersClubs,Death Societies, etc. The number of quasiorganizations are available at the DistrictSecretariat level along with their annual reports. All of these CSOs engage with communities and their issues at variedlevelswhilealsoinvestingresourcestodrivediverse environmental, social and economic impacts.

B. International and Local NGOs: International NGOs (foreign and off-shorecompanies and associations, plus theirlocalsubsidiaries)andmostNationalNGOs(private, public, public quoted, guarantee, unlimited companies and associations)are required to be incorporated in terms of the Companies Act and must register

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themselveswiththeRegistrarofCompanies.Alternatively, they may be registered asTrusts under the Trust Ordinance No. 17of 1917, as Charities under the InlandRevenueActNo. 38 of 2000, as ApprovedCharitiesundertheInlandRevenueActNo.4 of 1963 or the Inland Revenue Act No.28of1979orunder theMutualProvidentSocietiesActNo.55of1949.Furthermore,according to the VSSO Act, a voluntary social service organization is recognised as anorganizationformedbyagroupofpersonson a voluntary basis that is either (a) of non-governmental nature, (b) dependent onpublic contributionsordonations (localorforeign),or(c)setupwiththeobjectiveof providing relief services to the mentally and physically disabled, the poor, the sick, orphans, and post-disaster relief. Therefore, regardless of the chosen mechanism for registration, all organizations that fall intoone of the categories above must also registerunder theVSSO.TheseNGO’sandINGOs draw significant resources in theiractivitieswithsignificantimpacts.

C. Cooperative Societies: All co-operativesocieties fall under the purview of theDepartment of Cooperatives and InternalTrade,andareregulatedbytheCo-operativesSocietiesActof1972,whichwasamendedin1992.Theco-operativesectorconsistsoftwomajor types of co-operatives: primarysocieties and secondary societies. In 2016,therewere10,418primaryco-operativesinSriLanka,themajorityofwhichwerecreditco-operativesocieties.Otherpopularformsof co-operatives are based in the fisheriesand agriculture sectors, while school co-operativesarealsoextremelysuccessfuldue to the support of the educationauthorities.Thenumberofcooperativeshasdeclineddrasticallyduringthisdecadewith3,858 co-operatives being de-registeredbetween2013and2016.Thesecooperativesocieties in Sri Lanka engage in social andeconomicactivitiesinbothurbanandrural

settings,andtheyparticularlyfocusonthepoor.

D. Social Enterprises: Social entrepreneurs pursue a mix of social goals and marketsuccess through the creation of a socialenterprise. These social enterprises createjobsandgenerateincomelikeotherbusinesses, but instead of owners dividing theprofitstheyareexpectedtobereinvestedto advance the social mission and improving people’s lives. In a report by UNESCAP in2018, 368 CSOs were identified as socialenterprises in Sri Lanka. According to this report, 42% of social enterprises investprofits in their organization mission, 27%supportprofitsinjobcreationand14%sharetheprofitswiththeemployees.Arelativelylarge number of enterprises predominantly operateatasubnationallevel,mainlyattheDivisional Secretariat level (28%). Around11%work at the national level, 8% at theprovinciallevel,5%atthevillagelevel,and6%at theGramaNiladhari (VillageOfficer)level. Sector wise, these social enterprises engage mainly in manufacturing, which accounts for 36%, agriculture 22%, andcreativeindustries13%.

3.5.3. Development Interventions andInvestments by Civil Society Organizations

CSOs work in a wide range of sectors and which include (but are not limited to): Health, NutritionandPopulation;Education;Water,SanitationandHygiene;SkillsDevelopment;Disaster,EnvironmentandClimateChange;Rural Development; Urban Development;Agriculture and Food Security; Migration;GenderJusticeandWomenEmpowerment;and Poverty eradication as well as inmicro-finance services. Engaging in suchsectors, these organisations provide adiverse spectrum of services and actionincluding capacity building, technical skills,

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microfinance, advocacy, legal protection,and various humanitarian responses. Theseinterventionscontributedirectlyandindirectly towards resource mobilisationin the country and could be channelled effectivelytowardsimplementingtheSDGs.

As for financial reporting, some CSOsproduceAnnualFinancialReports;especiallyInternational NGO’s and established largerlocalNGOsarecompelledtoprovideannualfinancial reports. All NGOs do not receiveexternal or even local funding assistance.Someoperateonmembershipcontributionswith rules and regulations formulated bythemselves. There are thrift and creditsocieties such as “Sanasa” and Women’sBanksthathavenationalscalelinksandwhichcollectfundsonabiggerscale.Investmentsat village level range widely and include: peace building & reconciliation; humanrights;genderequality;housing&providingshelter; empowerment of women, youth& children; preschool, primary, secondary,vocational education; environmentalconservation including climate action,wildlife protection, reforestation; water &sanitation including infrastructure for tubewells, distribution of water tanks, cleanwaterresourcesforcommunities,providingdrinking water, building toilets; disasterrelief and building resilience; agricultureand food security; health services such asdengue prevention; and also shramadanaandrecreationalactivities.

The financial sources of these activitiesinclude international donors, theGovernment, and to a lesser extent theprivate sector. Private sector donors tend to prioritize livelihood development andserviceprovisionoverrights-basedprojects.There is no mechanism in the country to verify the financial investments doneby CSOs as a majority of CSOs have notpublishedthem.Furthermore,theavailableinformation is not up to date. A proper

mapping of CSOs and their activities isrequired to ascertain their contribution todomesticresourcemobilisationfortheSDGsinSriLanka.Asanexample,accordingtothereport on state structure in Sri Lanka by the CharteredInstituteofMarketing(CIM)andtheEasternProvincialCouncilin2007,NGOsand INGOs are important and dominantdevelopment agents at the local level. Particularlyintheaftermathofthetsunamithe number of these organisations hasgone up significantly, raising the questionof how they contribute to the needs and requirements of the people and how they couldbelinkedtolocalleveladministration.Several issues arise in this respect, the most importantbeingthelackofcoordinationandconsistent planning to guide development agencies. There seems to be no proper mechanism at national, provincial, districtorlocal leveltocoordinatetheactivitiesofNGOs.Ontheonehand,NGOsfinditdifficulttofind theirway through thebureaucraticprocesses of approval and permits for their proposed activities, complaining aboutdelays and non-transparent decision-making. The result is that they attempt tocircumvent authorities whenever possibleand to minimise contacts. Nonetheless, itappears most of the collaboration takesplace with the Divisional Secretariats while Local Governments are largely neglected. Very fewCSOsorCBOs appear towant totake on this challenge and consider changing thesituation.

On the other hand, where local level administration is concerned, both localauthorities and divisional administration,is incapable of tackling the challenge of coordinating and monitoring activities ofNGOs efficiently. A pivotal problem is thefact that the present planning process is not inclusive. Real participation and decision-making processes do not take place in a manner that guarantees a product that really reflects strategic needs. The reality

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is that the local level administration doesnot have the capacity to present solid development programmes to the CSOs and guide their intervention. In addition, thefactthattheNGOsaremostlyleftoutofthedecision-making processes means that they do not feel part of it and would therefore not be co-owners of development.

3.6. Challenges and Opportunities for Financing the SDGs

While the annual estimated global needfor financing the SDGs is around US$ 5-7trillion, the annual investment gap in major SDG sectors in developing countriesis estimated at around US$2.5 trillion peryear.Evenso,itisbelievedthatfinancingforsustainable development is available, given the size, scale and level of sophisticationoftheglobalfinancialsystem—withgrossworld product and global gross financialassets estimated at over US$ 80 trillionand US$ 200 trillion respectively. By notpreparing a clear financial estimate andstrategy for investment, Sri Lanka has not madeasignificantcasetoattractanyoftheavailablefinancingfortheSDGs.

While,SDGsareattheforefrontofmoreorlesseveryprogrammeoftheUnitedNationsand other international and multilateraldevelopment agencies operating in SriLanka, the government has so far not received significant funding throughinternationalfinancingforthe2030agenda.Also,SriLankahasnotmadeanysignificantefforttowardsattractingdomesticfinancingfor the SDGs. While the government hasnot created adequate space and channels for private financing sectors to contributetotheSDGs,therehasnotbeensignificantproactiveness within the business andindustry sectors to integrate the SDGs into theirbusinessprocesses.Being referred to

as the engine of growth for the country, there is no evidence to show that the private sector in Sri Lanka is driving the economy towards sustainable development. The SDGscontinuetobetreatedasanextensiontoCSRprogrammesandeven lack the keyingredients for ensuring the sustainability of their own business processes. The main growth industries are yet to showcase their allegiance to the 2030 Agenda and evolvetransformativebusinessprocesses.

At the same time, the domestic bankingsector is not showing much flexibility inventuring into innovative financing forsustainable development. Innovativefinancing is understood as anythingdifferent from standard investing orfinancingpractices,whichhasthepotentialto deliver significant socio-economic orenvironmental impacts, which is not evident withindomesticfinancialsectors.Thelocalbanks and financial sector are still lookingforafinancialclimateofgreaterreassurancefor their investment portfolios. The policymakers and the regulators need to work with the financing sector to encourageand ensure that sustainable development investmentwillresultinprofitabilityandnotsimply in compliance.

Meanwhile, in a shrinking space, the usually proactivecivilsocietysectorisalsostrugglingto advance the 2030 Agenda and engagethe public and communities in the SDGs.As the SDG dialogues and programmes lay mostly with the international NGOs andlargerCSOs,thesmallerCBO’sarefindingithard to engage themselves in the process. Additionally,theeffectivenessofthelimitedsectoral and fragmented programmes is questionable,giventhelowcomprehensionand adaptation demonstrated towardsintegrationbetweenthetargets.However,astheCSOsectorcontinuestoengagemoreinthesustainabledevelopmentinterventions,thereisanexpectedgrowthinthefunding

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forSDGsthatcouldbenefitthelocalisingofthe2030agenda.Inthisregardpartnershipsbetween local government and CSOs would provide a greater leveraging potential forfinancingtheSDGsatthecommunitylevel.

The domestic financing requirements forthe SDGs is vast, but Sri Lanka is yet to comeupwithanassessmentofitsfinancialcommitments. Hence, promoting morecoordination and collaboration betweenstakeholders in order to create an impact ecosystem,focusingonfinancingisrequired.UNESCAPanalysesthepotentialforSriLankatomobilisefinancialresourcesfortheSDGsby:Strengtheningtaxrevenues–SriLanka’sratiooftaxtoGDPwas12.3%in2016,lowerthan either the regional average of 15.2%or the average of 25.1% in the advancedeconomiesoftheOrganisationforEconomicCo-operationandDevelopment;Enhancingprudent sovereign borrowing – Between

1995and2016,theannualdomesticpublicbond issuance equalled, on average, 10%of GDP, international bond issuance 1.3%while public debt in Sri Lanka is currently over 80% of GDP; and Leveraging privatefinance – Sri Lanka’s focus should be onreforming the regulatory and institutionalenvironment, enhancing macroeconomic stability, and deepening financial markets.AdomesticfinancingstrategyfortheSDGsshould become a national developmentpriority. Improved coordination of public,private and international agencies for theimplementationoffiscalpolicyandmedium-term fiscal strategy as well as adoptingconducive tax policies should cut acrossall policy discourses. If the country is tomobilizeprivatecapital,frombothdomesticandinternationalsources,theSDGfinancingstrategy needs to be guided by the current governments Policy Framework ‘Vistas ofProsperityandSplendour’.

CHAPTER04:

THE TRANSFORMATION CONTEXT

An Analysis of Scenarios for Planning Domestic Resource Mobilisation Strategies for the SDGs in

Sri Lanka

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4.1. Introduction The agreement to implement the 2030Agendaestablishesapoliticalcommitmentfor transformation towards SustainableDevelopment in Sri Lanka. Such a transformationrequiresaddressingtherootcauses of the systemic issues that result in economic, social and environmental complications along with formulatingintegrated responses to result in sustainable outcomes. As Sri Lanka seeks prosperity while implementing the SustainableDevelopment Goals (SDGs), it must ensure ‘leavingnoonebehind’whileprotectingtheisland’secosystems.Buildingsuchacontextwillentailarecalibrationofthedevelopmentmindset currently entrenched in both state and non-state actors, resulting in changesacross governance, policy, institutions,finance,trade,productionandconsumptionsystems as well.

Planningfortransformationrequiresseriousconsideration of scenarios that could leadtobreakdowns,alternativesthatcouldleadto sustainable futures, as well as policy and regulatory measures needed to facilitate thetransition.Breakdownscenariossuchasglobal crises or a prevailing system collapse, meanthattheexistingstateofordercouldbe aggravated by the lack of resilience currently prevailing in ecological and human systems. These breakdowns are indicated by the warning signals including; threatsto environmental systems such as climate change,multipledisastersof unprecedented sizes; threats to social systems such asexclusion and marginalisation, armedconflicts, genocide; as well as threats toeconomic systems from famines, financialdownfalls, global pandemics, etc. Such breakdowns propagate serious damage with elevated recovery periods; this isillustrated through a critical slowing downand flickering as the system approaches aprolonged threshold recovery due to a lack ofresilience.Alternativescenariostherefore

attempttojustifythatbyexploringpathwaysto sustainability, such breakdowns can be avoided or minimized. The incorporationof environmental externalities ineconomic planning neglected by growth-based economics, designing sustainable production and consumption systems forcircular economies and creating resilientsystems against environmental-social-economic vulnerabilities, and planningprosperity within biophysical limitationsprovidesuchalternativescenarios.

On the other hand, policy-regulatory scenarios could provide laws, regulations,standards, taxes, subsidies, and othermarket instruments, thus establishing accountability and compliance to facilitate the systematictransitiontowardssustainabledevelopment. Sadly, policy discourses that highlighttransformationalgoalsoftenignorethe deep-seated changes that are required in policy and regulation. Policy-regulatoryscenarios should provide a method for bringing about accountability, especially amongstthepolitical,policy,andeconomicagents who drive the policy discourses. As the current system exists and functions intheir interdependencies, how we facilitate the integration is critical to enablingsustainable development. Therefore, in a transitional approach, policy-regulatoryscenarios through policy reform and market reengineering could help facilitate the process towards a transformative statefavourable to sustainability.

4.2. An Analysis of Current Approaches to Sustainable Development Challenges in Sri Lanka

It is important to analyse the existinggaps in Sri Lanka’s planning for potentialbreakdowns, gaps in approaches to

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embracing alternatives, and elaborateupon the limitations of the current policy-regulatorysystems.Threeconcurrentactionprongs, pursued synergistically rather thanas independent strategies, and expandingon the current focus of gradual policy change will need to include; remediationfor emergency management, redesign for system transformation and reform forincremental policies.While addressing keyissues and taking progressive action withforesight, the transitioning from businessas usual (BAU) would be demonstratedby early responses through politicalreforms for inclusive and democraticgovernance; also, financial reforms forequalopportunitiesand sharedprosperity,reforms for policy coherence, and reforms for integrated institutional structuresrelated to collective service delivery arenecessary.ThedeparturefromBAUcanbefacilitatedbytheimplementationofthe169targets within the 17 SDGs in conjunctionwith a localised indicator framework for monitoring, evaluation, follow-up andreporting. The backdrop of a domesticresource mobilisation framework for SriLanka therefore is set on the foundationsof the responses to potential breakdown scenarios, the approach to adoptingalternative scenarios and facilitatingtransitional measures in policy-regulatoryscenarios.

4.2.1. New Realities of COVID-19 and Pandemics

The COVID-19 Pandemic has alertedsocieties across the world to potentialbreakdown scenarios such as anthropogenic climatechange;despitecompellingscientificevidence, it has previously not been able to convince collective transformational actionforthepastfewdecades.Whiletheconceptofa“NewNormal”hasgoneviral,theactualswitch to more ecologically sound lifestyles and livelihoods away from “business as

usual” is yet to be seen. The reality is that humansarecreatingtheoptimalconditionsfor the spread of diseases by reducing the natural barriers between host animals and themselves. Wildlife populations planetwide are enduring greater stresses and major landscape changes are causinganimals to lose their natural habitats. This results in species overcrowding and greater contactandmixbetweendifferentanimalsand humans, creating complex forms andconditions.Whilethestandardemphasisoncommunicable diseases is placed on poorer countries, the spreadofCOVID-19hasnotfollowedsuchgeneralisations.Mortalityhasbeen associated with the presence of non-communicable diseases and the Pandemic haspavedthewayforgreaterassumptionsthat the new normal could be within the biophysical limits.

According to the World Bank (WB), theCOVID-19PandemichasweakenedSriLanka’seconomic outlook as it has exacerbatedan already challenging macroeconomic situation,consistingoflowgrowthratesandsignificant fiscal pressures. Growth will benegativelyaffectedastheoutbreakdampensexport earnings, private consumption andinvestment. The slowdown in economic activitycouldtriggerjoblossesaswellasasignificantlossinearnings.Informalworkerscomprise about70%of theworkforceandare particularly vulnerable as they lackemployment protection mechanisms and/or paid leave. Social-distancing measures willdirectlyimpactservicessectoractivitiesand extended travel restrictions will hurttourism. The apparel industry which accounts for about half a million jobs hasannounced significant job cuts due to acurrently low global demand and shortage of raw materials. Meanwhile, agricultural production is expected to be largelyundisrupted, amid government efforts toramp up domestic production and importsubstitution.

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The Government has been significantlyresponsive, and according to the WorldHealth Organization (WHO), Sri Lankahas made significant progress towardsprotectingitscitizensagainsttheCOVID-19Pandemic. While faced with ongoingeconomic challenges and the politicaldynamics of a General Election, thegovernment has had to act well beyond its comfort zone and standard operationalnodes; taking strongmeasures tomanageandmitigatethePandemicinanattempttoprevent the country from spiralling towards a possible breakdown was necessary. Some early measures by the government included; aggressive “social distancing”measures implemented throughout the country, the issuance of travel bans to similarlyaffectedcountriesviatheclosingofports and airports, country-wide lockdown style curfews, Public-Private Partnerships (PPPs) to assist households with emergency supplies, emergency health and economic measures, and several economic relief measures for the poorest segments of society and the most vulnerable sectors of business. This combined with an increase in government spending on healthcare and public safety measures, as well as the establishment of a Task Force to CombatCOVID-19, are among themeasureswhichwereeffectivelyusedco-ordinatehealthandcontainment,quarantineandcontacttracingefforts. Themeasures to provide relief forthe public also included allowances to low incomeandvulnerablefamilies/individuals,the suspension of lease and debt payments, extensionsonpendingutilitypayments,etc.

However, the Pandemic also exposedserious deficiencies within the publicservice delivery system and exposed thelack of political and administrative trustin decentralisation. As the nation wasonce again enduring a period of politicaltransition,withtheparliamentdissolvedandGeneralElectionspending,thesubnational

governance tiers of subsidiarity wereoverlooked. Centralized control of publicservices through the District and Divisional Secretariatswereenforced.Inthissituation,the usual public and private service delivery systems and associated structures were frozen to enable a ‘command and control’approach to enforce a health focused strategic lockdown.The foodandessentialservices distribution networks, public-private health services (including medical services),industrialandeconomicactivities,allwereatavirtualstandstilltillthecentrecould take control and reorganise the country’sfragmentedandinefficientpublicservice delivery mechanism. While, theinevitable focus on managing direct health effectshadledtolowhumanfatalities,socialwellbeing and economic progress were inevitably affected, with forecasts paintinga dismal economic picture; the growth ofthe economy that took a major hit fromthe 2019 Easter Bombings,was forecastedto slow further and possibly edging into negative territory. While appreciating theactionstakenbythegovernmentduringthisunprecedented crisis, it is important to draw criticallessonsfromtheCOVID-19Pandemicandorientsuchlessonstowardsassistingtherecalibrationofpolicyandstrategyplanningmindsets, in order to foster foresight driven strategies.

Even though the Provincial Councils were established towards upholding the principle of subsidiarity, Sri Lanka continued todemonstrate a lack of faith in devolving power and responsibility during the COVID-19 curfew. Local governmentswerealso not involved, even when community level outreach was required. This raises the questionastoifthesubnationalgovernancemodel in Sri Lanka is truly integrated and empowered towards public service delivery, and if it has received adequate central politicalauthorityandsupport? Ifnot,one

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must inquire as to what alternatives ornovel approaches would enhance comfort in subsidiarity, devolve governance to facilitate inclusion, and decentralise the public service toensurenooneisleftbehind.

A second reality was an almost complete operationalshutdownofCabinetMinistriesand Government Institutions under thepublic service, with both health services and essentials services being managed undertwo separate Presidential Task Forces. Thedecentralizedoperationsweresubsequentlymanaged by the District and Divisional Secretariats with Grama Sevaka, Samurdhi Niyamaka and ground level officials of theCentralGovernmentcoordinatingthepublicoutreachwork.Twocriticalexampleswerethereorganisationoftheessentialservicesdelivery and provisioning of a livelihood allowance to poorest within society. The necessity to deconstruct the existinginstitutional and public administrativestructures during a crisis does raise the question as towhether the existing publicservice delivery mechanism in Sri Lanka is toofragmentedandinefficient.

The Curfew exposed the inadequacies ofdepending on the monopolistic marketsystem, which was a third reality. During the early days of the Curfew, consumers who had been dependent on the larger supermarkets and supply chains, especially in cities and suburbs, were stranded andpanic purchasing ensued. The community marketsandgroceriesthathadtraditionallyserved consumers were weakened during the past decades. Therefore, food supply trucks had to be organised in order to ensure the general public had some access to their daily needs. The proceeding weeks sawaself-organizationoflocalgroceryanddistribution services plus a mushroomingof online based grocery services as well. Such drastic shifts raise the need for therevitalisation of local producer-consumer

systems and the value of embracing circular economic models.

While public utilities including electricity,water and telecommunications wereprovided by the government without interruption, the vastlymanual billing andpayment systems prevented the government from collecting vital public revenue.As a fourth reality, it raised questionsas to the efficacy of previous decadesworth of investment in e-governance. While, COVID-19 brought about somepositive outcomes towards strengtheninge-governance facilities, it remains to see ifan integrated online public service delivery canbe facilitatedtoeasethe inefficienciesof the fragmented public service delivery system in the country.

A fifth reality during the Pandemicconcernedself-relianceandself-sufficiency.The challenges of ensuring a continuousfood supply brought about a social media induced, nationwide interest in homegardening and urban agriculture. Froma national perspective, the restrictionson imports also made the government, the private sector and even members of the general public place a greater focus on locally produced food and products. Biophysical realities and constraints thatwere fully integrated and observed in traditional agricultural societies have beenneglected under the current market-growth oriented-consumeristsocieties.

The pandemic suddenly established a situationinwhicheverybodywascompelledto appreciate and accept obvious realitiesincluding;(i)theimportanceofhavinglocalfood production and distribution systems(ii) the importance of traditional healingmethods and their role in the preventionof diseases and increasing immunity (iii) theimportanceoftraditionalsocio-culturaltools such as self-isolation mechanisms,

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whichwereineffectforawholerangeofviraldiseases (iv) the importance of traditionalgreeting methods of zero contact, beingthe most appropriate method in a humid tropicalcontextwherethediseasesspreadrapidly, and (v) the importance of values of life, the fundamental meaning of life, ideas of sharing, caring and helping when placed inadeathrow.Suchrecalledrealitieshaveobligatedsocietytoquestionthosemarketinduced necessities, opening previouslyclosed gates for true transformation.Withtraditionalvaluesystemsbeingsuppressedin the current dominant value paradigms, a new wave of appreciation for thesetraditional value systemshas resurfaced inthecontextofanewnormal.

As living with the COVID-19 Pandemic isexpectedtocontinue,SriLankawillneedtorefocus its approach from a narrow foreign direct investment driven economic growth mindsettowardslocalizedsufficiencymodelsofeconomics. Implementing theSDGsandevolving towards a sustainable development approachcanbecomeaCOVID-19learningexperience. In this context, planning for adomestic resourcemobilisation frameworknow makes more sense economically, especially towards easing dependency and combatingapotentialeconomicdownturn.

4.2.2. The Threat of Climate Change and Disasters

Climatechange is thedefiningcrisisofourtime and no country is immune from itsdevastatingconsequences.Whilesealevelsare rising, the Polar ice caps are melting,the coral reefs are dying, and oceans are going through a process of acidification.Atthesametime, forestsareburningandrising temperatures are fuelling further environmental degradation. The worldhas been experiencing frequent naturaldisasters, extremes instances of weather,

food and water insecurities, economicdisruption,military conflicts,and instancesof terrorism. As the accelerated cost of climate change reaches irreversible highs, “business as usual” is no longer an option across the planet. Climate changeis expected to multiply already existingchallenges and will heighten competitionfor resources such as land, food, and water, fuelling socio-economic tensions across the world.

During the past decade, Sri Lanka experienced frequent climatological,meteorological, geological, hydrological disasters and extreme weather events.The country is currently showing signs of lack of resilience in the environmental, social, and economic sectors. The current patterns of intensive resource use, risingmaterialexpendituresandexcessiveenergycosts, coupled with climate change induced disasters and the decreasing capacity of ecosystems (to provide critical ecosystemservices), are leading to environmental, economic and social vulnerabilities anduncertainties. Therefore, economicstrategies that rely on an unlimited supply offreeorcheapresourcesandutilisingtheenvironment as an unlimited waste dump will no longer be possible.

Droughts,floods,cyclones,tsunamis,heavyrains, and landslides have occurred with significantly greater frequency in Sri Lankainrecentyears,resultinginunprecedentedand excessive economic costs. Withgreater vulnerabilities being exposed, thegovernment has had to incur large amounts, solelyfordisasterreliefactivities.Disastersand shocks can undermine poverty eradication efforts; this in turn could leadto abrupt, systemic, intergenerationaland long-lasting increases in poverty,with heavily extended recovery periods.Landslidehazardsforexampleareprevalentamong13outof25districtsofthecountry.

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Notwithstanding high rates of poverty inremote districts, the majority of the pooras well as the bottom 40% live in highlypopulated urban conglomerations. Theimpact of an urban centric natural disaster such as the 2016 Sri Lankan Floods wasmore heavily felt in the Greater Colombo and Gampaha Metropolitan Areas; bothof these districts play host to the highest urbanpopulationdensities,inclusiveofthehighest percentages of poverty stricken and vulnerablecitizens.

As climate threats can translate into substantialimpactsonthenation’seconomy,a resilient economic system should be characterised by adequate green GDP and non-declining and inclusive wealth. Many of the key economic, social and environmental issues currently faced by the country are integrally linked to pathways taken in the name of achieving rapid economic growth. The transformation towards ensuringsustainable and climate resilient societiesinSriLankawilldependonthe integrationof the three dimensions of sustainable development into policy frameworks and strategic plans of the country.

A. Climate Change Impacts and Increased Vulnerability to Disasters:

Sri Lanka was ranked second with an annual climateriskindexof9.0ontheGlobalRiskIndex2019;theindexevaluatestheimpactsof cyclones, floods, heat waves and otherextreme climatic conditions, and analysingimpact on countries across the planet. The dominant climate hazards that aremost likely to affect Sri Lanka areextremerainfall, floods, droughts and sea-levelrise. TheWorldBank (WB)hashighlightedthat the population of Sri Lanka living inmoderateorseverehotspotsby2050wouldbeapproximately19millionpeople.Asperavailable statistics, this figure amounts toalmost90%ofthecurrentpopulationofSriLanka.

Theeffectsoffloodingcanalsoworsendueto man-made structures such as power generating hydroelectric plants. Currently41% of the island’s electricity needs areproduced by hydroelectric power plants. These plants are designed to discharge increasing volumes of water, in order to unburden the physical structures of the reservoirs they utilise, often acting as acausalfactortoseverefloodingconditions.Similarly, during a drought, the hydroelectric plants underperform as the rainfall models used to construct the reservoir dams could have been significantly altered due toclimate change.

Sea level rise might not be as apparent as some of the other climatic hazardsaffecting Sri Lanka, but it is nonetheless aconsiderationwhen addressing projectionsconcerning future climate anomalies. The DMCestimates that inundationas a resultof sea level rise is varied, dependent on the districtsofSriLanka.Forinstance,by2100,theColomboDistrictcouldfaceinundationmeasuring 1,534hawhereas thePuttalamDistrict could face inundation estimatesof up to 14,809 ha. A study conducted by UNHABITAThaspredicted thatby theyear2050, sevenoutof fourteen coastal townsinSriLanka(includingColombo,Negombo,Mannar, Galle and Trincomalee) will experience inundation of low-lying areasdue to sea level increases, combined with salt water intrusion.

The health impacts of climate change have notbeenaddressedaseffectivelyasotherhazards affecting the populace. However,it is important to highlight that extremeweatherconditionsinthefuturecanresultinheat stress, and an increase in vector borne and waterborne diseases as well. Climate change could also increase the frequency and intensity of cyclones in Sri Lanka.

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B. Impact of Climate Change on Economic Sectors:

It has been projected that Sri Lanka couldexperience economic losses in the rangeof 6% of GDP under ‘business as usual’scenariofortheperiodof2010-2050,unlesspropermeasuresofadaptationareinitiatedto overcome the associated negativeimpacts. In 2017, US$ 1,623 million wasestimated as the annual loss from climateinduced disasters in Sri Lanka. The impact on social sectors from climate induced disasters amount to 57%. The Sri LankaPost Disaster Needs Assessment (PDNA)highlightsthelossesanddamagesoffloodsandlandslidesin2017persector;thesocialsectorcomprisesofhousing,educationandhealth; theproductive sector comprisesofagricultureandindustryandcommerce;theinfrastructuresectorcomprisesofirrigation,water,sanitation,transportandpower;crosscuttingissuesincludedisasterriskreductionandenvironment.Thesocialsectorsufferedthe highest damages and losses in 2017.Out of that, the highest damages and losses were recorded from the housing sector and was LKR 31,039.54. The World Bank(WB) has calculated the annual aggregatelosses for Sri Lanka for housing, roads and relief.LossesduetofloodingamountstoRs31.70billion, landslidesamount toRs1.80billion,droughtsamounttoRs.5.20billion,and cyclones amount to Rs 10.9 billion,with a total lossof 50billion rupees. It isunfortunate that environmental losses are not calculated in Sri Lanka and many of the ecosystem services provided by the natural environment are yet to be assigned an appropriate value.

Agriculture provides direct employment for around30%ofthepopulationinSriLanka,indirectly contributing to the livelihoodsofupto70%ofthepopulation; it isalsoasector which is highly vulnerable to climate change. According to a study which used the

RicardianApproach,itwasestimatedthatatemperatureincreaseofjust1°CinSriLankacan decrease the net revenue of agricultural lands by Rs. 12,720 per ha. Whereas 1millimetre decrease in rainfall could reduce thenet revenuebyRs 250perha.Overalllosses due to climate change in terms of agriculturelandscouldvaryfromRs.17,612to Rs. 27,528 depending on the predictedfuture scenarios of climate change. The State of the Economy 2018 Reportstates that the monthly income of farmer households could reduce by Rs. 6,027; this decrease in householdincomes could increase the poverty line in Sri Lanka by 7.9% according to existingstatistics. For instance, in 2017, PDNAestimated damages and losses worth ofRs.12,694.05millionjustfortheagriculturalsector.

The yield of many crops that are currently being exported from Sri Lanka will beimpacted by climate change as agriculture ishighlysensitivetowardsweatherchanges.For instance,adecreasein100millimetresof rainfall can reduce the productivity oftea by 30-80 kg per hectares per month.Similarly, a decrease in rainfall can also reducetheyieldofcoconutsby32-73millionkilos annually, and an increase in rainfall can resultinahigheryieldof42-87millionkilosannually.Inthecaseofrubber,highrainfallcould reduce the number of tapping days. Thesebeingexportcrops,extremeweatherevents and slow onset disasters can have a profoundeffectonproductivityandinturnaffecttheexportindustry.SriLankaalreadyhasa tradedeficit in termsofexportsandimports which means that imports are higher than the exports. Even though wehave been increasing our exports annuallyfor the past few years, imports have also increased. Sri Lanka needs to focus on improving exports to boost the economy,but climate change needs to be considered when transforming the export industry.

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Also,exportingprimarycommoditiesmightreduce our sustainability since many of these crops are produced with a huge cost to the environment. For example, annualcostofsoilerosioninSriLankaisestimatedatabout1%oftheGDP.

C. Policies and Plans to Address Climate Change:

A climate resilient economy should be able to cope with adverse impacts, incurring minimum losses and damages recovering quicklyafterfacingsuchshocks;inessence,a climate resilient economy refers to an economy with a reduced risk of climate change.Inordertoachieveaclimateresilienteconomy, it is important to understand the existing policies of a country, as thesepolicies in theory guide the activities. SriLanka, as a ratified member of the ParisAgreement under the United NationsFrameworkConventiononClimateChange(UNFCCC)since2015,hasbeenintroducingnew policies required for addressing climate change. Since Sri Lanka is not a majorcontributor of greenhouse gas emissions at a global scale, the policy makers have opted to focus on adaptation while alsoimplementing some mitigation processes.The key policies and plans developed by Sri Lanka to address climate change are the NationalClimateChangePolicy(NCCP)ofSriLanka 2015, the National Adaptation Plan(NAP)forSriLanka2015,andtheNationallyDetermined Contributions (NDC) 2016.Sri Lanka has also established a Climate Change Secretariat (CCS) under the Ministry of Environment. The CCS is mandated to represent Sri Lanka at theUNFCCC, and isresponsible for governing and managing all activities and projects and developingpolicies to limit the impact of climate change on Sri Lanka.

Apart from the above-mentioned policiesandplans,thereistheNationalBiodiversity

Strategic Action Plan (NBSAP) 2016-2020aswell. It highlights the necessary actionstowardspreservingtheexistingbiodiversityin Sri Lanka, while also mentioning thepossible threats to biodiversity from climate change. Unfortunately, theNBSAP has notconsidered climate change as a serious threat overlooking potentially significantthreats that could arise from climate change, especially towards marine life. Since climate change results in extremeweather eventsat varied scales, the policies around disaster management should also be highlighted. The Disaster Management Act (DMA) of 2005 and the National Policy on DisasterManagement (NPDM) in 2010 are suchexamples.TheNationalCouncilforDisasterManagement (NCDM) at the DisasterManagement Centre (DMC) was created as a result of the DMA. The Department of Meteorology (DOM) is responsible for providing the country with weather data and has also established a Centre for Climate Change Studies (CCCS). However, the CCCS, DOM and DMC have overlapping mandates and require coordination between thethreeentitiesinordertoeffectivelycombatclimate change.

The NDCs of Sri Lanka address thecommitmentstowardsbothmitigationandadaptation.Mitigation in Sri Lanka focuseson energy, transportation, industry, wasteand forestry sectors, while adaptationfocuses on improving the resilience of vulnerable communities, sectors andregions.Adaptationbroadlyfocusesonthehealth, food security,water and irrigation,coastal and marine, biodiversity, urban infrastructure and human settlements,tourism and recreation. Similarly, the NAPidentifiesthesesamesectorsoftheNDCsashighly vulnerable areas. These policies and plans are promising, but achieving them wouldbedifficultifthesearenotcoherentwith rest of the national policies driving

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development. For instance, environmentaldegradation continues to be a majorsetback for achieving commitments to the ParisAgreement;iftheecologicalthresholdinSriLankaisreached,adaptingtoclimatechangewouldbeextremelydifficult.

D. Reducing Vulnerabilities and Increasing Resilience:

Improving resilience would entailunderstandingthelimitsoftheextractionofresources,emanationofwaste,andavoidingnon linearities and catastrophic eventsboth locallyandglobally. Inorder toavoidincreasing strain on natural resources, it is importanttouseresourcesmoreefficiently.This will require an understanding of the flowofmaterials,energy,andwaterfromthetime when they are extracted, processed,manufactured, and used, to when they are finally discarded. It will also requireinformation about the environmental,economic, and social impacts of these flows. These considerations are becomingincreasingly important to achieving green growth and resilience. In fact, there is amillennium-long history of adaptation,spatially and seasonality: for instance,climate variability across the island through achoiceofclimaticallyandenvironmentallyappropriate varieties, tailoring of plantingseasons by region, the development of appropriate irrigation infrastructure, andsocial and trade arrangements to suit communalagriculturalpractices.

A major challenge facing the country ishow to overcome resource constraints, including energy, minerals, water, and land, to achieve reasonable or sufficient livingstandards for everyone in the country. Meanwhile, renewable resources, such as forests and groundwater sources, are also under threat. The ecosystems of the country areexperiencinggrowingexternalpressuresfrom drivers such as climate change, land

usechange,pollution,andinvasivespecies,which will impact on the functioningof ecosystems and on the provision of ecosystem services. Losses in biodiversity may lower the resilience to recovery from disturbances and species richness. More diverse patterns of species interactionscan promote ecosystem stability and thus sustain the output of ecosystem services. Even with the agricultural sector, resilience can be increased by promoting educationand awareness through projects whichhighlight climate smart agriculture. Forexample, projects such as the ClimateResilient Integrated Water ManagementProject (CRIWMP) and the ClimateResilience Improvement Project (CRIP)are projects reaching the most vulnerablecommunities and building resilience byprovidingaccesstodrinkingwater,irrigationand promoting climate smart agriculturalpractices. Agriculture is a source of largepercentage of indirect employment in Sri Lanka, and the COVID-19 pandemic hasshown that agricultural jobs are importanttowards ensuring food security within the country.

Resiliencetowardsprojectedclimatechangeensures the continuity of social wellbeingand economic prosperity. Since disasters could increase vulnerability and reduce resilience, it is important to address disaster riskreductionwithintheclimatescenarios.By looking at the budget estimates for2018 provided by theMinistry of DisasterManagement,itindicatesthatthemajority56%ofthebudgetallocationwasprovidedfor disaster relief, while the least towards disaster management 19% and 25% ondisaster mitigation. If a higher budgetwas allocated towards disaster mitigationand management, the damage and losses incurredbyextremeweatherevents couldhave been reduced. Ecosystem-based disaster risk reduction (Eco-DRR) in theface of climate change and associated

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vulnerabilities is a necessary policyimperative for sustainable development inSri Lanka.

4.2.3. Prosperity within Biophysical Constrains and Limits to Growth

Sri Lanka’s vulnerability to multiple andfrequent disasters can be related to an acquired political and policy approach,connected to a mindless growth-based development model. This has taken the nation away from its historicalconsiderations on the realities of limitsto growth within ecological boundaries. The biophysical realities, mainly entropyconstraints, indicate that our activitiesshouldnotgobeyondthenature’scapacityinreceivingwasteandextractingbiologicalresources. The life-sustaining systems have an influence on the compositionof the atmosphere, the water cycle, the nutrient cycle, plant pollination and soilfertility.Climatechangeisoneofthemanychallenges that have arisen as a result of an economy’s metabolic organism becomingtoo large. Many of the challenges are linked. As attempts to restrict fossil fuel use leadto the increased use of biomass for energy purposes, it results in theoverexploitationof agricultural land and water resources and places pressure on biodiversity. Nature’sprinciples act as ultimate guidance forany resource use; while economists havelooked at nature from an instrumental perspective, reducing nature into naturalresources and regeneration limits, withthe carrying capacity of ecosystems being taken for granted as free inputs into the production system. Modern resourcemanagement principles including those of resource and environmental economics tend not to adhere to natures principles, but tend to ‘economise the ecology’.This mismanagement has led to resource

inequities and resource degradation rightsentrustedtotherich,andrichnations.

The current development approach has weakened Sri Lanka’s opportunities toharness prosperity through its vastly potent ecosystem services. Sri Lanka’srich biodiversity provides a wide range of ecosystem services which include providing fresh water, ameliorating the climate,containing soil erosion, regulating surfacerunoff and providing bio-resources forsubsistenceuseaswellasfordomesticandexport-oriented markets. These resourcesinclude food, fuel, fibre, wood products,medicines and biomedical materials, ornamental species of commercial value, raw materials for industry, and areas for recreation and aesthetic enjoyment. TheClimate Change Secretariat (CCC) of the Government has warned that the impacts of climate change can create profound and long-termchangesintheisland’sbiodiversity,which is already under pressure from a host of anthropogenic impacts. CO2 emissions per capita of Sri Lanka, have increased from 0.53 metric tons in 1999 to 1.14metric tons in2018growingatanaverageannual rate of 4.50%; an overall increaseby 53% during the past two decades. TheresultantchangesinSriLanka’sbiodiversityand ecosystem services can jeopardizesustainable economic development and nationalinitiativesforfuturefoodsecurity.

Asanation,SriLankahasseveraloptionsathand thatwill define its fate inprosperity.Firstly, to attempt to continue business asusual (BAU), pursuing the conventionaleconomic growth paradigm that has dominated global economic policy since the end of World War 2. Secondly, topursueanenvironmentallysensitiveversionof that model and attempt to achieveGreen Growth. Thirdly, and alternativelyto pursue a more radical approach of sustainability that can create high quality

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of life for all while staying within the safe environmental space. Countries taking the 2030 Agenda on Sustainable Developmentseriously and adopting transformativeaction are taking the third option. Finlandfor example, with a good reputation as apioneer of sustainable development on a global scale, is approaching the SDGs by engaging the whole of society for systemic change. Bhutan, on the other hand, hasgone beyond the SDGs to become a carbon negative country by balancing economicgrowth carefully with social development, environmental sustainability, cultural preservation,andwithin the frameworkofgood governance.

Sri Lanka has its own experience in thesustainability-based prosperity model; itwouldbewellservedbyrevisitingtraditionalpractices that respected biophysicallimitations while harnessing ecosystemservices. The following examples aredrawn as learnings from the past towards redesigningforsustainablefutures;

A. Land Use Planning within Biophysical Constraints:

TraditionalSriLankansocietieshadadheredto basic principles that were deemed not to be violated with regard to resource extraction and waste generation. The firstprinciple was to use renewable resources in such a way that the harvest rate (the rate of use) was not greater than the natural regeneration rate, and the second was to keep waste flows to the environment ator below the assimilative capacity of theenvironment.Byobservingtheseprinciples,the ancient planners knew that the stock of renewable resources and the stock of assimilative capacity will not fall, andtherefore would be available in any future period. The idea was that the resource stock shouldbeheldconstantovertime.

The ancient village model had three systems oflanduse-paddyfield,homegardenandchena. The traditional home gardens haveadopted agroforestry systems which has its basis on the ‘eco-development’ concept.Itwasaself-sufficientsystemwithastablebase for long-term use. The village model had integrated land and water resource management system. The knowledge of this is shown in land use zonation within themicro-catchment.

The land use associated with tank cascades demonstrated a profound knowledge of resource management in a challenging environment essentially transformed fromnatural ecosystems into agro-ecosystems. Thetanksandthepaddyfieldsoccupiedthevalleys, where Low Humic Gley soils with poor drainage had limited use other than for paddycultivation.Ridgesummits,withrockoutcrops and inselbergs, were converted into works of art and places of worship and spiritualretreat.TheinfluenceofBuddhismled to the establishment of sanctuaries early in history and the enduring protection ofwildlife.

Traditional wisdom in agriculture and theliving is a longtime-tested concept,whichcreated an environmentally adapted, disaster tolerant and sustainable living system. They cultivated chena and paddylands according to the seasonality of rains thus; at least they could get successfulharvest from one cultivation. ‘Kekulama(dry sowing), Bethma (shared cultivation),Thaulugovithena(tankbedcultivation)etc.are the best examples showing how theycould avert the drought effects on theirfarming. Traditional communities madeevery attempt to conserve soil,water, andnatural habitat. Food security was one ofthe in-built aspects of their culture. Use of groundwater for agriculture was never practicedwhichassuredwatersecurity.Anadequate dead storage was found in tanks to

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beutilizedduringdryperiodforallpurposesand had been the only source of water for cattle and wild animals. Sharing resourcesequally and the equity of ownership were the most striking features of their culture, which led to build up a peaceful and sustainable rural society. Environmental pollutionwasnotatopicfordiscussion.

Indigenous agriculture is based onthe observation and studying naturalphenomena operating around them. Theforest, itsanatomy,associationofdifferentspecies for coexistence, regeneration afterfire, spatial variations etc. provided muchvaluable information for agriculture. Thefarming system, which includes chena, paddy and home garden cultivation hasbeenevolvedwith interactionofmanwiththe environment and developed in harmony with natural ecosystems. Observationson rainfall pattern, wind, temperature,humidity and soil behaviours influencedtheir cultivation activities. Unexpectedlosses in farming were eased with religious and spiritual practices. They have alwaysgiven due respect to the resources that are used for farming.

These advanced land use planning processes could be contrasted with the modern land use planning as outlined by the National Physical Planning Policyand planning approaches adopted by majority of the large-scale developmentprojects. The Accelerated MahaweliDevelopment Programme for examplehas destroyed thousands of small tanks that have sustained the village economy and converted the sustainable multiplecropping systems into ‘high yielding low nutrition’ rice monocultures resulting in acountrythatboastsofself-sufficiencyofricebut also burdened with high incidence of non-communicable diseases such as

diabetes and heart diseases.

Modern city designers have recognised the importance of green spaces in the urban environment and have incorporated green spacesas‘addon’stothesystem.Industrieshave introduced cleaner technologies to reduce pollution. However, these havebeen largely inadequate to compensate the huge quantities of pollutantsgenerated from urban areas as emissions, effluents and solid waste. The waste thatis not assimilated by the nature is added continuously to the surrounding localenvironment as well as global environment leading to many irreparable damages including climate change and ecosystem degradation impacting both current andfuturegenerations.SDG12,onsustainableconsumptionandproduction,hasnotbeenable to move away from this reality and focus on narrowly defined add on approachesto control pollution from mass scaleproductionsystems.TheWesternprovince,recognised as the most prosperous among theProvinces inthecountry isparasiticonthe rest of the country for its resources, and emits waste that should be accommodated by the rest of the country or the global environment.

Theincorporationofbiophysicalconstraintsinto the current land use planning implies understanding the minimum requirements of the communities for their ‘sufficiencyeconomy’ and rearranging the resourceand waste flows in harmony with naturesprinciples. This may involve radical transformations into the current systemsand finding innovative mechanismsto comprehend and achieve it. The practicalities for such transformationsamong the available mechanisms may be worth exploring. Both large and the smallwillbebeautifuliftheprinciplesareproperlyadheredtoasillustratedinthenextsection.Thetransformationofthementalformation

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will be an essentiality in this context. Therole of art and culture in leaving oneself happier with less material possessions is not properly explored, while the role ofeastern religions have been in the forefront of this discussion. The current pandemic has enforcedmanyofustorethinkandquestionmany of the so-called necessities that arelabelledas“ultimateneeds”bythecurrentconsumeristsocietyagainstthemostcriticalneeds of human society.

B. Large Scale Development Planning within Biophysical Constraints:

Constructionof longcanalswithextremelylow gradient, for example, Jaya GangafromKalaWewatoAnuradhapurawhich is87kmlong isan illustrativeexampleofuseof refined technologywith environmental/biophysical constraints in mind; workingtowards achieving social, economic and environmental goals. Yoda Ela had a gradient of less than 10cm per km within itsfirst27km.Theestablishmentofforests,and construction of tank cascade systems,reservoirsand irrigationsystemswasdonesystematically. Special mechanisms of theintake tower (Biso Kotuwa) along with allother components of a tank system also illustrates the careful planning that has not leftanyimpactunaccountedandessentiallymade to last for centuries.

Irrigation water needed efficient controloverdistributionandallocationthroughoutthe system. This type of irrigation systemis dependent on the micro catchments. Therefore, it requires careful watershed managementtoreducesiltationandensurecatchment water yields. The conveyance of irrigationwateroverlongdistancesrequiresefficientcontroloverbothdistributionandallocationbetweenthetopandtail-endsofthe system. The land and water use system thatwasdevelopedovercenturiestosatisfy

these requirements has been described as a ‘cascadingsystem’.

This system elaborates a major learningagainst the current calamity of large-scale development. Many ancient large-scale works have been undertaken with careful, well planned, systematic projectcomponentsandtheirclosemonitoring.Forexample, evidence shows that large damsduringtheirconstructionhavebeenpressedby footsof smallanimalsfirstand thenbymedium sized and finally by large animalsensuring the long-lasting strength of thestructures. Accelerated developments of the present age and the resultant disasters as shownthroughtheSamanalawewaProjectandtheKantaleReservoirrequirelearningfrom such prior undertakings.

C. Crop Diversity for Food Security, Health Care, Climate Resilience and Environmental Conservation:

All vegetables, cereals and pulse crops and fruits known to us today are the results of traditionalbreedingtechniques.Itisevidentthat more than 2,000 rice varieties weregrown in Sri Lanka during the known period ofourhistory.Thesevarietiesvariedthroughlocation, purpose, tolerance to soil, waterand climatic stresses, their unique tastesandaromas,nutritionalqualities,suitabilityfor different agro ecological regions etc.For example, heenati rice was grown forlactatingmothers.Kannimurunga,anothervariety, was grown for men going out to work in thefields.Suvandelwascultivatedfor itsextraordinaryfragrance.Monkswhodonoteatafternoonweregivenaspecialvariety grown over six to eight monthscalled mawee, which possesses high-protein content. Therewere varieties for differentmeals in the day, preparations, patients,elders,infantsetc.Also,therewerevarieties,which could withstand salinity (e.g. pokkali wee), flood and drought. There is a need

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to investigate, classify and use them forbreeding purposes depending up on the purpose and for different environmentalconditions. It was revealed that thereexistedmore than 60 varieties of bananasin the country.Many agricultural practicesfoundamongruralcommunitiesinthepasthad aimed at minimizing the losses andfailures of crop due to climate, wildlife and other natural disasters.

Themodernsocalled‘richconsumption’hasto be contrasted with the aforesaid variety and diversity of food of the traditionalcultures.Thetwomainvarietiesofrice(longgrain and samba) available in the current rice market and the commonly found 2-3varietiesofbananasandmuchlesservarietyof other crops prescribed and encouraged by the agricultural authorities shows theagrobiodiversity poverty we are left with.The breeding technologies adopted and the refinedknowledgeonnutritionalandotherimportantpropertiesofdevelopedvarietiesillustrates extremely well-developedknowledge system on their surroundings and the continuously sought out andcreated diversity. This has to be contrasted with the current agro-biological poverty that we are leftwithwhich not only incapableof creating healthy new varieties but alsoincapableofprotectingtheremaining littleagrobiodiversity around us.

D. Pest Management as an Ethical Undertaking:

There are three categories of traditionalpractices to protect crops from wildanimaldamage.Thefirstgroupisbasedonastrology, the second on the powers of the spiritsanddeities,andthethirdinvolvesthechanting of verses and the use of specificsymbols. Often these different practicesare combined. Modern pest eradication,through the utilisation of heavy amountsof chemicals, is in direct contrast with the

conceptof‘feedingthepests’.Farmersmadeuse of the diversity of nature to protect theircrops.Therewaspropagationofusefulorganisms – Dimiya Ants in home gardenswere used to destroy pests and harmful insects. Their system was not based on the principle of killing all unwanted organisms – rather they allowed these creatures tocontrol each other.

i. They erected posts in the paddy fieldwhich have been used by birds to rest and catch pests, that otherwise damage crops.

ii. Placing ‘Kema’ in ripeningpaddyfields- usually this is an upturned branch of a coconut palm. This protected the growing and ripening plants from pestattacksandthebranchactedasaplatformforpredators.

iii. ‘Kurulupaluwa’isaplotoflandsetasidefor birds at the edge of the wilderness areas, when people cultivate paddyfields.Thislandiscultivatedcommonlyby all but the crop is not harvested and birds can enjoy it and in return, birdshelp the farmer to control pests.

E. Conservation Ensuring the Survival of all Biodiversity:

The traditional biodiversity conservationprogrammes were only voluntary. The ultimateaimofsuchactivitieswastoensuresurvival of species (even harmful and useless).Therewasatraditionalbeliefthatkilling of certain species of animals is a great sin,withsuchexamplesincludingtheCrow,theMonitorLizard,theStarTortoiseandtheIndian Cobra. Although these species arenot of direct use to man, such beliefs tend to ensure their survival. The appearance of certain species is believed to be symbols of prosperity;Blackantswitheggs,beehivesin the roof. Dangerous animals were usually avoided and not killed. The charismaticnature of the animals was not the focus

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contrarytothemodernconservationfocus.Variety of socio-cultural aspects were used asconservationinstrumentswhichensuredmaximum survival of all biodiversitydisregard of instrumental values to humans.

F. Traditional Medical Systems for Holistic Health:

Traditional systems of medicine arecharacteristic of their synergistic activity,the use of many chemicals rather than one active ingredient, and systematic effects(treating the whole, not parts). Treatmentis not considered a commodity. However, the effects of western and traditionalmedicines cannot be compared by analysing the known ingredients only, as traditionalmedicinehasmanyunknownconstituents,specific methods of application and postapplication practices. The traditionalmedical practitioners were supported byextended communities by providing thefood and other requirements. Every villager had a considerable understanding on the plants around them and their medicinal valuesandthehomegardenwasessentiallya herbal garden as well. The balanced diet which guarantee healthy life has been based on a time-tested simple framework of sixtypes of tastes. This can be contrasted with themoderncarbohydrate,proteinnutritionframework which does not essentiallyguarantee health.

G. Traditional Technology Within a Circular Economy:

The metal processing industry in Sri Lanka commenced around 3000 BC. The ancientchronicles such as the Mahavansaya, Thupavansa and Pujavaliya mentionsSri Lanka’s history of metal industry.Archaeometallurgical surveys of Sri Lanka have revealed a non-conventional, wind-driven iron smelting furnace for the firsttime in the world. IIt is reported in an

influential‘Nature’articlethediscoveryandexcavationatSamanalawewa,Sri Lanka,ofa previously unknown furnace type. The furnaces are all situated on the western margins of hills and ridges, where they are receiving strongmonsoonwinds. Fieldtrials using replica furnaces confirm thatthis furnace type uses a wind-based air-supplyprinciplethat isdistinct fromeitherforcedornaturaldraughts.Italsoshowsthecapability of producing high-carbon steel. Thistechnologysustainedamajor industryinthisareaduringthefirstmillenniumAD,andmay have contributed to South Asia’searly pre-eminence in steel production.InSouthAsia,highcarboncrucible steel iswell documented and forms of such steel known as ‘wootz’, were the rawmaterialsneeded to construct mediaeval Indo -Islamic ‘Damascus’ Swords. Evidence fromSamanalawewa shows that comparable steelswereproduceddirectlywithsignificantquantities using sophisticated ‘frontal’smeltingfurnacesdrivenbywindpressure.This technology needs to be compared with modern iron smelters which uses large quantities of supplied energy and manyother non-renewable outputs. Though it is notveryclearastowhatthemainintentionof producing such large quantities of steelwas, there are evidence to assume exportpossibilities.

H. Architecture and Construction Technology Fashioned by Principles of Sustainability:

SriLanka’straditionalarchitecturehasbeenfashioned by principles of sustainability which utilized naturally availablematerialsand incorporated the cyclical possibilitiesof their regeneration. The site selection,use and re-use of sites and materials, have all been fashioned by the culture of simplicity and thrift, reverence to nature,and the understanding that the planet must be treated with care and gentility

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because it is both fragile and exhaustible.Three distinct materials have dominatedthe building practices of indigenous SriLanka;stone,timber,andearth,whichhavebeen separately and collectively used tofacilitate the development of technologies. Infact,inthehistoryofarchitectureontheisland, therearedifferent regions inwhichspecific materials have been extensivelyused because of their availability and the progressofartisans’skills.

The Rock Builders of Sri Lanka masteredthe art of stone building with specificknowledge of the types of rocks, and their materialistic compositions. The processingtechnology involving retrieval from the planet, and cutting and shaping them, inorder to assemble such harvested rocks into structurally stable forms. This achievement is in evidence in a seven-story building known as the Lowamahapaya.

Eachandeveryoneoftheabovementionedexamples illustrates a ‘multiple valuescenario’. For example, village tank systemdoes not intend to just providewater butprovides a mechanism of waste treatment, water catchment protection, wildlifeconservation and crop production (amongother areas). Likewise, traditional ricevarieties provide multiple dimensions ofnutrition. Not just a carbohydrate sourcedand eco based disaster risk reductionmechanism against droughts, floods,salinity, but also a food choice that boosts immunityagainstmanydiseases.Traditionalhealth systems were meant for not justphysical health but mental/psychologicaland spiritual health as well which are in compliancewithmodernWHOdefinitions.Traditionalbuilding technology reflects thesame principles that the planet must be treatedwithcareandgentilitybecauseitisboth fragile and exhaustible. For example,traditional steel technology demonstratesthe use of renewable resources in high

tech metal industry, a technology unique to Sri Lanka with zero pollutants left tothe environment in full compliance with the principles specified under circulareconomies.

I. Lessons of Prosperity and Sustainability

Implementing the bio physical scenariorequires understanding the following failures of the current system; recognitionfailure, acceptance failure and integrationfailure. Under recognition failure, severaltypes can be recognised. Firstly, we havefailed to recognise that humans are currently passing a stage of negative growth. A fullcostgreenaccountingexercisewouldhaveshown that we are on a declining growth pathway. Secondly, we have equally failed to recognise that humanity had its highest growth during the pre-industrial agricultural society. However, this has been proven with the circular economy model that incorporates thermodynamic constraints. Thirdly, we have failed to recognise that thecurrentsystemcannotrunforextendedperiodsoftime,giventhebreakdownsignalsthat appear fromtime to time and finally,we have been failed to recognise that the current system will face complete collapse in its individual systems and such collapses willbemorefrequentinthetimetocome.

Under acceptance failure, firstly, we havefailed to accept that the current systems have consistently and categorically ignored local/ruralrequirements,localculturesandtheir value systems. Secondly, we have failed toacceptthatbetterandmorepermanentsolutionsexistbutoldgrowthmodelsarethemost sought solutions formost ills aroundus. Thirdly, we have also failed to accept that the biophysical constrained village based, sustainable systems (fundamental working units in an ecosystem service driven prosperity model) are currently prevalent, functioning and in theworkingmode, not

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ahypotheticalparadigm.Wehavefailedtosee that the current planning that emphasise megacities, globalised commodity marketsare misnomers.

TheIntegrationfailureimpliesthatwehavefailed to integrate bio physical constraints in to the current systems of decision making. A solution towards this would be to learnthat more advanced countries have adopted circular economies as the base core of their environmental policy. The increasing demand for nature based and organic products demonstrates the increasing knowledge of the current consumers on the multiplebenefitsofproducts,derivedfroma bio physically constrained system. The National Policy on Agriculture (NPA)should emphasize the use of indigenousknowledge in agriculture, which ensures preservingandutilizingtraditionalcropsandvarieties, resources conservationpractices,medicinal plants, cottage industries andsecuring agricultural heritage of the country. In developing a strategic mechanismto promote an alternative to presentagriculture,cognizancemustbetakenfromdeeprootedcustomsandtraditionsandthetime-testedagriculturalpractices toassurethe sustainability in the agricultural sector. The current dependency mentality of farmers, evolved due to modern agriculture and government policies concerning agriculture, should gradually be removed by developing self-confidence, self-motivationand empowerment.

Reorientation of the agricultural researchagenda from being crop based to resource based is essential. The promotion ofendemic fruits, vegetables and medicinal products for both local consumption andforeign markets can be initiated throughresearch. Knowledge on the conservationof natural resources at present is dispersed and available at various institutions.

Gaps need to be identified where furtherstudies are needed andorganized throughnetworking them so that all have the access forutilization.

Climate change is the result of the emission of greenhouse gases to the atmosphere beyond its assimilative capacity. Theinvention of the internal combustionengine and the burning of fossil fuels for various energy requiring activities havepushed atmospheric CO2 levels to the irreversible400ppm+ level. Fossil fuels arethe products of the past photosyntheticregimes for which the current ecosystem does not hold any assimilative capacity.Theglobalecosystem’ssink functionshavelimited capacity to support the economic subsystem.Wehavenotkeptthesizeoftheglobal economy to within the capacity of the ecosystem to sustain it. According to the circular economy principles, the emissions of waste (GHGs from fossil fuels) beyond the assimilativecapacity(whichiszero)isanon-viableactivityunlessthere isamechanismto capture, store and send back the CO2 to where it was (underground) to complete the circle.

4.2.4. Sustainability Pathways of Ecosystem Services and Environmental Economics

Staying within biophysical limitationswhileoptimisingthebenefitsofecosystemservices would be a critical pathway thatSri Lanka could seek its prosperity. The Millennium Ecosystem Assessment (MA), which analysed the impact of human actions on ecosystems and human well-being, identified four major categoriesof ecosystem services: provisioning, regulating,culturalandsupportingservices.A regulating service is the tangiblebenefitprovided by ecosystem processes that moderatenaturalphenomena;plantsclean

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air and filter water, bacteria decomposewastes, bees pollinate flowers, and treeroots hold the soil in place to prevent erosion. All these processes work together to make ecosystems clean, sustainable, functional, and resilient to change whileregulating services including pollination,decomposition,waterpurification,erosion,flood control, carbon storage and climateregulation. Market and governmentalfailures are the two most common institutional failures that contribute toecosystem service degradation. Marketfailures occur when the market is unable to lead the economic process towards a social optimum and government failure on theother hand comes either through a lack of intervention and/or through inappropriateintervention.

• Firstly, correcting the market failure and integration of biophysical constraints into the regulatory framework is crucial towards ensuring sustainable development. Environmental degradation including climate change,is the result of an underlying disparity between the private and social costs andbenefitsofuseandconservationofenvironmental resources. Private costs and benefits are usually obtained bytheimmediateuseroftheenvironment;anindustrialistwhodischargeeffluentsto the nearby rivers or a consumer who emits greenhouse gasses (GHGs) when driving a personal vehicle. Social costsandbenefitsaccrue tosocietyasa whole including future generations.Socialandprivateinterestsoftendonotcoincide. Private benefits will lead toenvironmental externalities impactingthe rest of society. The market failure and externality costs are usually beingignored by the person who creates the cost, when the failure arises from the freefunctioningofthemarketplace.Thisprovidesajustificationforestimationof

such external costs and benefits andinternalises them through regulatory tools such as taxes and chargesassociated with subsidies. The correct estimation is therefore immenselyimportant so that no externalitiesremain unaccounted.

The integration of biophysicalconstraints along with the regulatory tools requires two things: first, anassessmentoftheregenerativecapacityofexistingnatural resourceswhichareextractedfromnatureandkeepingtheextractionlevelswithintheregenerativecapacity. Extractions beyond nature’scapacity have to be taxed and thatmoney has to be utilized to recoverdamage costs. Secondly it requires makingassessmentsontheassimilativecapacitiesofthedifferentenvironmentalmedia (air, water and land) and making regulatory measures that will ensure that those capacities are observed bythe users. Any type of emissions must be tackled with proper regulatory tools and damagedsystemshavetoberepaired/recovered.Resourceandenvironmentaleconomics play a key role in here in the assessment of the correct damage cost.Anydrawbacks/miscalculations inthe estimations will result in a lack ofsustenance for the bio physical system. Ethical and equity issues need to be properly integrated into the analysis to makesurenooneisleftbehind.

• Secondly, correcting government failures would lead to reformatory action. Governments usually intervene in markets in order to correct for externalities caused by the marketor to serve some social purpose. However, many of these interventionsend up having negative impacts onthe environment. Examples includefinancial or regulatory incentives for

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deforestation and fertilizer subsidyschemes, etc.; recent Sri Lankanexamples include attempting to relaxexisting protection mechanismsgoverning Other State Forests anddegazetting Mangrove Wildernessesto enhance shrimp farming. This is a clear example of policy failure. It isalso possible that government failures coexistwithmarketfailures.Addressinggovernment failures requires an environmental economic approach first. The externalities towards theothersectorsneedtobefirstidentifiedlooking at the inter-sectoral linkages. The damage caused need to be valued and then has to be reversed from resources, perhaps transferred from other sectors.

• Thirdly, correcting the global appropriation failure as externalities beyond the national boundaries poses a special problem. There are global benefitsandcoststhatarenotaccountedcurrently in many decision-making contexts. Many conservation activitiesyield global benefits. The ecosystemservices of tropical ecosystems yield benefits to people in other countries,either because they simply want it to be there, or because it helps sustain basic biogeochemical cycles on which human survival depends. However, if thetropicalcountryinquestionreceivesno financial or other resources to payfor these global external benefits, itwillhavenoincentivetolookaftersuchecosystems. There is another form of market failure which is called global appropriation failure. This arises dueto the fact that markets are missing. Global missing markets can coexistwith local market failure and with intervention failure. Correcting globalappropriation failures requires furthervaluationoftheecosystemsconcerned

and development of an appropriationmechanism. The experiences ofdeveloped countries show that conservation easements, compensatedset-side and tradable development rights as potential mechanisms couldbring appropriable mutual gains to participatinglandownersandsponsoringpublicorprivateorganizations.

It is important to discuss this issue interms of the proposed ecosystem services driven prosperity model. As incomes rise and pristine environments suffergreater degradation, the global demandfor conservation to facilitate ecotourism,recreation and other non-use benefitsis likely to increase. Since many of the highly valuable ecosystems are present in developing countries where the opportunity costofconservationishigh,acompensationmechanism is required to match the demand with supply. There is emergence of such global environmental markets (GEMs) at least on a modest scale. Public ventures of this nature include disbursements under the Global Environment Facility (GEF),officially sanctioned debt-swaps and debtrescheduling.

In the above context, the transformationtowards sustainable development would entailtheincorporationofallenvironmentaland social externalities into the decision-making processes. Environmental Economics (EE) was considered as an opportunity to accommodate the environmental implications of the growth economy andsocietywithin amodified set of economicmodels. Micro level applications of EEinclude estimating demands for variousenvironmental goods and services, plus damage estimations (through variousenvironmental valuation methods), thedesigningofeconomicinstruments,projectlevel cost benefit analyses combined withaiding renewable and non-renewable

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resource harvesting decisions.Macro levelapplications include green accounting(integrating environmental additions anddepletionsintoexistingsystemsofnationalaccounts), the development of macro level indicators etc. Such applicationsseem to cover a wide variety of real-world issues ranging from biodiversity, energy, agricultural and local pollution issuesto global issues such as climate change, ozone depletion and ultimately the long-term survival of humanity. Most natural resource policy decisions in many countries have made sure that environmental economic values are being incorporated. Identification, valuation and incorporationofallenvironmentalandsocialexternalities(both negative and positive) in monetaryterms, with the incorporation of thesevalues into the decision-making contextusing appropriate institutions, economicinstruments and other measures as the basic premise of the resource/environmentaleconomics scenario.

Currently in the Sri Lankan context,incorporation of all environmental andsocial externalities into the decision-making context is not functioning exceptfor few isolated cases. Environmental values are largely neglected in the current decision-making context leading toresource degradation. A limited numberof Government Entities including theCentral Environmental Authority (CEA), the Marine Environment Protection Authority(MEPA), the Public Utilities Commissionof Sri Lanka (PUCSL), the Ceylon Electricity Board(CEB)andtheDepartmentofCensusand Statistics (DCS), amongst others, haveidentifiedtheneedfortheincorporationofall environmental and social externalities.Fourmain legislations that have identifiedenvironmental valuations include, theNational Environmental (Amendment) Act(No. 53 of 2000), the Sri Lanka Electricity(Amendment) Act (No. 31 of 2013), the

Public Utilities Commission of Sri LankaAct (No.35 of 2002), the EnvironmentalConservation Levy Act (No. 26 of 2008),and the Marine Pollution Prevention Act(No. 35 of 2008). However, some of theshortcomings of these legislation preventsanactualtransformation.

Following is an analysis of potential and shortcomings of selected policy and regulatory mechanisms for advancing environmental economic applications in Sri Lanka;

A. National Environmental Act and Cost Benefit Analysis:

The legal framework for the Environmental Impact Assessment (EIA) process in SriLanka has been laid down in the NationalEnvironmental Act (NEA) in 1988. It isone of the main regulations towards theincorporation of environmental costs andbenefitsintotheCostBenefitAnalysis(CBA).The Central Environmental Authority (CEA) establishedin1980undertheNEAservesasthefocalpointofenvironmentalprotection.It has made EIA mandatory for projectswith a significant environmental impact.EIAs incorporateenvironmentalvalues intothe decision process making through an ExtendedCostBenefitAnalysis(ECBA).

The main rationale for conducting a CBAis toprovideprojectchoicetoaconsistentsetof generalobjectivesofnationalpolicy(UNIDO,1972). TheCBAcanbeutilisedasa method for identifying a decision rulefor choosing a preferred alternative. TheenactmentofNationalEnvironmentalActin1980made the EIA procedure compulsoryforthedevelopmentprojects,andtheCBAhas become an important component of the EIA report. The basic methodologyof the CBA involves the identification andmeasurement of environmental effects,subsequently translating them into

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monetary terms for inclusion in the relevant formal project analysis. When the CBA isused for social choices, benefits and costsshouldbeevaluatedinasocialcontextandtake into account any externalities arisingfromadoptionoftheparticularaction.

The Gaps of Cost Benefit Analysis methodology are as follows;

a. CBA Fails to Address Intergenerational Equity: The decisions from a CBA areinherently biased towards the present generation,whichhasledtoburgeoningenvironmentalcosts lefttosubsequentgenerations.TheCBAneedstoexpressallcostsandbenefitsinasingletermandexpresstheminpresentvalueterms.Adiscount rate is used to calculate the present value. The higher the discount rate used, the lower the level of present value benefits will be. Therefore, thedecision on the discount rate could haveasignificantimpactonthelevelofrealizedbenefitsandcosts.Thepresentrate used in Sri Lanka is 10% and therates proposed by environmentalists are nearly half of that.

b. CBA Fails to Address Intragenerational Equity: Intragenerational inequity ofthe CBA is a causal factor stemmingfrom two aspects. The first is that thedecisions from the CBA are inherentlybiased towards the wealthy. Economic valueswhichformthebasisoftheCBAare usually based on a comparison of the “Willingness-To-Pay” (WTP) ratherthan of actual welfare gains or losses of different people.Willingness-To-Paydepends on expectations concerningwhat it is appropriate to purchase and forwhatprice.Forexample,theamountof money one would be willing to pay to avoid any unwanted change, also depends on wealth. Since preferences in cost-benefit analysis are weighted

with money, and the poor have less of it, their preferences count for less. The second is that the CBA worsensthe existing incomedistribution of thecountry.

TheCBAsupportspoliciesandprojectsthat make some people worse off. Aproject which yields high net benefitsmay result in benefits borne by onegroup of society and costs borne by another.ThecompensationproposedintheCBAneednotbeanactualtransferof money from gainers to losers, but a hypothetical one. This is based onthe assumption that society is thesum of the individuals composing it. If each policy or project implementedinacountryhaddifferentwinnersandlosers, in the long run everyone would be both winners and losers and the unfairnessofindividualprojectsmaybecancelled out. However, the widening incomedisparitiesintheworldsuggestsotherwise. The CBA may approve achange which seriously worsens the distribution of income. For example,landisoftenacquiredforNationalParkswithout adequate compensation fortraditionaluserswhoarepoor.Costsofenergyprojectsarealsounequallybornby the marginalised, low income groups or unknown future generations andwealthiergroupsusuallysufferlittleloss.Forexample,theAcceleratedMahaweliDevelopment Programme of Sri Lanka requiredtheinundationofconsiderablestretches of agricultural land (5400 ha) and the displacement of 14,000 rural families. Low income groups are affected in several ways, includingthe loss of traditional lands withinaffected areas and loss of opportunitytodevelopoffgridpowersincelimitedfunds being devoted to the large grid connectedprojectsinpreferencetooff

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gridprojects.

Under the present EIA of Sri Lanka, ifthere are significant disproportionateenvironmental impacts on low-income groups they need to be identifiedand evaluated. However, identifyingdisproportionateimpactstolow-incomegroups does not necessarily preclude a Public Entity from going ahead withthedevelopmentoftheproject.Hence,concerns of distributional issues arerarely incorporated into projects.Therefore, it is urgently required to incorporate this aspect within EIAframework.

c. CBA fails to Address Interspecies Equity: Development projects ofteninvolveaspectswhichhaveimplicationson non-human species including the destruction of ecosystems, the loss ofspecies, and the creationof pollutantswhichdamageecosystemsfunctionsorcausegeneticmutations.TheCBAisananthropocentricnotionwhichconsidersconcerns of non-human species from a humanperspective.EconomicvaluesforsuchCBAsaredominatedbypreferencesof the wealthy human classes. Non-human species have no role to play in the decision-making process.

The current approach to economic developmenthasledtoinjusticeswhichare reflected in the widening incomegaps among present and the burgeoning environmental costs left to the future.There is widespread negligence of equityissuesintheCBAandonlyaveryscant attention has been paid to thetools available to correct such intra and intergenerationalinequitiesoftheCBA.Distributional weights are importantin achieving intra-generational equitywhich can easily be attached to theincome changes (benefits or costs)

of the groups affected by the project.It has been suggested to addressintergenerational inequity by retainingthe conventional discount rate butincreasing the value of the environmental goodwithtime,byaddingagrowthratefor the price of the environmental good (relativetothegeneralpricelevel)andby reducing the value of development benefits with a negative growth rate(double discounting). The rationalefor this is that as natural resources become scarcer in time, they becomeincreasinglymoreexpensive.

d. Sri Lankan context of CBA: Sri Lanka has not been able to look for any of the alternative approaches with regard toCBAapplications. Ithasstagnatedwiththestatusquo.Tomakemattersworse,theCEAhasnowrelaxedtherequirementthattheCBAprocessismandatory.Thelegislationsays,‘includeifonehasbeenprepared’.CurrentlymanydevelopmentprojectsarebeingsubjectedtotheEIAprocedure without proper assessment of their environmental externalities.For some external funding agencies,it was noted that environmental costs andbenefitsinacashflowhavebeenarequirement.Thecurrentcompensationapproachesofthedevelopmentprojectsseem to be largely inappropriate. Forexample,theconstructionoftheCentralExpressway(E04)hasledtodestructionof a large number of home gardens in rural landscapes. What has been paidascompensationisthestandingvaluesof the gardens, but not the lost future value streams that could have been obtained by the affected rural people.Thisisaclearinjusticegiventhatmanyof these people will never be able to use the expressways during their lifetime.The largestseriesdevelopmentprojectcarried out in the country under the

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Accelerated Mahaweli Development Project take significant blame for theonset of the current Human - Elephant Conflict (HEC) leading to the deathsof both humans and Wild Elephants.Nearly 22,000 people have died fromCKD, over the past 2 decades in theNorth Central Province (NCP) and17,503 kidney disease cases havebeen reported from hospitals while 787 people have undergone kidney transplants. Though the causes of such diseases remain unknown, it is most likely that unsustainable agricultural practices, including heavy use of chemicals have largely contributed to disaster.

B. Environmental Conservation Levy Act No. 26 of 2008 and Environmental Taxation:

The Environmental Conservation Levy Act(No.26of2008)enablestheimplementationofenvironmentaltaxesprovidingprovisionsforvaluationofenvironmentaldamages.Inmanaging natural resources, the Sri Lankan Government complements regulatory approaches with market-based instruments. The first example of environmental taxesin Sri Lanka was introduced through the Environmental Conservation Levy Act,which empowers the Subject Minister ofEnvironment,aswellastheSubjectMinisterofFinanceandPlanningtoimposetaxesonspecificcommoditiesandservicesprovidedwithin Sri Lanka, which are likely to have harmful impacts on the environment. The revenue generated under the Act is remittedtotheEnvironmentalConservationLevyAccountof theConsolidatedFund, tobe invested on environmental management andconservationinSriLanka.

According to the provisions of the aforementioned Levy Act, environmentalconservation levies were imposed on

mobilephonesduetothehazardousnatureof thee-wastegenerated.OrderNo.03of2008 imposes a levy of 2% calculated onthe value of the services supplied and to be supplied by the licensed cellular operators (ExtraordinaryGazetteNo. 1559/10, datedas the 22nd of June 2008). It is expectedthat the revenue generated from this taxwill be invested on e-waste management in the country.

Environmental taxation is a potential areaofapplicationconcerningtheincorporationof environmental values into the decision-makingprocess,althoughcurrentlegislationhas not utilized that potential fully. Themajor innovation in the above act is theestablishment of a separate fund to recover the cost of environmental damages. Sri Lanka has collected a large sum of money throughaphonetaxwiththeaimofusingthat for an investment that aims at recycling mobile phones. However, due to various administrative drawbacks, this has not yetbeen materialized. The following sectionselaborateonthepotentialimmediateareasofapplicationofenvironmental taxation inSri Lanka.

a. Taxes on pesticides: The present import tariffonpesticidesinSriLankaisnotbasedon any environmental consideration.MENR (2008) recommends classifyingpesticides according to environmentalhazard class as defined by the WorldHealth Organisation and proposes tohave a cess accordingly. For example,extremely hazardous (WHO Class IA)could carry a cess rate (as a percentage ofCIFvalue)of100%;slightlyhazardous(WHO Class III) could have a cess rateof 50%. Such a differentiated tax hasbeen able to reduce the consumptionof pesticides and to shift pesticideconsumption towards less harmfulpesticidesinNorway(NCM,2006).Fundsof such a scheme could be earmarked for

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integrated pest management activitieswhich reduce the need for chemicals and for promotion of organic farmingand eco-labelling programmes. Such programmeswouldnotincuradditionalcosts for the government.

The potential revenue from agro-chemicals (weedicides, fungicides and insecticides) imported to Sri Lanka in2007 based on the above cess rateswould amount to a total value of Rsbillion 4.03 and weedicides are thelargest contributor. This figure is anindicationofthedamagecausedbytheagrochemicals to humans and nature. Ideally the money collected from theabove cess should have been used to address environmental health hazardsresulting from agrochemicals includingwater pollution, soil contaminationand biodiversity depletion. However,Sri Lanka has not yet been able to implement this environmental cess and continues to operate with annualdamage amounting to several billionsover the years.

b. Taxes on tourism: There are various types of taxes and levies applicable totourism sector of Sri Lanka. Tourism development levy is applicable to all private- and public-sector businesses, hotels, service providers, etc. The major part of the revenue of thistax is earmarked for expenditure onstate-sponsored activities for tourismdevelopment. However, there are no clear guidelines on the utilisation ofthe funds. However, a significant partof the revenues collected from the tourism sector goes to the treasury and collections made by the TourismBoard are utilised by the Board and itseems that they are not invested for conservation/protection of the natural

resourcesconcerned. Inaddition, fromthe present embarkation levy of US$60, Tourism Development fund receives 30%andtherestisreceivedbyairportand aviation services and treasury.The total public sector revenue from tourism for the year 2019 amounts toRs 9,586.8Mnwhich includes tourismdevelopment levy of Rs 924.2 Mn,embarkation tax on foreign tourist’sworthofRs2,089.2andother sourcesof revenue such as income of tourism development authority, culture triangle, botanical gardens, zoological gardens,wildlife parks, conservation forests,museumsandBMICH.

C. Sri Lanka Electricity (Amendment) Act No. 31 of 2013 and Public Utilities Commission of Sri Lanka Act No.35 of 2002:

Sri Lanka Electricity (amendment) Act requiresLong termGenerationPlanof theCeylon Electricity Board to incorporateeconomic cost of power generation inselecting the power generation options.Section 43 of the Sri Lanka Electricity ActNo. 20of 2009 as amendedby section13of Sri Lanka Electricity (amendment) Act No. 31 of 2013, requires the TransmissionLicensee to prepare and submit the Least CostLongTermGenerationExpansionPlan(LCLTGEP)forapprovalofthePublicUtilitiesCommission of Sri Lanka.

The provisions of the Sri Lanka Electricity Act requireminimization of Economic Costs intheplanningprocess.InthiscontextCEBhastaken anefforttoincludeborderpricesintotheplanningprocess(i.e.excludingtaxandotherleviesthatdistortprices).However,CEBhasnotconsideredfewcriticalcomponentsof economic costs (most of which are outside the planning boundaries under the Planning Code); such as a) environmentalexternalities,b)localemploymentandothereconomicbenefitsofsometechnologies,c)

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lowercurrencyrisksattachedtoindigenoustechnologies d) pertinent cost reductiontrendsoncertainOtherRenewableEnergytechnologies e) variances in transmission costs due to locational advantages ofcertain technologies and f) indigenous sources that improve energy security. Most ofthesefactorsaredifficulttobequantifiedand thus highly debatable. However, when certain key options are very close andcompeting in termsofspecificcosts, thesefactors have to be considered at least on qualitativebasis.

CEBhasnotincludedanyexternalitycostintheir scenarios of the draft LCLTGEP 2018-2037,thusasstressedbymanystakeholders,does not reflect the true economic costsof power generation. Ideally, externalitiesdepend heavily on the site-specificenvironmentalconditions,planttechnologyand fuelused.Thus,sitespecificstudiesarerequiredtoreliablydeterminethefiguresonexternalitycostforaparticulartechnology.The Lak Vijaya power plant (LVPP) atNorochcholai is currently being operated violating environmental standards. Theneighbourhood is severely affected by theimpacts of the power plant. A calculationcarried out by a CEB personnel indicatesthat the power plant could result in death of 37 people in the area in a single year.The question comes then how this couldbe valued. The number assigned for the life, (valueof statistical life–VSL) ishighlydebatablefigurewherenotmanyestimatesare available in the Sri Lankan context.Studyreportonestimationofexternalcostof thermal power generation for PublicUtilitiesCommissionofSriLankafinaldraft(2020) indicates that among the thermalplants in Sri Lanka, LVPP has the highest externalcostwhich isLKR10.23perkWhr.If thiscost tobe incorporatedto theLeastCostLongTermGenerationExpansionPlan,definitely, the renewable energy options

would be highlighted as the most feasible options. This highlights the key role thatcould be played by environmental economic applications in the country, in particular,to drive the country towards renewable energy.

D. New and Potential Action:

There are emerging areas that show the potential to incorporate environmentalvalues into decision making. Adjustmentsmade for the System of National Account(SNA)throughgreenaccounting isanotherarea that was initiated by the Ministryof Environment. The following sectionselaborate on each item.

a. Incorporating values into System of national account (SNA) through green accounting: The Department of Census and Statistics (DCS) is entrusted as agovernment statutory institution forthe compilation of National EconomicAccount (NEA) estimates and UnitedNations System of National Accounts1993 (UN-SNA93), to measure theeconomic performance of the country. Use of economic values towards green GDP or Natural resource accountinghasbeenacceptedasanessentialpre-requisite for sustainable economic development. Changes in resource stocksprovideanindicationofthestatusof resource which provides guidelines for appropriate inter-temporal resource allocationforsustainabledevelopment.The System of National Accounts(SNA) is the widely practiced nationalaccounting systembut itprovidesonlyinadequate treatment in resource accounting especially additions anddepletion. Green accounts havebeen proposed as a solution for this.However, the main problem related to the estimation of green GDP is the

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inadequacy of the environmental values estimates available. The followingsection elaborates an attempt ofincorporation of environmental valuesinto the forestry sector.

b. Application of green accounting in forest sector:Forestsofthecountryprovideawide variety of values to the nationaleconomy. For example, the agriculturesector, the largest source of employment in the economy, relies on land, forestry, water and marine resources to a great extent. Accordingly, the livelihoodsof the rural masses are linked to these activities directly or indirectly. Thepovertyalleviationandfoodsecurityaretargeted factors for enhancement of the livelihoods of the rural masses which are also linked with forest resources and biodiversity. Sri Lanka is identifiedas one out of eighteen global hotspots of biological diversity reflecting theimportance of conserving biological assets. Today, the island nation hasfaced a complex set of environmentalissues that include landdegradation invarious forms, deforestation and lossof bio-diversity, and over-exploitationof biological resources. Therefore, Sri Lanka is presently confronted with the challengeoffindinga sustainablepathby protecting its forestry resourcesand biodiversity for achieving the developmenttargets.ExistingSNAonlyincludes only few direct use values under forestry sector which amounts to RupeesMillion33,720(0.6%GDP).Thisismainlytimberandalimitedamountofforest products that directly enter to the market and consumed by households which comply with UN-SNA93. Themain reason for under valuation offorested areas in the economic value system is due to the externalitieswhich are not accounted in the market

mechanism.Thus,itisessentialthatallvalues recognized under the conceptof total economic value are identified,valued and incorporated into the System of Environmental Economic Accounting 2003 (UN-SEEA-2003) orGreen Accounting System. This is inorder to reflect the true contributionof forests and enable the correct level of investment for the sector which is required to monitor to reach a sustainable economic development.

4.2.5. Subsidiarity and Devolution of Financing the SDGs

The policy of the Government of Sri Lanka, as stated by the Ministry in charge of Provincial and Local Government, is to reduce the inter-regional disparities andimproving provincial contribution to GDPwhile ensuring self-sustained Provinces. Italso recognizes the integration of disasterrisk reduction and adaptation measuresinto regional level development activitieswhile ensuring sustainable usage of natural resources in each Province. This is in accordance with subsidiarity which is the principle that decisions should be made at the lowest possible level where competencies exist. Subsidiarity anddevolution are key elements of goodgovernanceastheyenablemoreflexibleandadaptiveprocessesfordecision-makingandmanagement of natural resources. The focus on devolution further reinforces a rights-basedorientationtowardsvestingauthorityin empowered local actors, particularlywhere common property systems are in place. Subsidiarity provides that decisions should be made closest to, and in line with the values of, those most affected by therelevant community of interest. Naturalresource management decisions can be madebyavarietyofinstitutionsatavarietyof levels of governance. An example is

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how “environmental subsidiarity” is the key principle that can link payment for ecosystem services (PES) with environmental public policies and applies this principle with all its political consequences toreducingemissions fromdeforestationandforest degradation, and enhancing forestcarbon stocks in developing countries (REDD+) architecture. In this context, it isimportant that the responsibility of the bigger institution (central government) toenable the smaller one (provincial and local governments) to perform its tasks and to provide it with any necessary support.

The financing of public expendituresat national, provincial and local levelsdemonstrates a centrally regulated public investmentscenarioinSriLanka.Investmentforsustainabledevelopmentatsubnationallevels is defined by public budgetingprocessesatthenationallevel.Accordingly,approachestoexpendituremanagementatsubnationallevelsisconstitutedbyahybridsystem of centralized budgetary controlsand decentralized expenditure responses.Public management reforms have further centralized expenditure managementthrough performance controls purportedly designedtobringaboutaresultsorientationin the public sector at national, provincialand local levels. Thus, public spending at the subnationallevellackscongruenceintermsof development outcomes. The situationis exacerbated by the fragmentation ofsubnational governance across sets ofprovider agencies, national, provincial andlocal.

A. Financing status of investment for sustainable development at the subnational level:

Financing of investment for sustainabledevelopmentatthesubnationalleveloccursthrough multiple sources and multiplechannels.

a. Budgetaryallocationsfornational levelservice provision.

b. Fiscal transfers for Provincial Councilsservice provision.

c. Fiscal transfers for Local Authorityservice provision.

d. Provincial Council/Local Authorityrevenuefinancingofserviceprovision

e. Foreign/Local project financing ofservicedeliveryatthesubnationallevel.

f. Private sector financing of servicedeliveryatthesubnationallevel.

g. Civil Society Organization financing ofservicedeliveryatthesubnationallevel.

Each service provider is driven by their respective goals and objectives such thatinvestments on service delivery constitutediscretefinancingoperations. Theabsenceofa frameworkofoverarchingsubnationaldevelopment outcomes makes such service deliveriesdiscontinuousbothonthesupplyand demand sides. On the one hand, such financing operations do not mainstreamintegration of economic, social andenvironmental imperatives of sustainabledevelopment. On the other hand, people are called upon to integrate sets of provider outputs in working out their wellbeing. Theabsenceofmechanismsforintegratingeconomic, social and environmental dimensions of government, private sector and non-government actions activities notonly place limits on human wellbeing, but alsoexposepeoples’ livelihoodstohazardsand shocks, both natural and man-made.

B. Institutional status of subnational level financing of sustainable development:

Above financing of subnational levelinvestments take place through a complex web of flows through multipleintergovernmental institutional channels.The subnational institutional architecturedichotomously positions the national,provincialandlocalgovernmentsinvertical

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and horizontal relationships. Thus, thenationallevelprovidersworkingthroughthedistrict, division and village administrativeentitiesdeliverservicesdirectlyorthroughthe provincial and local level governments. At the same time Provincial and LocalGovernments deliver services directly or through the divisional and village level de-concentrated administrative entities.Thus, economic, social and environmental outputs and outcomes are financeddiscretely, through agency budgets organized at the different spatial scales,national, provincial and local. There isno mechanism for integration at thesesubnational spatial scales, of developmentissues arising from economic, social and environmentalimperativesofsustainability,despite the principle of subsidiarity arguing for localized location of service delivery.It prevents cross-boundary exchanges inworking out sustainability and wellbeing. In fact, the constitutional assignment ofsubjectsandfunctionsbetweentheCentreand the Provinces leave out critical areasof environmental outcomes from the provincial council and local authority service delivery purview, undermining the principle of subsidiarity and thereby the integrity of localizedapproachestotransformation. The institutional structures for subnationalcoordination (the District CoordinatingCommitteeandtheDivisionalCoordinatingCommittee)concurrentlyworksoutverticalintergovernmental (policy) relations(between the national and the provincialandlocalgovernments)aswellashorizontalservice delivery (program) relationsbetween the national and the provincialand local government providers. These are not mechanisms for integrated planning andfinancing,withsuchfinancesnotbeingavailableforallocationaccordingtospecificsustainable development imperatives atthese spatial scales, reaching down to the village.Noraremethodsandtoolsavailable

for integrating and internalizing economic,socialandenvironmentalcostsandbenefitsorforcross-boundaryfinancingsustainabledevelopment outcomes for localizedsustainability and wellbeing.

The subnational system continues toworkinsilos,verticallyandhorizontallyorganizedasnational,provincialandlocalgovernmentconcurrentlyatthelocallevel.Exacerbatingsuch fragmentation is the absence of theengagement of the private sector and civil society organizations complementingand supplementing the public sector inthe provision of service delivery. While,on the one hand cross-cutting local levelarrangementsarebetterplacedthandiscreteagency-based service deliveries to provide for community-based interventions.At thesame time cross-boundary engagementenhances the relevance and responsiveness of service deliveries in addressing multi-faceted problems and needs of ‘leaving no one behind’. Such fragmentationin planning, financing and delivery ofservices undermines interdependence and integration necessary for achievingsustainable development.

When taken in the totality of sustainabledevelopment there is the question ofthe functionality, effectiveness andappropriateness with which investment policy works in addressing complexities ofthevulnerabilitiesofthoseleftbehind.Theinstitutional statusoffinancing sustainabledevelopment outcomes raises issues on, both, the supply and demand sides. On thesupply side, is theextent towhich thefragmented financing of service deliveriesadd-up to a comprehensive investment strategy for sustainable development. On the demand side is how multiple sectoralactionsandinterventionsworktogethertoensure equitable access to and use of a total packageofservicesbythoseleftbehind.Thefirstisaboutthestrategicactionframework

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for sustainable development outcomes. The secondisaboutthestructuresandfunctionstranslating the subnational investmentsinto a set of coherent service deliveries addressing needs and expectations of thevulnerable.

Importantly,thesesubnationalcoordinationmechanisms have since the establishment of Provincial Councils taken on the role of intergovernmental political coordination,providing representation to national,provincialandlocalpoliticalrepresentatives.In thishighlypoliticised scenario,national,provincial and local actors, both politicaland administrative, appear to be drivenby zero-sum motives of ‘turf protection’rather than positive-sum incentives forpartnership and engagement. Such norms of political and administrative behaviourreinforce fragmentationof the subnationalinstitutional architecture making forexpediency in short term gain if not rent-seeking to the neglect of remediation ortransformation for achieving outcomes ofsustainable development. Thus, centrally-driven coordination has resulted in amessy system of financing subnationaldevelopment.

C. Policy scenarios for the governance of investment strategies at the subnational levels:

All public expenditures are brought undercentral purview in terms of parliamentary controlofpublicfinance.Thenationalbudgetis thepolicy instrument fordefiningpublicexpenditures at all levels, thus extendingtoProvincialCouncilsandbyimplicationtoLocalAuthorities.TheFinanceCommissionprescribes the framework for capital expenditure of Provincial Councils throughguidelines for the use of funds provided under the Province Specific DevelopmentGrant. In the context of sustainabledevelopment, such policy practices should

provide for establishment of a strategic framework for investments at subnationallevel,encompassingnational,provincialandlocalgovernmentexpenditures.

The national budget provides for athree-pronged framework for achieving the performance objectives of publicexpenditures.

i.Rulesoffinancialcontrolanddiscipline.ii.Performance-basedbudgeting.iii. Aligning SDGs into development programs of the Spending Agencies.

As pointed out earlier, the nationalbudgetary framework is tokenistic as apolicy mechanism for the formulation ofan investment strategy for sustainable development at the subnational level. Ontheonehand,istherealityofthepracticeofbudgeting, whether at national, provincialor local levels, which is one of financialcontrol of budgetary appropriations ratherthan following up on results of service delivery. The accounting model of publicexpenditure management in fact hasestablished a command and control type regulationofsubnationalpublicexpenditureand investment. On the other hand, the accounting model does not provide forflexible and adaptive expenditure andinvestment as would be necessary to meet thecomplexityofsustainabledevelopment.The regulation of expenditures andinvestment through performance-based budgeting, i.e., the definition of spendingagency performance standards and results fragments investment and service delivery around discrete agency outputs rather than program outcomes as is necessary to address complex multi-faceted challengesof sustainable development.

The Finance Commission’s prescription ofthepurposesofpublic investmentextendsonly to capital expenditure of Provincial

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Councils. As noted earlier, the FinanceCommission has a mandate for equalizingfiscal capacities of Provinces throughconstitutionalprovisionssettingoutcriteriafor the apportionment of funds allocatedunder the Central Government’s AnnualBudget. However, the scheme for theapportionmentofsuchfundsdifferentiatesbetweenrecurrentandcapitalexpenditureand the application of constitutionalcriteria extends to the Province SpecificDevelopment Grant, accounting forapproximately 10.8% of total grants toProvinces. Thus, Finance Commission’sguidelinesoncapitalexpenditure toodoesnot provide for a subnational investmentframework.

The primary objective of planninginvestmentsatthesubnationallevelshouldbetobringaboutbetteralignmentofsuchspending with sustainable development outcomes specific to the context of thesubnational entity rather than a ‘one-size-fits-all’regulatorypolicy.Then,aframeworkfor planning investment strategies at the subnationallevelshouldhaveasitsobjectivethe sustainable development outcomes of economic, social and environmental development on the one hand and the interests of the subnational communityon theother. It should, as an integral partof effective public governance, contributeto shaping relationships of trust andpartnershipbetweenthestate,citizensanddevelopmentactors.Therefore,aneffectivepolicy framework supports the governance of sustainable development by providing for making decisions about what to regulate, whom to regulate, and how to regulate.

Thus, the policy framework in place for planning investments for sustainable development at the subnational level isincoherent. Therefore, there is a need for transitioning to a policy framework that ismore relevant to planning investment for

sustainable development in a subnationalcontext. Such a policy framework shouldfacilitate the governance of sustainable development at the subnational level.It is then necessary, at the same time totransition the current historically evolvedsubnational governance structure to asubnational governance system withcapacitytoaddressthecomplexchallengesofsustainabledevelopmentincreatingnewpathways and opportunities for humanwellbeing in the future. Such transitionwould move beyond path dependent systems towards creating capacity fortransformative changes associated withsustainable development. In the contextof the Sri Lankan subnational governancearchitectureandsystemtransformationforsustainable development, there are two key system transition imperatives, systemintegration and localizationof governance.As noted above, the subnational systemarchitecture is fragmented, silo-based and thegovernanceactorspracticeacultureofpatch protection. Subnational governanceis centrally driven, where rule compliance and predictability of system operationsconstitutekeyoutputsofthecommandandcontrol intergovernmental framework.

Thus, policy frameworks should positiongovernance arrangements in order to shape relationships of trust andpartnership between the state, citizensand development actors, thereby ensuring congruencewiththecomplexchallengesofsustainabledevelopmentatthesubnationallevel.Onthebasisofthesubnationalsystemtransition imperatives a fourfold typologyof governance architecture is identifiedconstituting policy scenarios for planninginvestment strategies for sustainable developmentatthesubnationallevel.

While the current subnational governancearchitecturecorrespondstoaFragmented-Localized system, strong rule-based

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command and control complements sectoral directives in defining decision-makingin the subnational system. The requiredtransitioninthegovernancesystemtoguidesustainable development is a movement from Rule/Directive based governance tooutcome-based governance positionedwithin an Integrated-Localized institutionalarchitecture, where governance would be contextual guiding localized sustainabledevelopment outcomes.

D. Transition pathway towards an outcome- based regulation of subnational investment strategies for sustainable development:

A shift from a rule/directive-based to anoutcome-based governance of subnationalinvestment for sustainable development constitutes a fundamental change in thesubnationalsystem.Itinvolvessystem-wideinnovation in the working of subnationalgovernance. Approaches to system-wide change is positioned within a multilevelperspective (Geels; 2002, 2004). System-wide change is defined as the outcomeof

Figure 13: Policy Scenarios for Planning Investment Strategies

interactionsbetweenthreelevels.

a. Landscape Developments (comprised of changes in macro intergovernmental policy).

b. Socio-Technical Regime (comprisedof the collection of actors at thesubnationalsystem).

c. Technological Niches (comprised ofniche innovations in the subnationalsystem)

While the change path and outcomewould depend upon the interactiondynamics between the three levels, an implementation strategy for systeminnovation for sustainable development atthesubnationallevelwillbechallenging.

4.3. Foresight into Scenarios Based

Planning in the New Normal

The COVID-19 pandemic has exposed thefragmented governance, public service delivery and financing structures andsystems in Sri Lanka. It has also shown

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that high dependency on global food and consumer product supply is no longer a positive factor for achieving prosperity. Atthesametime,SriLankawithacomparativelyhigh natural resource stock and rich biodiversitycontinuestodemandattentionof the need to plan an ecosystem services-based development pathway. Also, climate change induced high disaster frequency has exposed the nation’s social and economicvulnerabilities and draws attention tohigh recovery and rebuilding costs. Gaps in policy and regulatory approaches towards integrating environmental andsocial externalities and lack of foresightinto optimising ecosystem services basedeconomic prosperity keeps the country away from sustainable development. The recent downgrading by theWorld Bank toa lower-middle incomestatushasexposedthe inability of the country to progress steadily and consistently in managing the growth of the economy, especially through high international borrowings.The future of the nation calls for change;change towards responding to potentialbreakdown scenarios, change towards in theapproach towardsadoptingalternativescenarios,andchangeinforgingtransitionalmeasures in policy and regulatory scenarios. The call for a new normal, the renewed commitment to the 2030 agenda, and theopportunity of a new government leads us to hope that a transformation towardssustainabledevelopmentisstillapossibility.Foresight into scenarios-based planningin the new normalwill definewhether SriLanka embarks on the transformation, orcontinuestobeguidedbybusinessasusual.

4.3.1. Response to Potential Breakdown Scenarios

The COVID-19 pandemic brought moreor less the entire world into a lockdownsituation, thus demonstrating how

vulnerable humanity is against a breakdown of the prevailing socio-economic systems. With social distancing becoming the mainstrategy to manage the spread of the virus, allotheractivitiesaroundconsumptionandproductionsystemswereseriouslyimpactedfor thefirst time inmodernhistory.Whilethe financial breakdown in 2009 had sentshockwavesacrossinternationaleconomiesand bankrupting several large financialinstitutions to nations, the COVID-19pandemic has presented a larger threat to lifestyles and livelihood in an unprecedented scale. The current multiple uncertaintiesprovideaworldoffragmentedpoliticalandeconomic interests; a perfect recipe for asystems breakdown, especially in smaller and poorer countries like Sri Lanka.

In this global pandemic scenario, peopleworld-over have started to discuss a ‘NewNormal’, implying that adapting to newconditionswoulddemandchangestousualbehaviour patterns. For so many decades,scientists have warned of anthropogenicclimate change that could destroy earth systems to a point of no-return. According to the World Economic Forum’s 2016GlobalRisksReport, the failure tomitigateand adapt to climate change will be “the most impactful risk” facing communitiesworldwideinthecomingdecade.Warningsabout limits to growth and the carrying capacity of earth, have been ignored by political, policy and economic processesfor long, resulting in significant damage.During the recent decades, natural disasters have been more frequent than ever on earth creating havoc on lives, destroyinginfrastructure, and inducing economic downturns.Climatechangehasthepotentialofmultiplyingtheexistingglobalchallenges,weaken the resilience of socio-economic systems, and induce critical vulnerabilitiesto create extreme harsh conditions forhumanity.Therefore,aNewNormalwouldnotmean survivaltill thepandemic threat

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lasts, and then increasing consumption toover compensate on lost economic growth opportunities. Nations including Sri Lankamust have foresight into a local to global ecosystem services driven prosperity model, and plan to implement the SDGs as pathwaysfortransformation.Sri Lanka has gone through decades of civil war,affectedbyconstantnaturaldisasters,faced economic depressions, and now the COVID-19 pandemic. However, questionsremain if the nation has been able act onthe lessons learned. The current state of the countrypresentsadimpictureinthecontextof the 2030 Agenda. An ailing economylooming with a debt crisis, corruption andlawlessness, lack of accountability in the public service delivery system and mistrust on the fragmented public institutions,exploitationofnatural resources for short-term gain leading weakened ecosystem services, increased vulnerability to frequent natural disasters, increased equality leading tomarginalisationandsocialdisintegration,low social protection andweakened socialwellbeing, increased focus on centralised governance leading to weakened subsidiary anddecentralisationofdecisionmaking,etc.increasesSriLanka’svulnerabilitytointernaland external crises. Such crises combineand spin out of control, leading to unbridled conflict, institutional disintegration andeconomic collapse leading to a significantsystem breakdown.

Themultiplicityofnegativeconditionsandthe frequency of shocks will weaken the nation’sresiliencefurtherandactasabarrierfor the transformation. The commitmentto the 2030 Agenda must not merely bean international responsebutessentially aprocess leading to prosperity, wellbeing and happiness of all Sri Lankans. Planning for economicgrowthbasedonextraborrowingshas led to increased debt of current and future generations. The physical planning

continuestobeenvironmentallydestructiveand has led to many induced disasters while weakening the nation’s resilience.Centralised, disintegrated and incoherent governance, policy and institutionalstructures have negated any benefits ofsubsidiarity intended in establishing the Provincial Councils and Local Authoritiesand has led to increased social inequity, disintegrationandinsecurity.Therefore,SriLankawillbebetterservedbydemonstratingresponsiveness to potential breakdownscenarios and approach planning with greater foresight.

4.3.2 Approach to Adopting Alternative Scenarios

Sri Lanka has abandoned its traditionalapproach to lifestyles and livelihoods based on closer relationships between nature,culture and community. The country has been driven mostly by Western conceptsembracing a market economy towards chasingadreamofdevelopment.Thenationis governed by theWestminster model ofdemocracy, the legal system is based on the RomanDutchLaw,thepublicadministrationismodelledaroundtheBritishCivilService,the exam oriented education system is anextension again through American andEuropean styles, value systems largely driven byanthropocentricconcerns,andfinancingfor development is based on guidelines provided by multilateral agencies leadingto eternally increasing of the per capita debt of its citizens. While continuing toseekdependenceoninternationalfinancingfor its development programmes and processes, the country continues to drivean economic growth-based development modelmeasuredbyafailedGrossNationalProduct (GDP) methodology. This as a result has kept Sri Lanka low in prosperity for all these years and decades while impactingnegativelyon thewellbeingandhappinessofthecitizens.

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The modern history of Sri Lanka narrates a story of a nation that heavily dependson foreign development concepts, managementmethods, education systems,consumption habits, social interactions,and finances to achieve prosperity. ThecaseofSriLankaisalmostofafailednationunderscored by political corruption, publicservice inefficiency, short-sightedplanning,self-centred professionalism, greed driven entrepreneurship,andapowerlesscitizenry.The lack of foresight, linear mindsets and regressive approach constantly places the nation in manufacturing crises thanproducingsolutions.SriLanka’sresponsetopotentialbreakdownscenarioshasnotbeenconsistent.. All of the above has happened while Sri Lanka sits on a gold mine of ecosystemserviceswaitingtobeharnessedwith vision and care.

The monetary value of goods and services provided by ecosystems is estimatedaround US$ 33 trillion per year, which isnearlytwicetheglobalproductionresultingfrom human activities. The IUCN believesthat protecting global commons – theecosystems, biomes and natural processes that regulate the Earth – and integratingthe value of these ecosystem services into our public and private sector accountingsystems will be vital. Designated as one of the world’s biodiversity hotspots andhaving greater biodiversity per unit area than any other country in Asia, Sri Lanka is yet to optimise the benefits of ecosystemservices.TheBiodiversityFinancePlan(BFP)hasassessedthatnationallysetbiodiversitytargets within the period of 2018-2024to be achieved, needs approximately 31BillionLKR(190millionUS$).However,theBFP acknowledges the lack of capacity totranslate policies, plans and strategies into implementable actions, and the lack offinancing.

The interlinkages between environment

and other sectors of the economy have largely been ignored and direct market values have been highlighted against the unvalued non market benefits of nature.Intherecentyearstherehasbeenarevivalon the knowledge that the traditionalagricultural model of ‘tank-dagaba-village’is based on the principles of circular economy as understood by the modern thermodynamic principles. There is a great potential therefore to combine these twosystems of knowledge on modern ecology-based ecosystem services and our own circular thinking powered by the eastern philosophies. This would help Sri Lanka to survive in future breakdown scenarios.

Sri Lanka needs a ‘New TransformationDialogue’; this requires leadership acrossall sectors and strata of the society, leaving noonebehind. The2030agendaprovidesanalternativeapproach towardsdepartingfrom business as usual scenarios. However, national transformation must be drivenby the adoption of localised alternativescenarios that can respond effectively topotentialbreakdowns.

4.3.3. Transitional Measures in Policy and Regulatory Scenarios

A complete transformation by the year2030 may not be possible for countrieslike Sri Lanka, as five years have alreadypassed without much transformativeaction put in place. The balance 10 yearstochangepoliticalcultures,tradeinterests,consumptionbehaviour,etc.appearstobeextremely challenging. What requires tobe done is to at least enforce transitionalmeasurestoregulateactionandbehaviourtofacilitatetransformationalactionby2030.Through policy and regulatory reforms, governments would be able to forge comprehensiveactiontoaligntheeconomywith environmental and social goals

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for incremental change as transitionarymeasures.

Adomesticresourcemobilisationframeworkwill be integral to operate in tandem within a scenario of policy and regulatory reform that supports this transformativeagenda. Financing of public expendituresat national, provincial and local levelsdemonstrates a centrally regulated public investment scenario. Investment forsustainable development at subnationallevels is defined by public budgetingprocessesatthenationallevel.Accordingly,approachestoexpendituremanagementatsubnationallevelsisconstitutedbyahybridsystem of centralized budgetary controlsand decentralized expenditure responses.Public management reforms have further centralized expenditure managementthrough performance controls intended to bring about a results orientation at the outputlevelinthepublicsectoratnational,provincial and local levels. However, such resultsorientationinpublicspendingatthesubnationallevellackscongruenceintermsof development outcomes.

In the context of the Sri Lankansubnational governance architecture andsystem transformation for sustainabledevelopment, localization of governanceandsystemintegrationaretwokeysystemtransitionimperatives.Firstly,decentralisedgovernance mechanisms that enhances subsidiarity needs to be enforced. Subsidiarity is the principle that a central authorityshouldhaveasubsidiaryfunction,performing only those tasks which cannot be performed at a more local level. The general aim of the principle of subsidiarity is to guarantee a degree of independence for a lowerauthorityinrelationtoahigherbodyorforalocalauthorityinrelationtocentralgovernment. Secondly, an integrated service deliverymechanismthatfacilitatesnational,through provincial to local connectedness,

both vertically and horizontally is criticallyimportant. The subnational systemarchitecture is fragmented, silo-based and thegovernanceactorspracticeacultureofpatch protection. Subnational governanceis centrally driven, where rule compliance and predictability of system operationsconstitute key outputs of the commandand control intergovernmental regulatory framework.

The design of the subnational systemis central to localizing sustainabledevelopment. As will be argued in the sections to follow, the resource intensivemodels of development to which Sri Lanka had migrated, are ecologically, and hence economically and socially unsustainable. Sustainability extends to creation of a justworld,asmuchasecologicalprotection,andrequiresinnovationatalllevels.Integratingthe integrity of biophysical systems with betterandimprovedservicesforthepeoplemust get locally contextualized so as toensurethatnooneisleftbehind.

The current domain-centric fragmentationofsubnationalgovernancedoesnotprovidefor accountability in the use of biophysical resourcesortheapplicationofsuchresourcesfor human wellbeing. Such fragmentationdoes not provideforeithertheintegrationofsocial, economic and ecological dimensions of development or the interdependence of stakeholders, government, private and civil society in delivering on human wellbeing, leaving no one behind.Policyandregulationmust be accompanied by context-specificapplication. Transitions in policy andregulatory scenarios must provide for localizedcontextualizationandopen-endedprocesses.

4.3.4. Transitioning Through a New Normal Scenario

On a positive note, the pandemic hasgenerated a pause on ‘business-as-usual’

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activities.Thenewnormalpresentsnationswith new opportunities as much as itpresents new challenges. Those who dare to changewillprosperandthosewhocontinuebusiness as usual (BAU)will be facedwithgreater crises. Simply it’s a call for radicalchange, and transformation is the obviouspathway.SriLankadoesnothavetheluxuryofwaitingfordestinytotakeitsowncourseand continue BAU. High vulnerability toclimate change and economic instability has tremendous potential of multiplyingother environmental, social and economic breakdown scenarios. Therefore, Sri Lanka wouldwanttojoincountriesthataretakingthe transformation towards sustainabledevelopment and greater prosperity.

Bhutan has shown that destiny of theirnation will be defined by themselves andnot by following globalised prototypes for development. Extraordinary politicalvision and will-power of a small and poor country has inspired global policy makers to search for new prosperity approaches and measures. Gross National Happiness(GNH),ofBhutan,isnolongerahypothesisbut an evolved strategy for sustainable development. On the other-hand, if Sri Lanka still wishes to seek guidance fromthe Western development model, Finlandprovides evidence that even a small country can leapfrog to the top in overall ranking amongstinternationalcountrycomparisonsthrough transformational policy andregulatory action; Finland is rated as themost stable country in the world by the FragileStatesIndex2018;thefreestcountryintheworldaccordingtotheFreedomintheWorld2018;hasthebestgovernanceintheworld according to the Legatum Prosperity Index2018;isthebestcountryintheworldin a comparison of human wellbeing as for Sustainable Society Index 2016; is thehappiest country in the world as to the World Happiness Report 2018; the air inFinlandisthecleanestintheworldaccording

toWHO air quality statistics; and also therisk to be exposed to natural disasters islowestintheworldinFinlandaccordingtoINFORM Global Risk Index Results 2018.Finland’s sustainable development policyhasatraditionspanningoverdecades.Since1993, the Finnish National Commissionon Sustainable Development has acted as a coordinating body at the national level.Thepoliticalweightofthecommissionhasbeen increased by the fact that it has been chaired by the Prime Minister or a minister. Its members have represented broadlyvarious sectors of society from politicaldecision-making to ministries, research institutes, interest groups andNGOs. NowSDGshavebecomeamajorhigh-levelpolicyorientation in Finland and the approachis through Society’s Commitment toSustainable Development. The purpose of a societal commitment is tomotivate andengagethepublicadministrationwithotheragents to promote sustainable development intheirentiresphereofwork.BothFinlandandBhutanmaintainover70%oftheirlandcovered by forests and plan their sustainable development on ecosystem services.

The New Normal strategy should not besimply to survive and come out of the COVID-19pandemic.Suchalinearapproachitself would compromise the potentialprosperity model for Sri Lanka. An inclusive prosperity model for Sri Lanka could be drawn from historical understanding of sufficiency and self-reliance throughenhanced benefits of ecosystem services.For this, investing in a human capitalwithnew knowledge and skills for sustainable development becomes critically importantrather than chasing failed globalised economic growth centred development models. An inclusive prosperity model would alsorequiredefiningleavingNoOneBehind.For that, Sri Lankawill need toaddress itsoverly dependent centralised governance approach and also define a subsidiarity

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governance model that works in coherence withthecentre.Forthis,SriLankawillneedto redesign its highly fragmented public institutionalsystemandfacilitateadynamicpolicy coherence process. Therefore, the new normal would depend on a journey

through an inclusive transformation. TheDomesticResourceMobilizationFrameworkis formulated to help guide that inclusive transformationinSriLankaandasamodelfor rest of the world.

CHAPTER05:

THE FRAMEWORK The Domestic Resource Mobilization Framework

for SDGs in Sri Lanka

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5.1. Introduction of the Framework

Domestic resource mobilisation is theresponsibility of all countries committedtowards implementing the SustainableDevelopment Goals (SDGs). The United Nations (UN) has estimated that US$5trillion to US$7 trillion per year is needed between2015and2030toachievetheSDGsglobally,and$3.3trillionto$4.5trillionperyearindevelopingcountries.Estimatesalsoshow that achieving the SDGs could open upUS$ 12 trillion ofmarket opportunitiesand create 380million new jobs, and thataction on climate change would result insavingsofaboutUS$26trillionby2030.Fiveyearsintothe2030AgendaforSustainableDevelopment (2030 Agenda), Sri Lanka isyet to estimate its financial commitmenttowards implementing the SDGs and hasnot assessed its potential gains from suchaninvestment.Further,thecountryisyettoalignitsnationaleconomicpolicies,financialsystems and investment strategies with the2030Agenda.Inthiscontext,SriLankahas not been able to mobilise additionalexternal or internal resources required fortransformativeactiontowardsachievingtheSDGs.

The ’Addis Ababa Action Agenda forfinancing sustainable development anddeveloping sustainable finance’ recognisesthat significant additional domestic publicand private resources, supplemented by internationalassistanceasappropriatewillbe critical in achieving the SDGs. It notesthat such an achievement will require an equally ambitious, comprehensive, holisticand transformative approach with respectto the means of implementation. Thiswould also require combining differentmeans of implementation and integratingthe economic, social and environmental dimensions of sustainable development.

The newly elected Government of Sri Lanka plans to implement its policy framework, Vistas of Prosperity and Splendour, through ten key policies aimed at achieving the fourfoldoutcomeofaproductivecitizenry,a contented family, a disciplined and justsocietyandaprosperousnation.Asstatedin this policy document of the government, the ultimate aim is to achieve a series ofdesirable objectives such as the reductionofpoverty,ahealthypopulation,educationfor all, and a clean environment, etc. which are also represented in the 17 SDGs. The SDGs essentially need to be localisedto the national conditions, challenges,aspirationsandmainstreamedintonationalpolicy frameworks. It is expected that theGovernment will adopt transformativeand innovative strategies to enhancedomestic resourcemobilisationatnationaland subnational levels as well from theinternational financing available for SDGs.The Domestic Resource MobilizationFramework for SDGs,hereafter referred toasFramework,ispreparedandpresentedasanindependentcontributiontothenationaleffort.

5.2. An Overview of the Framework

The proposed Domestic ResourceMobilization Framework is intended tosupporttheeffortsoftheGovernmentandits stakeholders towards implementing theSDGsinSriLanka.TheFrameworkprovidesaplatformtodesignpolicyinstrumentsandstrategic interventions towards advancingsustainable development. Aiming to provide greater strategic foresight, the Framework does not attempt to present aprescriptive proposal on national planningandbudgeting.TheFrameworkistoinspireresource mobilisation for transformativeaction across national, subnational andcommunity levels as a whole of society.

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5.2.1. Vision

TheVisionoftheFrameworkistopropagatetransformative action towards advancingthe SDGs in Sri Lanka.

5.2.2. Mission

The mission of the Framework is to helprecalibrate the policy, localising, financingand transformation contexts towardsimplementing transformative actiontowards achieving the SDGs in Sri Lanka.

5.2.3. Strategy

ThestrategyoftheFrameworkistoprovidea platform to design policy instrumentsand strategic interventions, with elementssupported by tools to recalibrate the current contextforimplementingtheSDGs,towardsadvancing sustainable development at national, provincial, local and communitylevels.

5.2.4. Goal

The goal of the Framework is to achievesustainable development through transformative action across national,subnational, community, household andindividual levels.

5.2.5. Objective

The objective of the Framework is toengage public, private, civil society and all stakeholders at national, subnational andcommunity levels in reimagining domesticresource mobilisation, reorganisingthe resource flows, and reinvesting intransformational pathways towards therecalibrationofthecontextofimplementingthe SDGs.

i. Reimagining domestic resourcemobilisation is about recalibrating

the approach to strategic foresight and transformative action towardsadvancing sustainable development.

ii. Reorganising the resource flows isabout recalibrating the approach toresource governance and redesigning of thepolicyframeworksandinstitutionalstructurestowardsfacilitatingacirculareconomy.

iii. Reinvesting in transformationalpathways is about recalibrating theapproach to ecosystem services and innovativefinancingtowardsfacilitatinga new state of inclusive prosperity.

5.2.6. Scope

The scopeof the Framework is definedbyresourcegovernance,resourcerelationshipsandresourceregeneration.

i. Resource Governance is how resource flows are regulated and managedwithin the tiers of governance,national-provincial-local, aswell as theself-governance of resources by non-state actors including international,private, civil society, community and individuals. Such resource governance would includeglobal tonationalflows,national to provincial flows, nationalto localflows,provincial to localflows,local to community flows, and peopleto national-provincial-local-communityflows,etc.Themobilisationofresourcesisnotconfinedtofinanceandessentiallywould include natural, social, human, financial and manufactured capitals.TheFrameworktakesadeeperviewintomobilising all physical and non-physical resources required to establish a system of sustainability: natural resources, ecosystem services, indigenous knowledge, community practices,ethics, cultural norms, technology, etc. areallconsideredinadomesticresource

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THE FRAMEWORK

mobilisationframeworkfortheSDGs.ii. Resource Relationships are how the

flow of resources through investmentand financing transpire betweendifferent stakeholders and actors;public institutions and communities,public institutions and privateenterprises, private enterprises and communities, donors and civil societyorganisations,civilsocietyorganisationsand communities, and communitiesand individuals. Such relationshipscreate multiple contexts favourableand unfavourable to sustainable development. Also, resource relationships transpire within thecommons; thecommonsareresourcesaccessible to all members of a society and managed by the state or market but by a community of users that self-governs the resource through institutions thatit creates. The framework intends to

harness positive resource relationshipstowards sustainable development.

iii. Resource Regeneration is how resources are invested within the ecosystemforintra-generationalequityand harvested for inter-generationalequity. Historical management of ecosystem services, contemporary environmental economic models, mindful sufficiency economic models,etc.wouldhelp resource regeneration.The recalibration of patterns ofproduction and consumption towardsensuring sustainable use of biodiversity, ecosystems, natural resources and the promotion of inclusive, equitable andcircular economies would help advance resource regeneration and achievesustainability. The framework is of the viewthatresourceregenerationwillbethe key to sustained prosperity of the nation.

Equality Subsidiarity Resilience Integra�on

Coherence Decentralisa�on Prosperity Sustainability

Systems Approach

IntegratedDelivery

CircularEconomy

BiophysicalLimita�ons

Convergence Partnerships Sufficiency Ecosystems

Principles

Purposes

Strategies

Pathways

Capacity

Policy Localising

National

Provincial

Local

Community

Financing

Co-creation

ELEMENTS

TOOLS

Innovation Demonstration

TIERS

TransformationCONTEXT

Figure 14: Domestic Resource Mobilisation Framework for Implementing the SDGs in Sri Lanka

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5.2.7. Framework

The Domestic Resource MobilizationFramework is presented as a linkagesmodel of Elements that helps recalibrate theContextsthatSDGsareimplementedinSri Lanka across the governance Tiers and supported by the Tools.

Theframeworkdrawsattentionto;

i. ThefourContextsare:Policy,Localising,Finance,andTransformation.

ii. The four categories of Elements are: Principles, Purposes, Strategies, and Pathways.

iii. The four Principles (under elements) are: Equality, Subsidiarity, Resilience,andIntegration.

iv. The four Purposes (under elements) are: Coherence,Decentralisation,Prosperityand Sustainability

v. The four Strategies (under elements) are: Systems Approach, IntegratedDelivery, Circular Economy, and BiophysicalLimitations.

vi. The four Pathways (under elements) are: Convergence, Partnerships, Sufficiencyand Ecosystems.

vii. The four categories of Tools are: Capacity, Co-Creation, Innovation, andDemonstration.

viii.ThefourgovernanceTiersare:National,Provincial, Local, and Community.

The above Framework provides multipleinteractions between the Contexts andElementswhile impacting on the differentTiers of governance with the assistance of strategicTools.WhilethesixteenproposedElements would individually have certain specific impacts on the four Contexts,collectivelyasanintegratedsystemitwouldcreateaholisticandtransformative impacttowards sustainable development. The fourcategoriesofTools thatareofferedtofacilitate theapplicationof theFramework

will need to be customised according to the needs and situations of the four Tiers ofGovernance.

5.3. Context of the Framework

Thecontextofanationwilldependonthesuccessful implementation of the SDGsand achieving transformation towardssustainable development. According to the analysis of approaches and actionduring the last five years, the contextof implementing the SDGs in Sri Lankadoes not demonstrate readiness for the transformation expected by the 2030Agenda.WithrenewedcommitmentbythenewgovernmenttoimplementingtheSDGs,the context is expected to be recalibratedtowards enabling sustainable development. In providing strategic foresight, the‘Framework’isdesignedtowardsaddressingfourcriticalcontextsofthenationtowardsimplementingtheSDGs;thepolicycontext,thelocalisingcontext,thefinancingcontext,andthetransformationcontext.

5.3.1. The Policy Context

Fiveyearssinceadoptingthe2030Agenda,Sri Lanka has so far not succeeded in the integration of the three dimensions ofsustainable development, environment-social-economic, and mainstreaming the SDGsacrossnationalpolicyframeworks.Theabsenceofa cohesivenationalSDGpolicy,strategy, roadmap, actionplan,monitoringmechanism, financing architecture and anintegrated institutional structure has leftpublic institutions across the national andsubnationalgovernancetierstoimplementsporadic and fragmented initiatives in thename of SDGs without any coherence, convergence, integration or accountability.Also, Sri Lanka’s approach to sectoralplanning, budgeting and programme

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THE FRAMEWORK

implementation has not been able tofind convergence and coherence with thethematicapproachpresentedbytheSDGs.While statistically demonstrating progressin several development sectors, the lack of an integrated approach to policy planning and implementation has kept the countryaway from actual transformation towardssustainabledevelopment.TheFrameworkisexpected toprovide foresight intoamulti-dimensional,integrated,holisticandsystemsapproach to the complex policymakingprocess dealing with environmental social, economic dimensions as well as political,administrative, technological and culturalfactors.Aconduciveandresponsivenationalpolicycontextthatcandrawtransformativeoutcomes from the relationships andprocesses between and amongst national,subnationalandnon-stateactorswillbevitalfor implementing the SDGs and achievingsustainable development.

5.3.2. The Localising Context

Localising SDGs entails taking into account thesubnationalcontextintheachievementof the 2030 Agenda, from the setting ofgoals and targets to determining the means of implementation and using indicators tomeasure and monitor progress. Localising SDGs is an inclusive process to empower all local stakeholders, aimed at making sustainable development more responsive, and therefore, relevant to local needs and aspirations.TheSDGscanbe reachedonlyif local actors fully participate, not onlyin the implementation, but also in theagenda-setting, financing, implementation,monitoring and review. The context forlocalising SDGs in Sri Lanka is provided by the multilevel system of government andthe ensuing system of intergovernmental relations between the three levels ofgovernment; the national, the provincialand the local. However, the constitutional

assignmentofpowersandfunctionsofthethree levels has not led to any reordering of the service delivery responsibilities ofthe national vis a vis the provincial andlocalintermsofsubsidiarity.Inthecontextof mobilizing domestic resources for theSDGs,firstand foremost, theprioritymustbe to establish a national context on theprinciple of subsidiarity and an agreement on decentralisation of governance, publicservice delivery, public finance, andstakeholder engagement. The call for a ‘whole of government approach in implementingthe SDGs would mean that an integrated public delivery system is facilitated across the three levels of government and reaching out to the community level of families and individuals.TheFrameworkexpectstohelprecalibrate the localising context for theSDGs to be implemented within a unitary thoughmultilevelsystemofgovernmentinSri Lanka.

5.3.3. The Financing Context

TheabsenceofadomesticfinancingstrategyforSDGshasweakenedSriLanka’spotentialto mobilise resources for effectivelyimplementingthe2030Agendaandattractnewglobal anddomesticfinancing availedforsustainabledevelopment.Informulatinga national financing architecture for theSDGs, the government needs to definea clear strategy on aligning its policy frameworks with the 2030 Agenda. Itneeds to identify key factors thatweakensthe national economy, devise innovativestrategies for a more resilient and vibrant financial system,andplace thenation inapathway to generate prosperity through full stakeholder engagement for an inclusive transformation.Withaloweconomicgrowthrate alongside high debt and low resilience, the current financing context does notdemonstrate the readiness of a nationto advance into transformational action

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required for sustainable development. Therefore, the Framework could assist inreimagininginnovativefinancingapproachesand strategies towards recalibrating thefinancing context for implementing theSDGs and achieving prosperity.

5.3.4. The Transformation Context

The new Government policy framework, Vistas of Prosperity and Splendour, by confirmingitscommitmenttoimplementingthe SDGs is also committing Sri Lanka toa transformation towards sustainabledevelopment. Transformation requiresaddressing the root causes that generate and reproduce economic, social and environmentalproblemsandinequities,notmerely their symptoms. Transformation isalso about the processes of change needed in society and the economy to achieve greater equality, empowerment and sustainability.Planningforatransformationrequiresconsiderationofmultiplescenariosthat impacts on sustainable development;scenarios that might lead to breakdowns creatingchaosor instability, scenarios thatwill help prepare for alternative futuresand greater sustainability, as well as scenarios that can help establish favourable conditionsforprosperitythroughpolicyandregulatory measures. Sri Lanka has gone through decades of civil war, stricken by constant natural disasters, faced economic depressions, and now the COVID-19pandemicobstructingthedrivetoprosperity.Therefore, thenationwillbebetterservedbydemonstratinggreaterresponsivenesstopotentialbreakdownscenarios.Thenationaltransformationmustbedrivenbylocalisedalternatives that can respond smartly topotential breakdown scenarios and definenew frontiers. During the transition, SriLanka has to espouse policy and regulatory scenarios that integrate environmental,

social and economic dimensions enabling a context favourable to inclusive prosperity.The Framework envisages facilitating sucha context that will entail a recalibrationof the development mindset of all state and non-state actors; this would result intransformation across all national to localsystems including governance, policy, institutions,finance, trade,productionandconsumption. 5.4. Elements of the Frame

work The Elements of the Domestic ResourceMobilization Framework are providedtowardsassistingtherecalibrationofthefouridentifiedContextsthattheSDGsarebeingimplemented in the country. Altogether sixteen Elements are presented in fourclusters; Principles, Purposes, Strategiesand Pathways. While each Element couldimpactaContext ina specificmanner, thesixteen Elements as a networked systemare expected to provide a holistic effecttowards recalibrating the national contextforsuccessfullyimplementingtheSDGsandtransformingthenationtowardssustainabledevelopment.

5.4.1. Principles

The 2030 Agenda for SustainableDevelopment is founded on a series of principles evolved through internationalagreements during the past several decades.IndevelopingaDomesticResourceMobilizationFrameworkforSDGs,alloftheseprinciples can be considered as relevant. While all sixteen elements presented inthis framework reinforces principles of sustainable development, the following four are designated for its abilities to establishthe foundationsof the recalibrationof thefourdomesticcontextsforSDGs.

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THE FRAMEWORK

i. Equality:Thepolicycontextisobligatedby the Constitution of Sri Lanka thatguarantees the right to equality before thelaw,equalprotectionofthelaw,andprohibits discriminationon the groundof race, religion, language, caste, sex,political opinion, place of birth, etc.By committing to the 2030 Agenda,the Government further endorses the ‘Principle of Equality’ by ensuring thatall itscitizenswillbefacilitatedtofulfiltheir potential in dignity and equality.Therefore,thegovernment isexpectedto protect human rights, providing access to equal opportunities for all,create conditions for inclusive andsustained economic growth, facilitate shared prosperity and decent work;this also must be done while ensuring a healthy environment. The success of theFrameworkreliesonmobilisingthenation’shumanresourcesandprovidingequal opportunities to flourish andcontribute towards sustainable development. The stated right to equality of the people need to be translated into actual delivery through allpoliciesandactions.

ii. Subsidiarity: The localising contextis based on Sri Lanka’s governancestructures that are constitutionallyspread across three tiers; national,provincial and local. However, in practice, the system of inter-governmentalrelationshasbeencentre-driven and the centre defines publicpolicy and develops programs reaching out to the provincial and local levels of government. Even though establishing the provincial level of government while recognizing the powers and functionsof the extant Local Government isconstitutionally defined by the 13thAmendment, Sri Lankan governments have not shown much confidence indevolution of power to these lower

tiers of governance; particularly theprovincial councils. This contradicts the principle of subsidiarity which is criticallyimportanttowardsadheringtothecentralprincipleofthe2030Agendaof ‘leavingnoonebehind’.Subsidiarityis the principle that decisions should be made at the lowest possible level where competencies exist. Subsidiarityalso means that decisions should be made closest to, and in line with the values of, those most affected by therelevant community of interest. The constitution confirms its commitmentto the principle of subsidiarity in its claim that the state shall strengthen and broaden the democratic structureof government and the democraticrights of the people by decentralizingthe administration andby affording allpossibleopportunitiestothepeopletoparticipateateverylevelinnationallifeand in government. Towards localising theSDGs,SriLankaneedstodefine itsown take on subsidiarity and facilitate the recalibration of devolution to acollective national aspiration. Thismust result in an integrated system of governance in which the differenttiersandunitscomplementeachotherrather than contradict and contravene tocompromisethetransformation.

iii. Resilience:Thefinancingcontextneedsto be based on the principle of resilience, yet is currently weakened by multiplefactors including climate change, social incongruity, terrorism, pandemics, over borrowings, and corruption.Resiliencecannotbebuiltwithalackofconsiderationtobiophysicallimitations,dynamics of ecosystem services, social equality, sufficiency, etc. As a nationthat has unceasingly depleted its rich natural and physical assets, Sri Lanka is weakened in its commitment towards investing in the SDGs. Sri Lanka’s debt

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has risen to high proportions andwithout proper investment strategies into long-term sustainability, the resilienceoftheeconomyissignificantlydeclining. Also, by the adaptation ofdestructive development approachesthat compromise ecological assets, the nation’s resilience has beenseriously reduced as demonstrated by the vulnerability to disasters and breakdowns. In the recalibration ofits resilience systems, Sri Lanka can find examples fromhistorical evidenceof cultural practices of prosperitythat innovated within the biophysical limitations. The Framework proposesthat strengthening financial resiliencecannot be considered in isolation, butnecessarily need to be part-and-parcel of a holistic system-wide design forresilience.

iv. Integration: The transformationcontext is based on the integration ofthe three dimensions of sustainable development; environmental, socialand economic. The 17 SDGs and the 169 associated targets provide countries and intergrated system required for the transformation. Sri Lanka has notdemonstrated an integrated approach to development during past many decades, which is a significant departure fromits historical self-sufficiency approach.Fragmented policies, strategies,institutionsandgovernanceapproacheshave resulted in driving the nationtowards high debt, weakened resilience, social disharmony, a disaster-prone environment, and financial volatilityleading to system-wide instability. Addressing the interlinkages between the targets and integrated nature of the goals is of crucial importance in the realisation of the 2030 Agenda.The Framework recognises the valueof integrated financing and resourcing

to be embedded within national andsubnational policies, strategies andplans of the country.

5.4.2. Purposes

Transformational action requirespurposes;whetheritisdrivenbyconviction,intention,resolve, commitment, objective, ordetermination,thecountryneedspurposesfor transformation. The 2030 Agenda forSustainable Development itself is guided by the purposes and principles of the Charter oftheUnitedNations,includingfullrespectfor international law and grounded in allthe international treaties, declarationsand agreements. Similarly, implementingthe SDGs and achieving sustainable development in Sri Lanka needs to be driven bydomesticpurposesguidedbyfullrespectfor its constitution and aspirations of thepeople. Purposes are to be established to ensure that the principles are followed for recalibration of the contexts towardssustainable development. The Frameworkproposes four purposes to assist the recalibration of the contexts of which theSDGs are implemented.

i. Coherence: The low policy coherence planning in Sri Lanka has prevented proper integration of the threedimensions of sustainable development and mainstreaming the SDGs into existing national policy frameworks.In fact, the low of policy coherencedemonstrates the low capacity and readiness to advance sustainable development. The purpose of policy coherence would help to integrate the economic, social, environmental and governance dimensions of sustainable development at all stages of policy making as well as programme design. The Framework proposesthat policy coherence helps nationaland subnational policy reinforcement

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rather than undermining each other over time and enables long-termsustainable development for future generations. The application of policycoherencemaybepossiblebyadoptingthe eight building blocks proposed by the Organisation for Economic Co-operation and Development (OECD);political commitment and leadership,policy integration, long-term planninghorizons, analysis and assessmentsof potential policy effects, policy andinstitutional co-ordination, subnationaland local involvement, stakeholder engagement, and monitoring and reporting.

ii. Decentralisation: The purpose of decentralisation will underscorethe commitment to the principle of subsidiarity and therefore the commitment to improving the localisation context of the SDGs.Currently, limited financial resourcesand little autonomy underminesthe constitutional objectives of theestablishment of the subnational levelgovernance tiers. The subnationalgovernments are challenged by inefficiencies in public expenditures,lack of clear fiscal regulatory policies,and the transfer of functions fromnationaltosubnationallevel.Therefore,provincial and local governments are notabletomakedecentralisationworkfor inclusive prosperity and sustainable development. In the context ofmobilisingdomesticresourcesforSDGs,a national agreement on the principleof subsidiarity and a clear arrangement on decentralization of governance isnecessary.Justhavingthethreetiersofgovernanceonpaper, theconstitution,is meaningless if the purpose is absent. The current maintenance of the lower tiers, particularly theprovincial councils have proved to be

both inefficient and resource intensivewithout much positive outcome asper sustainable development. The objective of decentralisation withinthe Framework is to drive localisationto avail opportunities and harness thepotential of all communities, leavingno one behind, and achieve sustainable development.

iii. Prosperity: Commitment to the 2030Agenda is a determination to ensurethat all citizens of Sri Lanka can enjoyprosperous and fulfilling lives whileeconomic, social and technological progress occurs in harmony with nature. Similarly, the central determinationor purpose of the new governments policy framework, Vistas of Prosperity and Splendour, is achieving prosperity. Recognising the shortfalls in pathwaystakeninthepast,thenewnationalpolicyframeworkacknowledgesthatamajorityofthepopulationhasfailedtostabilisetheir family economies and incomes, havefailedtogrowrelativetorequiredfamily expenditures, and excessiveincome inequality has persisted. The government thus recognises that it is imperative to change these conditionsand bring about prosperity for all; itproposes an inclusive development indicator approach for achieving the vision for a productive citizen, ahappy family, a disciplined society and a prosperous nation. Economiststraditionally, and even currently in SriLanka, use Gross Domestic Product(GDP)todefineprosperitywhileprovento be an inadequate metric to gauge well-being over time particularly in itseconomic, environmental, and social dimensions. The Report by the StiglitzCommission on the Measurement of Economic Performance and Social Progress suggests that choices between promoting GDP and

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protecting the environment may befalse choices, once environmental degradation is appropriately includedin our measurement of economic performance; it proposes to shift theemphasis from measuring economic production to measuring people’swellbeing.Differentcountriesapproachmeasuringprosperitytoreflectnationalaspirations and apply them accordingto different contexts. The Frameworkwould propose that Sri Lanka recalibrates its approaches of measuring inclusive prosperitytoreflectitscommitmenttosustainabledevelopment.Inthisregard,the current approach to the Sri Lanka Prosperity Index (SLPI) may requirea recalibration in reflecting the newgovernment’s resolve for prosperitythrough an inclusive transformationtowards sustainable development;the sub-indices including economy and business climate, well-being of the people and socio-economic Infrastructure’ may not sufficientlyrepresent the criteria for an inclusive developmentindicator.Indoingso,thedynamicsthatcreateanegativecontextaroundpolicy, localising, financing andtransformation needs to be addresseddeeply and effectively and take intoconsiderations all relevant principlesand elements.

iv. Sustainability:Theworldfacingmultiplecrises including the climate crisis, the financial crisis, the health crisis, thehumanitarian crisis, the security crisis, the food crisis, etc., draws attentionto human behaviour on earth that challenges the transformation towardssustainable development. Whilesustainable development is defined as“development that meets the needs of the present without compromising the ability of future generations to meet

theirownneeds”,sustainabilityisoftenthought of as a long-term aspirationunifying all nations. Sustainability ishow natural systems function, remaindiverse and produce everything it needs for the earth systems to remain in balance while nurturing human lifestyles and livelihoods. Sustainability, in this respect, is a paradigm for thinking about the future in which environmental, social and economic considerationsare balanced in the pursuit of an improvedqualityoflife.TheBruntlandCommission Report, 1987, reminds usthat no single blueprint of sustainability will be found, as economic and social systemsandecologicalconditionsdifferwidelyamongcountriesandeachnationwill have to work out its own concrete policy implications; yet irrespectiveof these differences, sustainabledevelopment should be seen as a unifying objective. For Sri Lanka toachieve the transformation towardssustainable development, sustainability needs to be accepted as an overarching purpose.

5.4.3. Strategies

The 2030 Agenda emphasises thatcohesive nationally owned sustainabledevelopment strategies, supported by integrated national financing frameworkswillbeattheheartofefforts.Eachcountryhas a primary responsibility for its own economic and social development and will design their ownnational policies anddevelopment strategies. Each government willalsodecidehowtheseaspirationalandglobal goals of the 2030 Agenda shouldbe incorporated into national planningprocesses, policies and strategies. In thisrespect, nationsareexpected to integrate,amongst other strategies: climate change measures into national policies, strategies

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THE FRAMEWORK

and planning; integrate ecosystem andbiodiversity values into national andlocal planning, development processes, poverty reduction strategies andaccounts;encourage and promote effective public,public-private and civil society partnerships building on the experience and resourcingstrategies of partnerships; create soundpolicy frameworks based on pro-poor and gender-sensitivedevelopmentstrategies,tosupport accelerated investment in poverty eradication actions. The ‘Framework’recognises the lack of an integrated and long-term approach towards advancing sustainable development in Sri Lanka and proposes four strategies to advance the SDGs; systems approach to planning,integrated delivery, circular economy, and biophysicallimitations.

i. Systems Approach: Fragmentedplanning and implementation ofpolicies, strategies and programmes are identified as one of the greatestobstacles to achieving the SDGs in Sri Lanka. SDGs are nested within an interlinked system and cannot be implementedin isolation;ontheotherhand, a systems-based approach would focus on how to achieve the SDGs as a coherent unit. A systems approach recognizes that progress on one goal,in one place, could either undermine or enhance progress on other goals, in expanded temporal and spatial scales.Also, a focus on individual goals in isolationarelikelytomissopportunitiesfor increasing the impact of limited resources. In fact, a narrow focusthat fails to see cross-goal negativefeedbacks can entirely undermine theimpact on sustainable development. SDG interactions can be affected bymultiple factors including timespan,geography, governance, cultural practices and implementation calls for

a deep understanding of the differentcontexts to be applied. Effectivelycapturing synergies across SDG goals can also lead to increased overall impact including cost savings. The Frameworkproposes that a systems approach, including systems thinking, planning and management, is essential for Sri LankatodrawbenefitsfromimplementingtheSDGs.Byadoptinga systemsapproachto SDGs, Sri Lanka would be applying interconnectionsbetweentheelementsfor recalibrating the contexts whiletaking into consideration breakdown,alternative, and policy and regulatoryscenarios.

ii. Integrated Delivery: The fragmented approach to planning, coordinationand implementation of policies andprogrammes across hundreds of institutions under dozens ofministriesof the central government and across the subnational government tiers hasresultedinaninefficientandineffectivepublic service delivery system in the country. Thus, policy coordinationacross sectors is weak and the culture of individual ministry and agency led programmatic approach provides forlimited inter-sectoral convergence. Budgetallocationstosubjectministriesdone without much consideration ofsectoralintegrationamplydemonstratesthe lack of integrated planning for public service delivery. Meanwhile, Sri Lanka is yet to resolve the sectoral versusthematicplanningandbudgetingof development and SDGs have been turned into siloed sub-sector interventions. As the public sectorplanningandbudgetingispredominantlysector focused, this same approach is followed by the private sector. Evolved into a highly fragmented public institutional structure, planning and

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budgeting through siloed programmesbydifferentministriesdoesnotfit intoaholistic impactmodel for sustainabledevelopment.TheFrameworkproposesthat,foreffectiveandefficientdomesticresource mobilisation, an integrateddelivery system would require an integrated institutional architectureacross the public sector that also can dynamically engage subnationalgovernments, private sector, civil society and all other stakeholders.

iii. Circular Economy:Shiftedawayfromatraditional circular economic approachandbeingdrivenby growthmotivateddevelopment has resulted in increased debt, sustained poverty, reduced ecological assets, low resilience to disasters,andcontinuedsocialdistress.Moving back into a circular economy will require greater deliberation asit requires strategic foresight, astute leadership, coherent policy reforms, and transformational action across allsectors and stakeholders. Achieving economic sustainability for a country like Sri Lanka still would entail growthinthetransitionuntilitfindsprosperityacross economic and social indicators. In such a transition to sustainabledevelopment, Sri Lanka will require strategieslikeshiftingbackintoacirculareconomy that can provide a balance to the three dimensions of sustainable development.Acirculareconomyofferssolutions for sustainability challengesthrough the transition from the lineartake-make-use-dispose economy to a betterorganisationof resourcesand isproposedasasolutiontominimiserawmaterial input and waste generation.In an industrial system, a circulareconomy is restorative or regenerativebyintentionanddesign;itreplacestheend-of-life concept with restoration,shifts towards the use of renewable

energy, eliminates the use of toxicchemicals which impair reuse and return to the biosphere, and aims for the elimination of waste through thesuperior design of materials, products, systems and business models. Circular economy is an alternative economicmodel for exchange and productionthat seeks to decouple economic growth from material dependency;increasingresourceefficiency,reducingenvironmental impact at all stages of the product life cycle, and reducing waste while allowing to meet needs within biophysical limitations and developingthe wellbeing of individuals will advance a more sustainable economic system.

iv. Biophysical Limitations:Transformationtowards sustainable development entails that societies accept realitiesof biophysical limitations, and thatour development interventions shouldnot go beyond the natures capacity in receivingwasteandextractingbiologicalresources. The life-sustaining systems have an influence on the compositionof the atmosphere, the water cycle, the nutrientcycle,thepollinationofplantsandsoil fertility.Climatechange isoneof the many challenges that have arisen asaresultofthefactthattheeconomy’smetabolic organism has become too large.SriLanka’svulnerabilitytomultipleand frequent disasters can be related to an acquired political and policyapproach to mindless growth-based developmentthathastakenthenationaway from its historical considerationson the realities of limits to growthwithin ecological boundaries. The Framework recognises the importanceof protecting, conserving and growingits biocapacity towards enhancing resilience of ecological, economic and social systems.

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5.4.4. Pathways

The world, from time to time has agreedon numerous pathways towards advancing sustainable development. Agenda 21 andthe Rio Principles in 1992, United NationsMillennium Declaration and the MDGs in2000, and the 2030Agenda and the SDGsin2015,allhaveprovidedsuchpathwaystoguide humanity towards the global goal of sustainabledevelopment.Atthesametime,different countries takedifferent pathwaysto sustainable development; for example,Circular Economy in Germany, NaturalCapitalAccountinginBotswana,PaymentforEcosystemServicesinCostaRica,SufficiencyEconomy in Thailand, and Gross NationalHappinessinBhutan.InmobilisingdomesticresourcestowardsimplementingtheSDGs,Sri Lanka tooneeds todefine itspathwaystowards sustainable development. These pathways need to be in coherence with national policy frameworks, and be ableto guide the nation towards its own goalsand achieve the collective aspirations ofthe people. The Framework proposesfour pathways through convergence, partnerships, sufficiency and ecosystemsthat will enable the recalibration of thecontexts of implementing SDGs across thedifferenttiersofgovernanceinSriLanka.

i. Convergence: The 2030 Agenda isa historical landmark in achieving a coherent international framework forsustainable development with a set of universal goals towards convergence betweenkeyinter-relatedinternationalprocesses.Thesuccessfulnegotiationoffour global agreements that attemptsto transform the world and advance sustainable development have majorimplications for national policy andpractice:SendaiFrameworkforDisasterRisk Reduction (March 2015), AddisAbabaActionAgendaon Financing for

Development(July2015),Transformingour world: the 2030 Agenda forSustainable Development (September 2015),andParisAgreementonClimateChange (December 2015). Therefore,implementationatnation level requireleadership at the highest levels of government to convene the differentpolicy interests, achieve consensus and reconcile potentially competingobjectives, and ensure coordination.Further, the SDGs are devised as anindivisible set of goals and targets by the convergence of collectiveinternational agreements spanningacross decades of environmental, social, economic and governance issues that has kept the world away from achieving sustainable development. The 2030 Agenda also seeks convergencebetween people, planet, prosperity, peace, and partnership in the delivery of the 17 Goals. Sri Lanka has to soon findclarityastohowitsnationalpolicyframeworks and development plans findconvergencewiththe2030Agendatowards implementing the SDGs. TheFrameworkproposesthatSriLankaalsoneedstofindpathwaysofconvergencebetween its governance, economic, social and environmental processes and programmes that currently shows high levelsoffragmentation.

ii. Partnerships: The 2030 Agenda callsto enhance the global partnership complemented by multi-stakeholderpartnerships that mobilize and shareknowledge, expertise, technology andfinancial resources, to support theachievement of the SDGs. For this,governmentsareexpectedtoencourageand promote effective public, privateand civil society partnerships, building on the experience and resourcingstrategies of partnerships. While thecountryisyettoestimatethemeansof

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implementation(MoI)fortheSDGs,theglobalestimateswillshowthatdomesticresourcemobilisation is aprocess thatcannot be done by governments alone. The context analysis across policy,localising,financingandtransformationproves that the Government of Sri Lanka will need to seek international,nationalandlocalpartnershipstowardsdomestic resource mobilisation forthe implementation of the SDGs. TheFramework entails multi-stakeholderand multi-dimensional partnershipsacross sectors, themes, processes and programmes to recalibrate the policy, localising,financingandtransformationcontexts to effectively face thechallenges of implementing the SDGsand achieving sustainable development. A whole of government approach across the national and subnationaltierswiththefullengagementofall itsstakeholderswillbecriticalinmakinganinclusivetransformation.

iii. Sufficiency: Pathways through sufficiency,underscoredbytheconceptsof adequacy or contentment and self-relianceorself-sufficiency,areexpectedtostrengthenresilienceofconsumptionand production systems as well aseconomic and financial systems of thecountry. This however should not be interpreted as a means to compromise the ability to ensure security and safetyinthenation’sexistencewithinaglobalisedmarketcontext;forexample,food security and safety may depend on other factors beyond self-reliance in the present context of global tradeand lowered ecological regenerationcapacity. Sri Lanka, however, like many other countries, was reminded of the importance of sufficiency duringthe COVID-19 pandemic. Even in a

globalised market place, resilience of economic and financial systemstoo depends on the strength of local resources,productionandconsumptionsystems,anddeliverychannels. Infact,the importance of circular economies for the promotion of sustainableconsumption and production systemswas underscored during the pandemic. Further,asufficiency-basedrecalibrationof approaches to public and private financing, international developmentfinance and borrowings, plus othersectoral and thematic resourceinterventions are essential realities inthe emergingNewNormal. Sufficiencypathways would assist the government in its drive towards prosperity by easing the burden on dependency and help strengthen resilience of the domesticfinancingcontextoftheSDGs.

iv. Ecosystems: Currently in Sri Lanka, the incorporationof all environmental andsocial externalities into the decision-makingisnotfunctioningexceptforfewisolated cases. Environmental values are largely neglected in the current decision-making approach leading to resource degradation.Stayingwithinbiophysicallimitationswhileoptimisingthebenefitsof ecosystem services would provide Sri Lanka a critical pathway to prosperity.Four major categories of ecosystemservices are internationally identified:provisioning, such as the productionof food and water; regulating, suchas the control of climate and disease;supporting,suchasnutrientcyclesandoxygen production; and cultural, suchas spiritual and recreational benefits.The value of ecosystems to human welfare is still underestimated andnot fully recognized in planning anddecision-making while the benefits of

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their services are not fully captured in conventional market economics.Furthermore, the costs of externalitiesof economic development are usually not accounted for, while inappropriate taxandsubsidysystemsencouragetheover-exploitation and unsustainableuse of natural resources and other ecosystem services at the expenseof the poor and future generations.Market and governmental failures are two most common institutionalfailures that contribute to ecosystem service degradation. Market failuresoccur when the market is unable to lead the economic process towards a social optimum, and governmentfailure on the other hand comes either through a lack of intervention and/orthrough inappropriate intervention.Firstly,correctingthemarketfailureandintegration of biophysical constraintsinto the regulatory frameworks is crucial towards ensuring sustainable development. Secondly, it would be importantascorrectingthegovernmentfailure would lead to reformatory action. Thirdly, correcting the globalappropriation failure to addressexternalities beyond the nationalboundaries pose a special problem. Inadopting an ecosystem services baseddevelopmentapproach,theFrameworkrecognisers that the integration ofbiophysical constraints along with the regulatory tools requires two aspects;first, assessment of regenerativecapacity of natural resources which are extractedfromnatureandkeepingtheextractionlevelswithintheregenerativecapacity; secondly, it requires makingassessments on the assimilativecapacitiesofthedifferentenvironmentalmedia (air, water and land) and making regulatory measures that will ensure

that those capacities are observed bythe users.

5.5. The Tools of the Frame work

The tools for a Domestic ResourceMobilisationFrameworkaredefinedbytherequirements of public, private, civil society, individual and all different actors engagedin the recalibration of the contexts ofimplementing the SDGs. The categories oftools would range from enhancing capacity, co-creation, innovation and demonstrationof the elements of the Framework. Anon-descriptive and non-prescriptiveintroductionofthefourcategoriesoftoolsare presented with an understanding of the need to be customised during the applicationof theFramework.Therecouldbemultipletoolsthatwouldfitintothefourcategories and could be utilised with thecorrectadaptationtotheneedorsituationandsectororcontext.

5.5.1. Capacity

The SDGs are still known to a limitedpopulationandknowledgeoftheapplicationamongst the decision makers is quite low as well.Fiveyearsaftersigningontothe2030Agenda a lack of capacity to mainstream SDGs and integrate environmental, social and economic dimensions of sustainable developmentisclearlyseenatthenationallevel. At subnational government level,the knowledge on SDGs is rather low and the lack of transfer of capacity from the centre has kept them weak and most of thetimenon-partnersof thenational SDGprocess. Critical stakeholders including theprivate sector are still limited toextensionof CSR while CSOs are struggling to findnecessary resources to broad base the SDGs across sectors and communities. Capacity

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development is looked from the need to recalibrate the policy, localising, financingand transformationcontextsandkey focusareas would include knowledge building and systems redesign for the SDGs.

i. Knowledge Building: The requisite knowledge building on the SDGs has been slow and low in Sri Lanka. At the same time, linear and silointerpretations of the SDGs haveled to straying away from integrated transformativeaction.Astheknowledgeinstitutions of the nation currentlydo not possess the requisite capacity to deliver knowledge and training to policy makers, public officials andstakeholders, capacity enhancement across potential knowledge deliverychannels needs to be conducted;amongstother,thesewouldessentiallyinclude universities, technical colleges,professional training institutions, andschools. However, given the urgency of transformative action, the immediateknowledge building needs of policy and public service delivery across nationalandsubnationaltierscanbeaddressedby provisioning specialised knowledge and information through themid-termor sectors planning and programme developmentactivities.Therecalibrationof the policy mindset and approaches is vital if Sri Lanka is to forge ahead in its search for inclusive prosperity as a prerequisite for sustainable development. The recalibration of thepolitical, policy, public, entrepreneurand communitymindsets is critical forthetransformationtowardssustainabledevelopment. So many existingknowledgebuildingtoolscanbeutilisedwith embedding of the key elements and with appropriate recalibration.For example, foresight planning forprosperitywithinbiophysicallimitations

would require a host of educational,training and skill development reforms including curriculum design to enhance systems-based approaches.

ii. Systems redesign: The lack of system-based thinking, planning and implementation across policy anddevelopment sectors prevents the country from producing and delivering convergent outcomes in coherence with the SDGs. The capacity to integrate the three dimensions of sustainable development and mainstream the SDGs into national policy frameworks,establish procedures for policy coherence, devise an integrated institutionalarchitecture,andformulatedomestic financing strategies, willall require specific capacity buildingamongst both political leadershipand public administration. Capacityneeds for localising SDGs ranges from planning, budgeting, implementation,coordination,monitoringandreporting.The need for provincial and local sustainability plans has been looming since 2016, but the requisite supportand capacity has not been delivered by the centre. The capacity to formulate local indicators and assess based on disaggregated data is critical for themonitoring, evaluation and follow-up at both subnational and nationallevel outcomes. Even after decadesof advocacy and reasoning, the institutionsintheprivateandfinancingsectors in Sri Lanka are novice to sustainable development concepts and needs critical capacity to devise trulytransformative strategic interventions.The private sector particularly needsto recalibrate its business systems and processes progress towards ensuring sustainable enterprise solutions, andprogress from CSR approaches to

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transformative SDGs. However, theyare also aggrieved by a non-conducive or non-inducive policy and regulatory environment to be competitive whiletaking transformative action. Thegovernment will need a proactive anddynamic private and financial sectoras partners in forging prosperity for all throughaninclusivetransformation.

5.5.2. Co-creation

Thescaleandintensityofthetransformationnecessary to achieve the SDGs by 2030,requires all stakeholders to join thegovernment in collaboration to co-createfavourable contexts across all tiers andsectors.Suchcollaborationsforco-creationfor sustainable development will require multi-stakeholder and multi-dimensionalpartnerships that will lead to common ownership and collective responsibility.While government is expected to facilitateleaving no one behind, it is also the responsibility of other stakeholders to proactivelyengageinco-creatingsustainablefutures.

i. Multi-Stakeholder and Multi-Dimensional Partnerships: Mobilising partnerships, a critical co-creationtool, will be an important approach for resourcing the implementationof SDGs. Public-private partnerships must be strengthened to enable resource flows into financing thesustainable development programmes and projects of the country. The 2030Agenda recognises multi-stakeholderpartnerships in order to identify andexamine technology needs and gaps,including on scientific cooperation,innovation and capacity-building,and also in order to help to facilitate development, policy reforms, and transfer and dissemination of relevant

technologies for the Sustainable Development Goals. These partnerships and collaborations must extend tolocalcommunitieswhowillbeaffectedby or benefited by the developmentinterventions.

ii. Common Ownership & Collective Responsibility: In an approach ofinclusive and shared prosperity, sustainable outcomes will tend to have greater appeal for common ownership. Common ownership to public goods and services could help create greater balance within a system of prosperity while private property and private enterprise continues to flourish. Notonly ecological and cultural assets, but intellectual and technological assets have grown through co-creation ascommon goods and services with shared ownership. These systems have served Sri Lanka through its history and needs to be further propagated to advance an inclusive transformation towardssustainable development. A main benefitofco-creationistheemergenceof common responsibility. If policymaking is conducted through multi-stakeholder engagement processes, the outcomes will most likely generate a sense of common responsibility. Therefore, instead of resistance and rejection to outcomes througharbitrary and authoritative policyand programme design, co-created processes will generate acceptance and greaterparticipation.The2030Agendaitselfisaco-creationwiththecollectiveinternational responsibility of allnations; the global agenda’s goals andtargets deal with the means required to realize the collective ambitionsand embark on a collective journeyleaving no one behind. The objectiveof the Framework is to mobilise such

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supportforacollectivejourneytowardssustainable development in Sri Lanka.

5.5.3. Innovation

A transformation of the magnitude ofthe 2030 Agenda cannot be achievedsolely through current and conventionalapproaches and methods, and innovationfor sustainable development is necessary fortherecalibrationofthepolicy,localising,financing and transformation contexts. Infact, SDG 9 is aimed particularly towardsbuilding resilient infrastructure, promote inclusive and sustainable industrializationand foster innovation. The DomesticResource Mobilisation Frameworkfocuses on innovation that can harnessingsustainable consumption and productionsystems to help create a circular economy. TheFrameworkhighlightspolicyinnovationandfinancialinnovationastwocriticalsub-categoriestowardsrecalibratingthecontextofimplementingtheSDGs.

i. Policy Innovation: Transformativeapproaches to policy coherence, institutionalintegration,bigdatabasedmonitoring and evaluation, domesticresourcemobilisation,allneedforesightandinnovation.Theexerciseinitiatedin2016,undertheMinistryofSustainableDevelopment and Wildlife, to mapthe roles and responsibilities of 425public sector organisations under 52ministries towards implementing the169 SDG targets showcased the deep fragmentationwithinthepublicdeliverysystem that requires to be streamlined. This process, using a software forsystems linkage mapping, also demonstrated the potential of policycoherenceand institutional integrationcanbeplannedusing innovativepolicyapproaches. An integrated approach to the SDGs is envisaged within a unique combination of centralised to

decentralised computations betweenthe tiers of governance, contexts,elements, and supported by tools. Inthe area of governance, Sri Lanka needs toresolveitscontextofsubsidiarityandinnovate on a homegrown model of devolutionanddecentralisationsystem.Whilemanyexamplesandcasestudieshave been presented from across the world, to date Sri Lanka has not shown acollectiveagreement on such a system of sharing power and responsibilities.In this context, localising the SDGshangs loosely without much possibility of progress, and innovation using allconsiderations could lead to a moreinclusive and efficient governancesystem in the country. Whileconstitutional reforms continue, theplanning, implementation, monitoringand review of the SDGs through a devolved and decentralised system itself could be designed and tested within the existing governance systems andstructures.TheFrameworkemphasisesthat policy innovation needs to besteered through strategic partnerships forco-creationtodraw,knowledgeandskills fromcross sectoral expertiseandexperience.

ii. Financial Innovation: A criticalchallenge of achieving the SDGs in Sri Lanka is and will continue to befinding the means of implementation,and particularly financing. While,the current financing channelsare exhausted for a developmentmodel with limited alignment with sustainability, the first priority shouldbe to realign the national policyframeworks and strategies to propagate inclusive prosperity as a prerequisite for sustainable development. As noted by the 2030 Agenda, financingrequirements for transitioning from

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the current development pathways would require additional financing.Sri Lanka must not further delay the assessmentofitsfinancialanddomesticresourcing needs for implementingthe SDGs and must calculate the long-medium-short term benefits of suchaninvestment.IndesigningadomesticfinancingarchitecturefortheSDGs,SriLanka needs to capitalise on the new trends and opportunities of blendedfinancing directed at supporting theimplementation of SDGs in developingcountries. Blended finance is thestrategicuseofdevelopmentfinanceforthe mobilisation of additional financein developing countries, particularly toincrease private sector investment in sustainable development. The private sector needs to progress from modest CSR based projects andmore towardsimpactinvestment.Impactinvestmentsare made with the intention togenerate positive, measurable socialand environmental impact alongside a financial return.TheSri Lankanprivatesectormustbesupportedbythefinancialsector to innovate and reap benefitsof the growing impact investment market that provides capital to address pressing challenges in sectors such as sustainable agriculture, renewable energy, conservation, microfinance,and affordable and accessible to basicservices including housing, healthcare, and education. Impact investmentscan be made in both emerging and developed markets, and target a range of returns from below market to market rate, depending on strategic goals of investors.Also,thefinancialsectormustinnovate to gain advantage of Green Bonds, Social Bonds, SustainabilityBonds and similar financial tools thatcan help advance implementation ofthe SDGs. Green and Social Bonds are

any type of bond instrument where the proceedswill be exclusively applied toeligible environmental and/or socialprojects, while Sustainability-LinkedBondsareanytypeofbondinstrumentforwhichthefinancialand/orstructuralcharacteristics can vary depending onwhethertheissuerachievespredefinedSustainability/ESG objectives. TheFramework would request thegovernment to facilitate ‘Convergence Funds’andbringtogetherinternational,national and subnational stakeholderstowards blending for impact investment as a strategy for domestic resourcemobilisation. In the process, Sri Lankacouldalsoincludemultipletoolsrelatedto green growth, green economy, circular economy, sufficiency economy, ecosystems services, etc. and establish multiple ‘Convergence Funds’ towardsbuilding a resilient and sustainable economy across the sectors and governancetiers.

5.5.4. Demonstration

Proof of implementing the transformativeaction for SDGs, cannot simply be left toVoluntaryNational Reporting (VNR) to theUN.Theproofwillbe in the integrationofthethreedimensionsacrossnationalpolicyframeworks and demonstrating the actualprogress on sustainable development. The global indicator framework for SDGs mainlyprovidegovernmentsaquantitativeapproach to measuring progress. The Frameworkproposesthatbothquantitativeand qualitative assessments would helpmeasure actual transformation. It isenvisaged that the demonstration of thetransformation needs to be reflectedthrough urban and rural sustainability as well as through the sustainability of consumptionandproductionsystemsofthenation.

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i. Urban and Rural Sustainability: In aworld where 55% of the populationresides inurbanareasand is expectedto rise to 68% by 2050, Sri Lanka hasofficiallyrecordedonly18.59%in2019.However, The World Bank suggeststhat a large hidden urbanizationand around one-third of Sri Lanka’sentire population could be living insettlements that may exhibit urbancharacteristics but are governed asrural areas. The urban and rural as well asan intermediary ‘rurban’populationexists without much clarity andconvincing; convenient administrativeclassifications ignoring responsibilitiesof subsidiarity will not demonstrate a transformation as lifestyles andlivelihood of the people demand inclusive prosperity. Given the demands for greater growth for prosperity, the urban-ruralratiomightchangeovertheyearsandSriLanka’scomparativelyhighspatialequitybetweenruralandurbanareas in the provision of basic public services and living standards would beapositive trend to take forward. Inother words, the share of prosperity across the different subnationalregions and localities aswell aswithincommunitiesneedstobedemonstrated.Developmentinterventionsinsearchofprosperity would be inevitable in the nextyearstocome,buttheensuringofenvironmental and social safeguards in achieving growth for prosperity would beacriticalfactoralongwithequitablesharing across the urban and rural spaces.

ii. Sustainable Consumption and Production Systems: Prosperity leading to sustainable development needs to be demonstrated by sustainable livelihoods and lifestyles, or in other words how sustainable are the consumption and

production systems in the country.Consumption and production, directlyrelated to economic and social progress, has been accompanied on the use of the natural environment and resources in a waythatcontinuestohavedestructiveimpacts and endangering the very systems on which future development depends.Sustainableconsumptionandproduction (SCP) calls for decouplingeconomic growth from environmental degradation, increasing resourceefficiency and promoting sustainablelifestyles. SDG12 particularly calls forsustainable management and efficientuse of natural resources and reduce waste generation through prevention,reduction, recycling and reuse. Drivingprosperity, the government must encourage sustainable enterprise practicesthroughgreaterpolicysupportand incentives to meet science-basedemission reduction targets, naturalresource constraints, provisioning for consumer needs including food, water,sanitation,andaccesstoenergy.Business needs to be encouragedto innovate and design appropriate solutions that can both enable andinspire consumers with choices to lead more sustainable lifestyles, reducing impacts and improving wellbeing. Strategies for green growth, green economy, circular economy also could help the implementation of the SDGsand lead Sri Lanka towards finding itsown formula for prosperity through sustainable lifestyles and livelihoods. TheproposedFrameworkbelievesthatecosystemservicesenabledsufficiency-based enterprise systems would help flourishlocalproductsandservices,thusdemonstrating inclusiveprosperityandthetransformationtowardssustainabledevelopment.

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5.6. Application of the Framework

The Domestic Resource MobilisationFrameworkneedstobecustomisedduringthe application across the different tiersof governance; national, provincial, local,and community. The multilevel systemof government was established with constitutional assignment of powers andfunctions but has not led to reordering ofthe service delivery responsibilities of thenationalvisavistheprovincialandlocalintermsofsubsidiarity.Norhavemechanisms,whetherinstitutionalortechnological,beendeveloped and introduced to bring about policy-programme coherence between thenational and subnational levels. Thus,national to subnational levels, the publicservice is institutionally and functionallyfragmented creating multiple barriers forlocalising the SDGs. Localising SDGs will thereforerequirerecalibrationofthepublicservice delivery to ensure that domesticresource mobilisation and investment areefficient, inclusive and transformative. Theproposed Framework also has includedcommunity, mostly as a self-organised level, that also is subjected to being regulated,facilitated and impacted by the multilevelgovernment system. At the community level, micro enterprises and community basedorganisations (CBOs)operate formalandinformalrelationshipsandtransactionsaffecting the outcomes of SDGs. Theintensity of transformation intendedin the 2030 Agenda requires domesticresource mobilisation to be consideredacross all levels of government, sectors and communities. Likewise, the application ofthe Framework should includeall levelsofgovernment, sectors and communities. IndoingsotheFrameworkneedstobescaledappropriately and applied as relevant to eachtierofgovernance.

TheFrameworkoffersmultiplesinteractionsfor multiple outcomes amongst thedifferent items representing contexts,elements,toolsandtiers,andisrelevantandapplicable at all levels of governance. The first step of application of the frameworkmight be selecting between one of thefour governance tiers, national-provincial-local-community. This will help to decide the appropriate scale and intensity of the application of the Framework. Once thetier of application is selected and scale isdetermined, the next step would be todecide on the context to be recalibratedforSDGs.Ideallytherecalibrationofallfourcontextswould ensure a holistic outcome.However, the intensity of recalibration ofsome contexts may not be as high duringtheapplicationatlowertiersofgovernance.For example, recalibrating the policycontext is of very high importance at theNational Government level and also to asignificantdegreeatProvincialCouncillevel.Yet, as policy making responsibilities arelimited at the Local Government level, the intensity of applicationmay be limited. Atthe community level, policies are provided and with extremely limited opportunityto influence, and thus engagementwill bemoreon localisation.This itself isareasonforapplyingtheFrameworkandimpressingupontheprincipleofleavingnoonebehind;for example, engaging communities inlocal development interventions throughdialogue and active participation or evendemonstration could help recalibrate thepolicycontextwithanupwardrippleeffect.

The complex interdependencies betweentheelementscouldariseintheapplicationoftheFramework.MindfulchoiceswillneedtobemadeincontextualizingtheFramework,especially at the subnational levels, ‘if notselecting’fromthe16elements.Whilethe16 elements are envisaged to impact as a networked system, the nature and scope

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of such interdependencies will depend upon the imperatives of integration ateach tier. For example, subsidiarity anddecentralisation at community levelwoulddependontherelationshipsandtransactionsbetween informal to formal organisationsin the specific locality. Meanwhile, eventhough a majority of policy decisions aremade for subnational governments at thenational level, the formal relationshipsand transactions between provincialand local government levels would stillrequire the application of subsidiary anddecentralisation. The application of eachelement therefore requires a mindful and strategic inquiry into theutilisation for therecalibration of contexts. The tools alsoneed to be provided based on the scales, intensitiesandlevelsofrequirementacrossthe different governance tiers to ensureoptimumoutcomes.Thechoiceoftoolswillbe determined case-by-case and through the engagement of different experts,decision makers and stakeholders.

The Framework provides a platform todesign policy instruments and strategic interventionstowardsadvancingsustainabledevelopment; it helps to recalibrate thecontexts of implementing the SDGs in SriLanka and positively reposition the nationfor mobilising domestic resources aimedat the requisite transformation. The fourcontexts had led to the identification ofappropriate elements, and the categories of toolsareprovidedasaguidetofacilitation.The Framework is best functional as asystems application, using all elements torecalibrate the contexts. Yet, according tothe limitationofsectorsorscales,selectedelements across horizontal and verticalcombinationscouldbeappliedusingcriticaljudgment. Indoing so, theelements couldevenbefurtherrevisedtoexpandorreduce

thecomplexity.

The Framework can be viewed as a linearor dynamic model and applied accordingly. Depending on the need and limitationsof objectives, some vertical to horizontalapplicationsmaybeappliedtodrivespecificoutcomes. To be able to visualise the differentpossiblecalibrations,andtoscaleappropriately and apply as relevant to each tier, the following ‘Circular Model’ of theFramework is also presented. The CircularModel of the Framework helps visualiseoptions to recalibrate the different itemswithin contexts, elements, tools and tiersand to draw different outcomes throughdifferentcombinations.

Transformationisacomplexexercisetowardsachieving sustainable development, and has beenacomplexprocesstocomprehendanddefineoverthepastfewdecades.Domesticresourcemobilisationforaglobalframeworksuch as the Sustainable Development Goals, requires a complex systems applicationto ensure holistic outcomes. Therefore,the ‘Domestic Resource MobilisationFramework’ is a transformativeapplicationto assist Sri Lanka navigate through a world of complexities. It is intended to guidethe nation towards achieving sustainabledevelopment, while leaving no one behind in the attainment of prosperity. TheFrameworkispresentedasalinkagesmodelofelements facilitatingtherecalibrationofthe contexts that SDGs are implementedacross thegovernancetiers in Sri Lanka. Itcould also provide greater foresight into planningdomesticresourcemobilisationforthe SDGs in other countries as well.

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Figure 15: Domestic Resource Mobilisation Framework for Implementing theSDGs in Sri Lanka (The Circular Model)

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