Annual Report 2005 - Institute of Policy Studies of Sri Lanka

IPS Mission & Goals, Board of GovernorsIPS MissionThe Institute’s mission is to contribute to the economic development of a democratic Sri Lanka andenhance the quality of life of its people by informing policy-makers and contributing to the public debatethrough timely, independent, and high quality research-based analysis of medium and long-term nationalpolicy issues.Institutional Goals‣ To be a regional centre of excellence in the analysis of socio-economic policy issues.‣ To be a source of technical expertise and policy advice for the wider region outside of Sri Lanka.‣ To engage in dialogue with policy makers in the government, labour, donor, business, and researchcommunities and provide a forum for the discussion, exchange, and assessment of views amongststakeholders.‣ To be a point of reference on national policy issues to the public by providing an independent andauthoritative voice.‣ To strengthen the national capacity for medium and long-term economic policy analysis byinvesting in the capabilities of its staff and the Institute’s knowledge base.‣ To promote equality of opportunities for all in all its research and activities, regardless of gender,age or ethnicity.‣ To strengthen the country’s access to the highest quality expertise available by building andmanaging linkages with international institutions and scholars concerned with relevant issues.BOARD OF GOVERNORSDr. Gamani CoreaMr. Sunil MendisDr. P.B. JayasunderaMr. B. AbegunawardenaDr. Godfrey GunatillekeProf. Buddhadasa HewavitharanaProf. W.D. LakshmanDr. Saman KelegamaChairmanGovernor, Central Bank of Sri LankaSecretary, Ministry of Finance and PlanningDirector-General, Department of National PlanningFounder MemberFounder MemberFounder MemberExecutive Director, Institute of Policy Studies1__________ Annual Report 2005

Chairman’s MessageLast year, I complimented the IPS for achieving a numberof targets it set five years ago. This year I would emphasizethree areas where the IPS has to work on, viz., to promote adialogue to assist the government to implement certain keypolicy reform, to establish its position in the country as anautonomous body, and to establish the foundation to embark onpolicy advocacy and related work.It is increasingly clear that the Sri Lankan economy is goingthrough a very turbulent period. Managing the economy isbecoming increasingly complex under the existing politicalstructure. Many seem to be aware what reforms need to beundertaken to move ahead but when coming to implementingthese reforms the government seems to have faced variousbottlenecks. Consequently, very little progress has been madein reform implementation. In other words, managing change inthe Sri Lankan economy appears to be a major problem. This area needs in-depth study and the governmentneeds policy inputs on how to move forward. I recommend this area for close scrutiny by the IPS in the comingyears.While looking into this area and doing its normal research, the Institute must safeguard its autonomy. This isan area that the Governing Board has emphasized over the last two decades. The unique status of the IPSbeing a semi-government institute that is outside the ambit of the Administrative and Financial regulationsof the government has to be preserved if the Institute is to play its desired role. The Institute was establishedon this basis to give it autonomy so that it could engage in high quality research and achieve the vision it hasset for itself. With its current financial independence, the Institute is in a strong position to meet the objectivesset at the time of its establishment.Finally, the time may be opportune for the IPS to embark on research advocacy, sensitization, capacity building,preparation of Policy Briefs, information dissemination, and alliance building.I wish the Institute every success in its future activities.Gamani CoreaChairmanJune 20062__________ Annual Report 2005

Executive Director’s Overview2005 marked two decades of operation of the IPS – fiveyears (1985-1989) as a project and 15 years (1990-2005)as an Institute. The Institute has made significantprogress over the two decades to become the apex body ofeconomic policy research in the country. 2005 was also a year ofconsolidation of the Institute’s research and supportprogrammes and minimizing all expansion activities. Thisdeliberate policy was put in place to make the requiredadjustments for the phasing out of funding from theGovernment of The Netherlands in 2006. The Institute becamefinancially autonomous from Dutch funding in early 2006.The adjustment of the Institute’s activities to face the newenvironment also led to streamlining of Research Units. SomeUnits had to face transition-related difficulties, in particular,the Health Policy Programme and the International EconomicsPolicy Unit consequent to the departure of some senior researchstaff members. Despite these set-backs, the Institute movedforward with its regular programmes intact and attracted a number of new projects that were in line with itscore research programme.The core research work was dominated by tsunami rehabilitation and related issues. The Institute releasedtwo reports on the tsunami during the year and one report was launched by the Hon. Prime Minister inDecember. The main focus in the IPS-State of the Economy Report in 2005 was also on tsunami rehabilitation.The institute attracted 24 new projects and completed 15 projects during the course of the year.Eleven publications were brought out during the year and with the two issues of the South Asia EconomicJournal (which is jointly produced with RIS, India), 13 publications were released. This is a record numbercompared to previous years. Two publications were on key areas of macroeconomics where hardly any researchhad been done for many years, viz., national accounts and input-output tables — the latter was the first properdocumentation of such tables after 1970.The Institute organized six workshops during the year, on the post-MFA experience of South Asian countries(jointly with FES, Colombo), MIMAP Annual Conference (with the International Development ResearchCentre, Canada, University of Laval, Canada, and De La Salle University, Philippines), post-tsunami recoveryissues (jointly with ADBI Tokyo), two on WTO and South Asia (with CUTS, India), and bilateralism andWTO-plus conditions (with UNDP Regional Centre in Colombo). The MIMAP conference was the largestever conference organized by the Institute where 130 delegates from overseas participated. The IPS has nowacquired the logistical strength and administrative capacity to organize major international workshops/seminars without any difficulty.Training of the Institute’s staff took place as during 2004. The IPS has always valued its human resourcesand thus gives priority for training despite financial constraints. The regular in-house and book review seriescontinued during the year which is detailed out in this report. By these in-house events, the Institute gives thetraining to the junior staff for public presentations and writing academic papers.3__________ Annual Report 2005

Background & FundingBackgroundThe Institute of Policy Studies (IPS) was conceived in the mid-1980s as an autonomous institutiondesigned to promote policy-oriented economic research and to strengthen the capacity for medium-termpolicy analysis in Sri Lanka. It was established by an Act of Parliament in December 1988 and was formallyset up as a legal entity by gazette notification in April 1990 managed by a Board of Governors. From itsinception, the IPS was supported through a collaborative project between the Royal Netherlands Governmentand the Government of Sri Lanka under four phases of operations to allow the Institute to gradually diversifyits income and resource base. In the interim, the IPS has been successful in establishing its own EndowmentFund and setting in motion the transition to full financial independence with the formal ending of the fourthphase of operations in December 2004.Operational independence from financial and administrative regulations of the government were very muchpart of the rationale for setting up an independent IPS. Since its inception, the IPS has functioned under thekey ministries involved in economic policy making and implementation in Sri Lanka while enjoyingconsiderable autonomy in setting and implementing its research programme. Its institutional structure hasallowed the IPS to acquire a unique position as an authoritative independent voice in economic policy analysis,working closely with the government, private sector, development organizations and civil society.Since its establishment, there has been a substantial expansion of activities undertaken by the IPS. Thenumber of areas on which it sustains on-going research has expanded significantly with the systematicstrengthening of expertise of its research staff. The expanding research output has been reinforced byprofessional in-house support services in overall finance and administration management and in the provisionof information and resources including the Institute’s own library, publications, information technology, webdevelopment and database services.FundingThe IPS is primarily dependent on the bilateral technical assistance programme funding from theNetherlands government. This funding due to cease in December 2004 was extended under a BudgetNeutral Extension of Phase IV and an amendment to the Contribution Agreement between The NetherlandsMinister for Development Co-operation and the IPS was signed by both parties extending the period of PhaseIV from December 2004 to June 2006.Hence, the Institute is funded by three major sources. These include, funding from Sri Lankan and Dutchgovernments and project funding from contract research. The principal source of revenue for the year is theNetherlands government grant. It finances the core operating costs. The Sri Lankan government provides acounterpart contribution to cover the rent and maintenance of the current premises of the IPS. Additionalearnings are secured from contract research and supplemented by the interest income generated from theinvestment of the IPS reserves.5__________ Annual Report 2005

IPS PeopleResearch StaffDushni Weerakoon, BSc (QUB), MA,PhD (Manchester)Deputy Director and Fellow/Head,Macroeconomic Policy UnitNisha Arunatilake, BSc (Univ. ofSouth USA), MA, PhD (Duke)Research Fellow/Head, Labour,Employment and Industrial PolicyUnitMalathy Knight-John, BA(Swarthmore), MA (Colombo)Research Fellow/Head, PublicEnterprise Reform, Competition, andRegulatory Policy UnitRavi Rannan-Eliya, BA, MA, MBBChir(Cantab), MPH, DPH (Harvard)Associate Fellow/Head, Health PolicyProgramme UnitParakrama Samaratunga, BSc (Peradeniya),MSc (Univ. of Philippines), PhD (La Trobe)Research Fellow/Head, Agricultural EconomicPolicy UnitRavindra A. Yatawara, BA (Reed), MA, MPhil,PhD (Columbia)Research Fellow/Head, International Economic PolicyUnitGanga Tilakaratna, BA (Manchester), MPhil(Cantab)Research Economist/Head, Poverty and SocialWelfare UnitPaul Steele, BA (Oxford), MSc (London)Associate Research Fellow/Head, EnvironmentalEconomics Policy UnitSanath Jayanetti, BSc, MSc (North Carolina), MA(Iowa), PhD (Nebraska)Research FellowJanaka Wijayasiri, BA (Sussex), MA (The Hague)Research EconomistTilani Jayawardhana, BA (Peradeniya), MA(Colombo), CIM (UK)Research EconomistShihana Samad, BA (Durham), LLM (Warwick)Research OfficerAparnaa Somanathan, BA (Cantab), MSc (York)Research EconomistG.D. Dayaratne, BA (Peradeniya)ConsultantTharanga Fernando, BSc (Colombo)ConsultantShantha Jayasinghe, BSc (Sri J’pura)Research OfficerAsha Gunawardena, BSc (Peradeniya), MBA(Moratuwa)Research OfficerRuwan Jayathilaka, BA (Colombo)Research OfficerApsara Thurairetnam, BA (Kent)Research OfficerP.H. Thusitha Kumara, BA (Peradeniya)Research OfficerDilhani Marawila, BSc (Peradeniya)Research OfficerBilesha Weeraratne, BA, MA (Colombo)Research OfficerPriyanka Jayawardena, BSc (Colombo)Research AssistantS.W.A. Kalyanaratne, BA (Peradeniya)Research Assistant6__________ Annual Report 2005

IPS People__Research StaffPrashan Malalasekera, BA (Durham), MA (Sydney)ConsultantRoshani De Silva, BA (Albright College, USA)Research AssistantDeshal De Mel, BA (Oxon)Research AssistantJayanthi Thennakoon, BA (Peradeniya)Research AssistantAyodya Galappattige, BSc (Peradeniya)Research AssistantManoj Thibbotuwawa, BSc (Peradeniya)Research AssistantJagath Dissanayake, BSc (Colombo)Research AssistantDinusha Dharmaratne, BSc (Peradeniya)Research AssistantIndika Wijethunga, BA (Colombo)Project AssistantAmrit Rajapakse, LLB (Colombo), LLM (London),Attorney-at-LawResearch AssistantVisiting Research StaffShelton Wanasinghe, BA (Cey.), Hon. D. Litt (SriJ’pura)Senior Visiting FellowWimal Hettiarachchi, BA (Cey.), DPhil (Oxon)Senior Visiting FellowS.A. Karunaratne, BA (Cey.), MA (Boston), MA(Warwick)Senior Visiting FellowDouglas Jayasekera, BA (Cey.)Senior Visiting FellowSisira Jayasuriya, BA (Econ) (Cey.), MA, PhD(ANU), Asso. Professor in Economics, (Melbourne)Visiting ProfessorPrema-chandra Athukorala, B Com (Hons), PhD(La Trobe), Professor of Economics (ANU)Visiting ProfessorJaytilleke S. Bandara, BA (Econ), MA (Peradeniya),PhD (La Trobe), Senior Lec. in Economics (Griffith)Visiting FellowProject InternsAnushka Wijesinghe, Kamilka Malwatte, Dilani Hirimuthugodage, N.V.I. Chamindani, W.P. Sushantha, ThariduGajaweera, Mathew Kistler, Dinithi Siriwardhana, Apsara Walpita7__________ Annual Report 2005

IPS PeopleAdministrative & Support StaffIloka Wickremasinghe, ACMADirector Finance & AdministrationPremila Gamage, BA(Peradeniya), MLS (Colombo), Dip.Lib. & Doc. Sci. (Kelaniya), Dip.Writership & Comm. (Sri J’pura)LibrarianManu Tissera-Gunasekara, BA(Kelaniya), MA (Colombo)Information & CommunicationOfficerHaren H. Kodagoda, BSc(Colombo)Head of Information SystemsIndika Siriwardena, BSc (Colombo)Database ManagerNandaka Pothuwewa, BSc (Kelaniya), Dip.Comp. Sys. Design (NIBM), CCNAManager Information TechnologyShermal Karunaratne, BSc (Colombo), MBA(Moratuwa), Dip. Comp. Sys. Design (NIBM), Dip.Java (Radiant)IPS-Health Policy Programme ManagerD.D.M. Waidyasekera, BA (Ceylon)EditorG.L.B. PooliyaddaAdministrative OfficerDilrukshi Ariyaratne, BA (Kelaniya)Library AssistantUshanthiny Velayuthan, Dip. Comp. Sys. Design(NIBM)Administrative AssistantK. SothinathanDocumentation OfficerK.A.R.T. WijekoonMaintenance OfficerDhanuja DavidAsst. AccountantMalini FernandoSecretaryNirmala MeegamaSecretaryOther Support StaffG. DharmasiriDriverA.G. AmarasenaDriver/Office AideP.U.K. RajasiriDriver/Office AideG.R. WickremasenaDriver/Office AideRavindra PereraOffice AideDeepika NawavickramaNetwork AssistantLasitha FernandoWeb DeveloperAsuntha PaulSecretaryAyoni RangalaSecretaryMelanie WirekoonExecutive AssistantManoja BothejuLibrary AssistantSharmini De SilvaSecretaryChamari YapaLibrary AssistantUrmila JayasekeraReceptionist8__________ Annual Report 2005

IPS ResearchResearch ProgrammeThe substantive focus of the Institute’s research programme is to provide an integrated analysis of themedium to longer term development challenges facing Sri Lanka in order to meet the fundamentalpolicy objectives of sustainable growth, equity and poverty alleviation. The central policy issues are taken upunder research themes and carried out under research programmes in thematically selected areas of research.These research programmes reflect recognized strengths of the Institute, existing staff expertise, accumulateddatabases and perceived areas of policy need. Each programme works within the medium-term researchagenda, adopting cross-linkages across the programmes wherever feasible to ensure coherence and policyrelevance to the overall direction of the Institute’s research output.The main research programmes at present are as follows: Macroeconomic Policy, International EconomicPolicy, Labour, Employment, Human Resources Development and Industrial Policy, Public Enterprise Reform,Competition, and Regulatory Policy, Environmental Economic Policy, Health Policy, Poverty and SocialWelfare, and Agricultural Economic Policy.In addition to these main research programmes, other specialized areas of research such as governance,gender, political economy etc., are also undertaken by the IPS to enable the IPS to incorporate a broader rangeof issues in its overall work programme. The research programme seeks to address key issues in theseresearch areas through IPS funded work as well as externally funded collaborative work with both domesticand international partners.BackgroundA central theme that has emerged in policy discussion, is how to achieve more equitable growth – be it on thebasis of regional, income, or ethnic disparities – without compromising the overall growth potential of theeconomy. While the broad thrust of economic policy remains within the framework of a liberal open economy,the perceived disparities in economic growth has brought about a nuanced change in focus. Increasingly,greater emphasis has come to be placed on rural economic development, agriculture, and small and mediumenterprises (SMEs) as means of generating growth with equity. The challenge will be to devise policies thatregenerate the rural economy without imposing a cost on the more competitive industrial and services sectors.The core aim of IPS research is to contribute constructively to the discussions and debates on appropriatepolicies to achieve sustained and equitable growth by providing an analysis of some of the priority issues.The IPS research output over time has addressed many of these key areas; the intention is to build on thesubstantive work that has already been carried out, identify gaps in the existing body of research andformulate a coherent medium-term work programme. As such, under the overall theme of achieving sustainablegrowth with equity, key questions around which the research agenda is programmed include the following:• Where will growth come from in the medium-term?• Why and how is poverty and inequality increasing?• What is the role of the State in generating equitable growth?• How can Sri Lanka’s macroeconomic policies be shaped to achieve equitable growth?• How can livelihoods be protected and vulnerability of the poor reduced?9__________ Annual Report 2005

IPS Research ThemesPost Tsunami Reconstruction & DisasterManagementThe tsunami that hit Sri Lanka’s shores on 26 th December 2004 was Sri Lanka’s worst natural disaster inliving memory. Over 36,000 people died, over 100,000 houses were damaged or destroyed and overhalf a million people were displaced. Sri Lanka and the international community responded with a hugemobilization of funds, humanitarian relief and reconstruction activities. While these large reconstructionefforts provided the much needed support, it also created new economic challenges. Macroeconomic concernsincluded inflation, while many micro interventions in the housing and livelihoods sector did not sufficientlyfactor in the larger economic context. Disaster management alsobecame a high political priority with the creation of a new Ministry.The IPS worked with key agencies in the government, donor andNGO community to highlight the more strategic economicchallenges and opportunities to “build back better” after thedevastation.HighlightsFocus on Strategic Economic Challenges andOpportunities in the Post-Tsunami PolicyContextPublications in 2005Steele, Paul (ed.), “Phoenixfrom Ashes? Economic PolicyChallenges and Opportunitiesfor Post-Tsunami Sri Lanka”,IPS Working Paper No. 7IPS Research Team, “Listeningto Those Who Lost: Survey andAnalysis of Rebuilding andRelocation of TsunamiAffected Households in SriLanka”IPS research in this area highlighted the lack of a more strategic Jayasuriya, S., P. Steele and D.and medium term approach to many of the post tsunami economic Weerakoon, “Post TsunamiRecovery: Issues andchallenges and opportunities. In April 2005, IPS published aChallenges in Sri Lanka”,working paper titled, “Phoenix from Ashes? Economic PolicyAsian Development BankChallenges and Opportunities for Post-Tsunami Sri Lanka” . This Institute, Discussion Paper No.was one of the first overviews with clear recommendations, focusing 39 (in collaboration withon the economic issues of the tsunami relief and reconstruction Malathy Knight-John andefforts and plans for risk management strategies for the future. Nisha Arunatilake)This publication sold over 300 copies and has since become widelyquoted.Forthcoming PublicationsThe IPS in collaboration with the Asian Development BankSteele, Paul (ed.), “Livelihoodsin Post-Tsunami Sri Lanka:Institute (ADBI), Tokyo, Japan undertook a more detailed‘Building Back Better?’”macroeconomic analysis jointly with the Asian Economics Centreat the University of Melbourne. The aim of this joint study on“Post Tsunami Recovery: Issues and Challenges in Sri Lanka” was to develop a report setting out a set ofpolicy recommendations to address the medium to long term issues arising from the tsunami for the considerationof the government and the public. Key members of the IPS team were hosted at the ADBI during the period28 August - 12 September to finalize the report and made a presentation on “Issues and Challenges forRecovery in Post Tsunami Sri Lanka” on 8 September.The final report of the study titled “Post Tsunami Recovery: Issues and Challenges in Sri Lanka” was launchedat the workshop on “Post Tsunami Recovery: One Year On” organized by the IPS during 1-2 December inColombo. The report was presented to the Prime Minister, Hon. Ratnasiri Wickramanayake, the then Minister11__________ Annual Report 2005

IPS Research Themes__Post Tsunami Reconstruction & Disaster Managementof National Disaster Management. The report received wide media publicity, and was also one of the mostdownloaded publications from the IPS website.High Quality Surveys Highlighting the Views of Tsunami Affected HouseholdsImmediately after the tsunami, IPS in collaboration with the Department of Census and Statistics and otherresearch agencies highlighted the role of good quality, objective survey work, which is sensitive to the stateof the tsunami affected households. This was applied in a large assessment which IPS undertook for theWorld Bank on “Listening to Those Who Lost: Survey and Analysis of Rebuilding and Relocation of Tsunamiaffected Households in Sri Lanka”. The objective of this study was to analyse the views of tsunami survivorson post tsunami relocation and rebuilding decisions including key housing and land issues. The study reportwas launched on 12 August, with a press briefing at the IPS premises which received wide media attention.The findings of the study was also presented to All International Federations of the Red Cross.The IPS was an active member of the steering group which contributed to the government and donor reporton “Tsunami: Building Back Better? Sri Lanka Achievements, Challenges and Way Forward” published in2005. IPS also provided assistance to the government in the design of micro credit programmes in the posttsunami context.Designing an Effective All-hazards Early Warning System for Sri LankaThis research was done in partnership with LIRNEasia, a regional ICT policy and regulation capacity buildingentity based in Sri Lanka, and the Vanguard Centre for Disaster Preparedness following the tsunamidisaster.The objective of this research was to raise the awareness on key and urgent policy issues relating tothe development of a National Early Warning Mechanism. The output of the research included the following:• A concept paper titled: “National Early Warning System: Sri Lanka – a Participatory Concept Paper forthe Design of an Effective All-Hazards Warning System”, authored by Rohan Samarajiva & AyeshaZainudeen (LIRNEasia), Malathy Knight-John (IPS) and Peter Anderson (Simon Fraser University, Canada).• Presentations of the concept paper to a Presidential Commission set up to inquire into matters relating tothe Tsunami of December 2004 on 15 March and to the private sector at a workshop organized by theCeylon Chamber of Commerce on 17 February.• A TV panel interview on ALERT SRI LANKA, a YATV talk show aired on ETV on 19 and 20 of February.Research PersonnelPaul Steele, Dushni Weerakoon, Nisha Arunatilake, Malathy Knight-John,Asha Gunawardena and Dinusha Dharmaratne12__________ Annual Report 2005

IPS Research ThemesInternational Economic PolicyThe increasingly closer integration of the global economy has made it imperative that developing countriesface the task of adapting the liberalization and globalization process to their own situations anddevelopment needs. It requires that they improve their domestictrade and financial regimes and equally importantly, they mustalso review the role they are playing in multilateral decisionmaking and work out approaches and actions that will enhancetheir cohesion and effectiveness on the international scene.The plethora of multilateral, regional and bilateral tradeliberalization measures in the pipeline will require policymakersto develop proposals relating to the implementation ofagreements already reached, to new issues that have subsequentlyemerged, or to any new negotiating rounds proposed for the future.The IPS has emerged as a key player in assessing and formulatingpolicies with regard to Sri Lanka’s external trade strategies basedon its on-going research programme in the arena of internationaleconomics. To this end, the work programme identifies principalissues for further research in areas considered critical to maximizethe potential benefits of closer integration in the world economy.The key areas of on-going research include issues related to SriLanka’s participation in multilateral negotiations of the WorldTrade Organization (WTO), bilateral and regional tradeagreements, impact of the phase-out of the Multi FibreArrangement (MFA) on the apparel sector and external sectorcompetitiveness.HighlightsWTO Doha Round NegotiationsThe IPS was the partner organization responsibe for preparingthe background paper on the area of trade facilitation for a studyon “WTO Doha Round and South Asia” which was initiated bythe Consumer Unity and Trust Society (CUTS), India. This studywas to be implemented in five South Asian countries, viz., India,Sri Lanka, Nepal, Pakistan and Bangladesh and focuses on fivekey elements of the July Framework Agreement of the WTO:agriculture, non-agricultural market access, developmentdimensions, services and trade facilitation.As a part of the effort to engage a wider debate and stimulate adialogue in the run up to the WTO Sixth Ministerial meeting ofDecember 2005, the IPS organized a workshop on “WTO DohaRound and South Asia: Linking Civil Society with TradePublications in 2005Kelegama, S., “Regionalism Debate:Re-positioning SAFTA” (withRatnakar Adhikari), South AsianJournal, Vol. 7Kelegama, S., “WTO and RegionalTrade Arrangements’ in BibekDebroy and Mohammed Saquib(eds.), WTO at Ten: Looking Back toLook Beyond, Konark, IndiaKelegama, S., “Emerging Scenarioin North-South BTAs of SouthAsia”, Trade Insight, Vol. No. 3Kelegama, S., “South Asia after theQuota System: Impact of The MFAPhase-Out” edited Volume, OctoberKelegama, S., “Trade in Textile andApparel in South Asia” (withBilesha Weeraratne) in CENTAD(ed.), South Asian Year Book of Tradeand Development 2005–MainstreamingDevelopment in Trade Negotiations:Run-Up Hong Kong, CENTAD, NewDelhi, IndiaKelegama, S. “Ready-MadeGarment Industry in Sri Lanka:Preparing to Face the GlobalChallenges”, Asia-Pacific Trade andInvestment Review, Vol. 1, No. 1,ESCAP, UN, AprilWeerakoon, D., and J. Thennakoon,“Trade Facilitation: A South AsianPerspective”, Trade Insight, Vol. 1.No. 4Weerakoon, D., J. Thennakoon andB. Weeraratne, “MultilateralAgreement on Trade Facilitation:An Important but Complex Agendafor South Asia”, in South AsianPositions in the WTO Doha Round: InSearch of a True Development Agenda,Jaipur: CUTS International13__________ Annual Report 2005

IPS Research Themes__Macroeconomic PolicyInput Output (I-O) Tables for Sri Lanka – 2000The compilation of I-O tables for the Sri Lankan economy has been irregular even though the history ofcompiling I-O tables for the Sri Lankan economy goes back to the 1960s. To fill this research vaccum IPS tookthe initiative to compile I-O tables for Sri Lanka with a detailed document on the procedures of compilationwith an electronic version of I-O tables.This publication by theIPS is a part of the IPS research programme on “Economy-WideForthcoming PublicationsModelling for Policy Analysis”, and presents a detailed Input-Output (I-O) table and other associated tables (import matrix, Naranpanawa, Athula anddirect coefficient matrix, and the Leontief inverse) for Sri LankaJayatilleke S. Bandara, “AFramework for Socialcompiled for the year 2000.Accounting Matrices (SAMs)for Sri Lanka”, IPS, Colombo,Sri LankaSocial Accounting Matrices (SAMs) for SriLankaThe use of Social Accounting Matrices (SAMs) has a long historysimilar to the input-output (I-O) accounting approach. Although a large number of SAMs have been developedfor many other developing countries in recent years under the International Food Policy Research Institute(IFPRI) and the Micro Impact of Macro Adjustment Policies (MIMAP) research projects, not a single detailedSAM has been compiled for Sri Lanka (except for a few aggregated SAMs) for the last two decades. This studyis intended to fill this gap by introducing a systematic framework to construct a SAM for the Sri Lankaneconomy following the methods developed in compiling recent SAMs for some other developing countries.Sri Lanka’s National Accounts 1950 – 2002National Accounts estimates for Sri Lanka are made both by the Census and Statistics Department and theCentral Bank of Sri Lanka. These estimates have been revised at regular intervals but the revisions have notbeen made retrospectively. This study presents for the first time a comparable National Accounts series for SriLanka at both current and constant prices covering the years 1950-2002. The study includes a StatisticalAppendix of 47 tables which provides a comprehensive and comparable set of National Accounts data for theyears 1950-2002.Research PersonnelDushni Weerakoon and Jayanthi Thennakoon18__________ Annual Report 2005

IPS Research ThemesLabour, Employment, Industrial Policy & HumanResources DevelopmentIPS research on labour, employment and human resources development focuses on identifying areas needingpolicy reform in the Sri Lankan labour market, providing policy recommendations based on detailedstudies, and analyzing the usage patterns, the efficiency of currentresource use, and evaluating options for policy reform to improvethe quality and accessibility of social infrastructure to keep upwith market changes. In 2005, the research undertaken underthis theme included: a) issues concerning the informal economy,b) demand supply mismatches in the labour market, c) ageingand the labour market, and, d) education policy reforms forimproving access to better quality education for all.HighlightsIssues Concerning the Informal EconomyWith funding from the World Bank, IPS undertook a study toanalyse the trends in the formal and informal sectors using theSri Lanka Labour Force Survey (LFS) data collected by theDepartment of Census and Statistics from 1992 to 2004. Researchundertaken under this project has contributed to the forthcomingWorld Bank document on “Underpinning growth with equity”and to the forthcoming “National Action Plan on YouthEmployment in Sri Lanka”.A study was also undertaken to better understand thedeterminants of informal sector participation, which suggeststhat formal sector employment opportunities outside the Westernprovince are largely limited to the public sector and that theemployment in the formal private sector is open mostly forindividuals in the Western province. Nisha Arunatilakepresented some of the findings of this research at the “LabourMarkets in Low Income Countries” workshop held prior to theannual Global Development Conference (GDN), in Dakar,Senegal. The background paper for this presentation can beaccessed at: http://intresources. worldbank.org/INTLM/Resources/Arunatilake.pdfPublications in 2005Kelegama, S., “Globalizationand Industrial Relations inSri Lanka” in V.V. Ramani(ed.), Sri Lankan Economy:Policies and Achievements, ICFAIUniversity Press(www.icfai.org)Arunatilake, Nisha, “WhyPeople Choose to Participatein the Informal Sector in SriLanka”, Global DevelopmentNetwork, Labour Markets inLow-Income Countries -Workshop, Dakar, Senegal,January http://intresources.worldbank.org/INTLM/Resources/Arunatilake.pdfArunatilake, Nisha,“Education Participation inSri Lanka – Why all are notin School”, Global Conferenceon Education Research inDeveloping Countries http://www.preal.org/FIEArunatilake, Nisha andRoshani de Silva, “Overviewof Education Budgeting andResource Allocation Processesin Sri Lanka”, CommonwealthEducation Fund – Sri Lankaat Save the Children SriLanka http://www.commonwealtheducationfund.org/srilanka.htmlIn addition to the above general studies on the informal sector,IPS also conducted a study to specifically examine the“Effectiveness of Child Labour Prevention activities in Sri Lanka”, which also contributed to a study byCharles Sturt University on “Prevention of Child Labour in Asian Developing Countries”.19__________ Annual Report 2005

IPS Research ThemesPublic Enterprise Reform, Competition, &Regulatory PolicyThe research undertaken under the theme public enterprise reform, competition and regulatory policy atthe IPS, is geared to provide independent analysis and policy inputs to the Government of Sri Lankaas well as to other players in the policy space on issues relating toprivatization and public enterprise reform, regulation and Publications in 2005regulatory governance, and competition policy.Knight-John, Malathy and P.P.A.Wasantha Athukorala, “AssessingGiven the policy stance adopted by the new political regime over Privatization in Sri Lanka:the past year and in view of the need to reorient the reform process Distribution and Governance” intowards the objective of sustainable and equitable growth, research Nellis, John and Nancy Birdsallunder this theme over the year has focused largely on evaluating(eds.) The Distributional Impact ofPrivatization in Developingpublic enterprise reform strategies that can have a positive impactCountries. Washington D.C.:on the Sri Lankan economy and on re-thinking the role of the state Center for Global Developmentand of the market in generating balanced growth. Hence, researchKnight-John, Malathy andunder the theme of public enterprise reform explore as to ‘Which Sisira Jayasuriya, “Sri Lanka’s“institutional” mechanisms would be most effective to achieve Telecommunications Industry:equitable and sustainable growth in the Sri Lankan context?’. And From Privatization to Anti-Competition?” in Hossain, M.,seeks to explore the following research issues: a) options forA.Brown & T.Nguyen (eds.)restructuring state-owned entities, b) regulation, regulatoryTelecommunications Reform in thegovernance and regulatory impact assessment, and c) competition Asia Pacific: Economic andpolicy.Regulatory Experience. U.K:Edward ElgarHighlightsThe Replicability of A Microfinance Approach toExtending Telecommunications Access toMarginal Customers: Drawing from theGrameen StoryThis research was done in collaboration with LIRNEasia - a regionalICT policy and regulation capacity building entity, and the Asianaffiliate of LIRNE.NET This study follows from the WorldDialogue on Regulation’s (WDR) theme for 2004/2005 onDiversifying Participation in the Different Elements of NetworkDevelopment, conducted in parallel to other case studies in India,Indonesia and Nepal. The conceptual framework for this studyrelates to particular gaps in the literature on the range of possiblesources of investment for network development, the opportunitiesthat network participation provides and the policy and regulatorybarriers that must be overcome to realize these opportunities. Thisstudy looks at the fundamental problem of access totelecommunications and focuses on a particular innovative solutionthat has emerged in response to this problem in Bangladesh, underKnight-John, Malathy andChethana Ellepola, “A CaseStudy on TelecommunicationsInterconnection in Sri Lanka”in Gallagher, Peter, PatrickLow & Andrew Stoler (eds.)Managing the Challenges of WTOParticipation, CambridgeUniversity PressThurairetnam, Apsara,“Competition Law and Policy inSri Lanka: Perspectives andFuture Prospects” in Pradeep S.Mehta (ed.) Competition Regimesin the World: A Civil SocietyReport. Jaipur: CUTSInternationalForthcoming PublicationsThurairetnam, Apsara,“Competition Law and Policy inSri Lanka: Policy Perspectives”,IPS, Colombo, Sri Lanka21__________ Annual Report 2005

IPS Research Themes__Public Enterprise Reform, Competition, & ............the Grameen Village Phone Programme. The study also discusses the replicability of the Grameen approach.The report based on this study can be accessed at: http://www.lirne.asia.net/wp-content/GrameenReportVersion 3.1.pdfReview of Competition Policy in Sri LankaThere are many factors that determine the effectiveness of competition policy in any country. This includesthe institutional framework such as competition agencies and regulatory bodies, as well as the legislativeframework in the form of competition laws, public utility regulations and consumer protection laws enactedby the government. Hence, the objectives of this study are to identify the effectiveness and implementationcapacity of competition agencies and regulatory bodies in Sri Lanka and analyse the reach and breadth ofprevailing competition laws; formulate a policy paper on the current state of competition policy and law in SriLanka, highlighted through relevant case studies; formulate recommendations to the government on policyimprovement using best practice literature and international comparisons of similar studies.Telecommunications Reform and RegulationThe IPS has been involved in research and policy work relating to telecommunications reform and regulationin a developing country context for over a decade, through dircet participation in committees, and developingpolicy briefs for the Government. It has also interacted with telecommunications researchers and policymakers internationally in the process of identifying strategies that would work in the Sri Lankan context.Presentations were made on “Embedding Competition Principles in Telecommunications Regulation: Issuesand Challenges” and “Competition in Telecommunications Networks: Anti-trust and Sector-specific Regulation:Solutions and Challenges for Developing Countries” at conferences organized by CUTS on Advocacy andCapacity Building on Competition Policy and Law in Asia and Africa during the year.Applying Regulatory Impact Assessment (RIA) in Sri LankaThis research study follows from a project undertaken in collaboration with IPS research partners at theCentre on Regulation and Competition (CRC), University of Manchester to look at options for regulatoryreform in Sri Lanka and provide recommendations to policy makers in the regulatory space. The principalobjective of this research is to develop a working template for RIA in Sri Lanka with inputs from researchpartners at the CRC and from an informal Working Group made up of key stakeholders from the policy andregulatory space, from the private sector, from the NGO community and from the media. The first policyoutput – which included Expert Consultations with key stakeholders in the regulatory reform process – is apolicy paper titled, “Regulatory Impact Assessment: A Tool for Better Regulatory Governance in Sri Lanka?”,which was handed over to the government, and was also presented by IPS research staff at international andregional fora. Malathy Kinght-John made presentations on “RIA: A Tool for Better Regulatory Governancein Sri Lanka?” at the South Asia Roundtable on Implementing Regulatory Reform, organized by FIAS, SEDFand DFID, during 13-14 June in Dhaka and at the Annual CRC workshop on Competition, Regulation andRegulatory Governance, during 21-22 June in Manchester. IPS research in this area also includes an ongoingsurvey on regulatory practices in key regulatory institutions as well as pilot tests of the RIA templatedeveloped for Sri Lanka at the local government level.Research PersonnelMalathy Knight-John , Shantha Jayasinghe, Shihana Samad, Apsara Thureiratnam andAmrit Rajapakse22__________ Annual Report 2005

IPS Research ThemesAgricultural Economic PolicyDespite growth in the manufacturing sector since liberalization in the late 1970s, the agricultural sectorremains an extremely important part of the Sri Lankan economy. Throughout the 1990s, plantationcrops tea, rubber and coconut in terms of local value addition, remained the most important foreign exchangeearner and the largest single employer in the country. At thesame time, the non-plantation agriculture sector has remained Publications in 2005an important source of rural income and employment. Further, Kelegama, S., “Market Reform,agriculture employs the largest proportions of natural resources Diversification, and Foodof Sri Lanka, especially land and water. Increasingly extensive Security in Sri Lanka” (withSuresh Babu) in Suresh Babuas well as intensive utilization is exerting ever increasingand Ashok Gulati (eds.),pressure on these resources and sustainability of development‘Economic Reforms and Foodin the face of this growing scarcity and vulnerability is an Security: The Impact of Tradeemerging issue. As such, the primary focus of agricultural and Technology in South Asia’,economic research is on analyzing the development and policy The Haworth Press, New Yorkpertaining to the agricultural sector in the economy. In particular,the research programme focuses on issues of employmentgeneration, export competitiveness, industrial and labourrelations, environmental effects, resource use sustainability andlocal skills development.Further research on this area recognizes that a blinkered fixationwith agricultural policy is unrealistic as it will be insufficient toincrease investment and make significant inroads into ruralpoverty. The point of entry for the research agenda onagricultural economics is through rural concerns, looking firstat peasant sector development and then at the plantation sector.HighlightsAgricultural Land Sector in Sri LankaThis study sheds an insight into the non-urban land sector ofthe country with special emphasis on identifying key observablephenomena at the ground level and the root causes affecting theefficient use and the equitable distribution of the land. In thestudy poverty was perceived as the major determinant of thecausal factors, hence addressing poverty at the ground levelthat would enable marginal farmers getting access to credit andother inputs may be a key concern.Forthcoming PublicationsSamaratunga, P.A. and DilhaniMarawila, “Rural Land Sectorin Sri Lanka: MajorCharacteristics, Determinantsand Implications for LandPolicy”, IPS, Colombo, SriLankaSamaratunga, P.A., K.Karunagoda and M.Thibbotuwawa, “AgriculturalTrade Liberalization: Trendsin Asia and the Pacific andtheir implications for Policymakers and negotiators”, as anARTNeT publication, ESCAP,Bangkok, ThailandSamaratunga, P.A. and DilhaniMarawila, “Is Land RentalMarket of Sri Lanka helpingthe Poor?”, Centre for PovertyAnalysis (CEPA), Colombo, SriLankaEradicating Poverty in South Asia through the Economic and PoliticalEmpowerment of the Poor: Empowerment of the Agrarian Society throughRationalizing Land Ownership and TenureGeneral agreement is that the poor are to be found largely in the rural sector among the landless, or nearlandless. Land has basically been the major source of livelihood and the means of generating, accumulating23__________ Annual Report 2005

IPS Research Themes__Agricultural Economic Policyand determining the farm productivity and accessibilityto financial and labour markets. This study attempts todevelop a programme for empowering the poor so thatthey can participate in planning on matters related toland and land use.Agricultural Trade Liberalization Trendsin the Asia PacificCountries, such as China and Thailand, have usedbilateral and regional trade agreement mechanisms inin an attempt to make progress on agricultural trade Dilhani Marawila and Manoj Thibbotuwawa during a fieldvisit to a vegetable plot in Nuwara Eliya and having a discussionliberalization. A comparative assessment of the expected with the farmers on the project “Agricultural Land Sector in SriLanka”.impact of regional trade agreements and multilateraltrade liberalization on trade and development of theagricultural sector is needed to assess whether LDCs, many of which are still engaged in the WTO accessionprocess, take a similar approach? Thus, the main objectives of this research are: a) to map the characteristicsrelated to agricultural trade under different agreements in this region; b) examine the nature and level ofagricultural liberalization of these different trade agreements; c) to analyze the extent and nature of welfaregains, effects on trade and effects on different industries under various scenarios of trade liberalization inagriculture in the Asia Pacific Region; and d) to derive implications and recommendations for policy makersand negotiators. A research network was established with the Centre for Policy Dialogue (CPD) Bangladesh,Bangladesh, Philippine Institute for Development Studies (PIDS), Philippines, Peking University, Chinaand Griffith University, Australia through the Asia Pacific Regional Trade Network (ARTNeT) at the UnitedNations Economic and Social Commission for Asia and the Pacific (UN-ESCAP). A presentation was made onpreliminary findings of the Study “Agricultural Liberalization Trends in Asia Pacific” at the Second ARTNeTConsultative Meeting of Policy Makers and Research Institutions organized by the UN-ESCAP at theUniversity of Macau, Macao, China on 7 October.South Asia Strategy Paper: The research team at theIPS also prepared a paper on “Sri Lanka’s AgriculturalSector” for the “South Asia Strategy Paper onAgricultural Sector” compiled by the InternationalFood Policy Research Institute (IFPRI). This paperconsisted of major reforms in the agricultural sector,key issues in food security, important gaps in productdevelopment and technology, critical issues inagricultural policies and more specifically, policy leveland institutional recommendations.Parakrama Samaratunga and Manoj Thibbotuwawa at theARTNet Research Team meeting held at the IPS during9-10 August.Research PersonnelP.A. Samaratunga , Dilhani Marawila and Manoj Thibbotuwawa24__________ Annual Report 2005

IPS Research ThemesPoverty & Social WelfareDespite continued efforts by the state to reduce poverty through a dual approach of growth generatingpolicy reforms and continued assistance to the deprived via social welfare programmes and povertyalleviating initiatives, poverty level in Sri Lanka has continued to remain high over the past decades. Giventhe continued dominance of the macro-adjustment based development strategy in Sri Lanka, there is a strongneed to understand the mechanisms and processes that translatemacroeconomic policy reform to increased welfare, and alsoPublications in 2005the reasons why certain population segments remain deprived. Tilakaratna, G., U.Wickremasinghe and T.IPS research programme on poverty and social welfare seeks Kumara, “Microfinance in SriLanka: A Household Levelto improve knowledge on poverty dynamics of vulnerableAnalysis of Outreach andgroups in order to emphasize the need to balance economic andImpact on Poverty”, Poverty andsocial issues in policy making and implementation, which Social Welfare Series No. 7 ,would eventually lead to improved status of the poor. The Institute of Policy Studies offocus of the research under this theme include the Sri Lanka, Colombounderstanding of the links between poverty and various macro Jayanetti, S. and G. Tilakaratna,policies such as trade liberalization and education policies, “Impact of Trade Liberalizationmonitoring poverty at the community level and evaluating the on Poverty and Householdimpact of various micro level initiatives such as provision ofWelfare in Sri Lanka”, Povertyand Social Welfare Series No. 6,improved access to financial services to the poor.Institute of Policy Studies ofSri Lanka, ColomboJayanetti, S. and G. Tilakaratna,HighlightsPolicy Brief on “MacroeconomicPolicy Choices for Growth andMicrofinance in Sri Lanka: Outreach and ImpactPoverty Reduction: The Impacton Povertyof Trade Liberalization andDespite the long history of providing microfinance services to Poverty in Sri Lanka”, TheNorth-South Institute (NSI),the poor and the large number of microfinance institutionsCanada, May 2005. (http://(MFIs) in Sri Lanka, the role of microfinance on reducingwww.nsi-ins.ca)poverty in the country has been somewhat ambiguous. In thisBook Review: Tilakaratna, G.,context, the research team of IPS undertook a study to assess‘Our Future Our Responsibility:the outreach and the impact of the microfinance sector in SriRoad Map towards a PovertyLanka, under the ‘Micro Impact of Macroeconomic and Free South Asia’. Report of theAdjustment Policies’ (MIMAP) - Sri Lanka project funded by Independent South Asianthe International Development Research Centre (IDRC), Commission on PovertyCanada. The study finds that microfinance services in Sri Lanka Alleviation (ISACPA), in SriLanka Economic Journal, Vol. 5,have a wide geographical outreach, but the extent of outreachNo. 2by the private operators including NGOs and commercial banksis rather limited. Although the poor groups have been reached,a significant proportion of microfinance clientele is found to be from the non-poor groups. This study waspublished as a IPS working paper titled “Microfinance in Sri Lanka: A Household Level Analysis of Outreachand Impact on Poverty”. The findings of the study were presented at both national and international foraincluding the Fourth General Meeting of the “Poverty and Economic Policy” (PEP) Research Network heldin Colombo in June .25__________ Annual Report 2005

IPS Research Themes__Poverty & Social WelfareIPS also undetook to prepare an “Annotated Bibliography of Microfinance in Sri Lanka - 1980-2005” bycompiling over hundred documents related to the microfinancesector in Sri Lanka. Compiling and documenting the details of allForthcoming Publicationsthe recent publications on microfinance in one place was consideredto be of immense use to various stakeholders in the sector for their Tilakaratna, G., A.Galappattige and T. Kumara,future policies and research work. A paper titled ‘Microfinance“Annotated Bibliography onSector in Sri Lanka: Current Status and Issues’ was also published Microfinance in Sri Lanka”in the IPS State of the Economy 2005 report.Poverty and Social WelfareSeries No. 8, IPS, Colombo,Further, a project on “Economic and Political Empowerment of Sri Lankathe Poor: Promoting Empowerment through Microfinance Tilakaratna, G., “Impact ofProgrammes” funded by South Asia Centre for Policy Studies Micro-credit on Selected(SACEPS) was initiated with the aim of understanding how Household Welfare Attributes:Evidence from Sri Lanka” inmicrofinance programmes could improve their role and scope inthe Mahbub ul Haq Humanproviding business development services to their clients, Development Review, Specialidentifying ways to improve the outreach and quality of services Issue on Micro-credit andprovided by MFIs, and to evaluate the interest rates charged by Poverty: The Potential forChange, Islamabad, Pakistanvarious institutions in the sector.Tilakaratna, G., “EducationalIPS has engaged in a number of policy- level activities related to Opportunities for the Poor inmicrofinance, which includes the designing of a micro-credit Sri Lanka”, Policy Brief No.11, Inter-Regional Inequalityprogramme to help the tsunami affected entrepreneurs,Facility, London, UK,implemented by the Ministry of Advanced Technology and February 2006National Enterprise Development. In addition, Ganga Tilakaratnawas a representative from Sri Lanka for theInternational Conference on ‘Empowering theGrassroots Economy: Microfinance for Growth andHappiness’ hosted by the Government Savings Bankof Thailand, the Secretariat of the Prime Ministerand the Ministry of Finance held in Bangkok during24 -25 November.Linkage between Poverty andEducation/Employment in Sri LankaThe IPS embarked on a research project onAyodya Galappattige and Ruwan Jayathilaka during a field“Upgrading Educational Opportunities for the Poor visit to Kelegama, Kurunegala on the study of “Economic andin Sri Lanka” funded by SACEPS. The main Political Empowerment of the Poor” funded by SACEPS.objective of this study is to analyse the extent ofdisparity in resources and facilities among schools in urban and rural areas in the country. Moreover, the teamis engaged in a study to look at the link between economic growth, employment and poverty reduction in SriLanka funded by the International Labour Organization (ILO). Further, a policy brief paper on ‘EducationalOpportunities for the Poor in Sri Lanka’ focusing on the free school text book and uniform programs and the“Navodya” School Development Programme, was prepared for the Inter-Regional Inequality Facility inLondon. This policy brief was presented at an international conference on “Addressing Inequality: Policiesfor Inclusive Development” jointly organized by the United Nations Economic Commission for Africa (UNECA)26__________ Annual Report 2005

IPS Research Themes__Poverty & Social Welfareand the Inter-Regional Inequality Facility, held in Addis Ababa, Ethiopia, in July 2005. This paper can beaccessed at: http://www.odi.org.uk/inter-regional_inequalityCommunity Based Poverty MonitoringThe IPS in collaboration with the Social Policy Analysis and Research Centre (SPARC) of the University ofColombo was involved in setting up Community Based Poverty Monitoring Systems (CBMS) in four selectedlocations covering rural (Hambantota), urban (Badowita area in Colombo), estate (Nuwara Eliya), and conflictaffected (Batticaloa) areas. This was carried out under the ‘Micro Impact of Macroeconomic and AdjustmentPolicies’ (MIMAP) - Sri Lanka project funded by the International Development Research Centre (IDRC),Canada. The study aimed at developing a low-cost and easy-to-sustain information system on poverty inselected locations, capacity-building of local government units and community members in monitoring povertyand help them identifying community specific poverty related problems. In addition, a special one day sessionwas organized at the PEP workshop in June, to share the CBMS experience with a wider audience includingresearchers from a number of developing countries.Trade Liberalization and Poverty in Sri LankaThis study, funded by the North-South Institute (NSI), Canada looked at the impact of trade liberalization onpoverty and household welfare, with a special focus on the rice and potato sectors of Sri Lanka. The studyanalyses various trade policy reforms in rice and potato sectors during last decade and their implications. Thefindings showed an overall welfare improvement to the country (in the short run) from a tariff reduction onrice. The study stresses the need to eliminate ad hoc trade policies and move towards a low uniform advaloremtariff rate for rice and potato. It also highlights the importance of having both the compensatory andthe complementary policies to minimize the adverse effects of trade liberalization on households, particularlythe effects on the poor.Research PersonnelGanga Tilakaratna, Ruwan Jayathilaka, Thusitha Kumara andAyodya Galappattige27__________ Annual Report 2005

IPS Research ThemesEnvironmental Economic PolicySri Lanka still has a rich natural resource base with over a fifth of the land covered in forests, an extensivenetwork of rivers, productive coastal and inland fisheries, fertile agricultural soils, diverse wildlife andgem mineral resources. The research focus of the envionrmental economic policy programme is the way to usethese resources to generate growth for the benefit of the poor and without destroying the resource base. Thisis somewhat complicated in the political context in which patronage networks gain from natural resourceexploitation. Recently there has been concern over the health and productivity of the population beingaffected by environmental problems such as indoor and outdoor air pollution, solid waste, and easy access todangerous pesticides. Further, the tsunami disaster in December 2004 highlighted the role of environmentalmanagement in disaster prevention and the increasing risk of climate related disasters to Sri Lanka.HighlightsLand Reform - Poverty and Social Impact Analysis (PSIA) of Sri Lanka’s LandPolicy Reforms: Socio-Economic Impact AssessmentThis study investigates the links between the Land Development Ordinance (LDO), land and rural povertybased on an empirical study of 10 villages. While the LDO imposes many negative impacts on the poor, thestudy challenges the assumed strong relationships between LDO tenureand productivity, access to credit or ability to engage in off-farm Forthcomingemployment. Secondly, due to the extensive LDO restrictions and their Publicationscumbersome implementation, the study points to the informal and illegal Steele, Paul and Ashatransactions adopted by farmer families. Finally, the study explores the Gunawardena, “Stakelikelyimpact of lifting different aspects of LDO restrictions on different Net Fishery in SriLanka’s Negombostakeholders. It concludes that the poorest families are typically secondLagoon: A Successfuland third generation offspring of the early settlers who are either livingExample for Commonon their relatives’ land or illegal encroachers. The report of this study Property Management”,will be published by the World Bank and will be used for future policy Chapter for Promise, Trustand interventions.and Deception, TheCommons of South AsiaStake-Net Fishery in Negombo Lagoon as aSuccessful Example of Common Property ManagementThe stake-net or “kattudel” fishery of Negombo Lagoon is a common property fishery management regimethat has lasted over 250 years bringing considerable benefits to its 300 members. With considerable interestin revising and financing collective natural resource management in Sri Lanka, the study identifies thedeterminants of success of this stake-net fishery in Negombo lagoon and the lessons that can be learnt fromthis case for management of other resources. The study on “The Stake-net fishery association of NegomboLagoon, Sri Lanka - why has it survived over 250 years and will it survive another 100 years?” will bepublished as a chapter of collected case studies on resource management in South Asia, which is edited andauthored by leading researchers in the region.Research PersonnelPaul Steele, Asha Gunawardena and Dinusha Dharmaratna28__________ Annual Report 2005

IPS Research ThemesHealth Policy ProgrammeThe research agenda under Health Policy Programme stresses economic analysis and multi-disciplinaryteamwork, and covers five areas: organization and performance of public sector health care delivery,private health care provision and financing markets, health sector financing, economic and health sectorimplications of demographic ageing and pensions policy, and policy process and political mapping. During2005, the research programme focused on equity in health care financing and delivery, future options forfinancing Sri Lanka’s health services, the public’s opinions on financing choices, pensions policy, andgovernment hospital efficiency.HighlightsForthcoming PublicationsInstitute of Policy Studiesand Ministry of Health, “SriHealthcare Finance and Means of ImprovingLanka National HealthEfficiency of Resource AllocationAccounts 2000-2002”,IPS undertook a study facilitated by the Ministry of HealthcareColomboand Nutrition to estimate the Sri Lanka National Health Accounts Institute of Policy Studies(SLNHA) for the period of 2000-2002. This study was a followupto the SLNHA 1990-1999. The results of the study containand Ministry of Health,Health Statistics II: Census ofPrivate. Co-operative andthe estimate of total national health expenditures, disaggregatedEstate Hospitals 2004, Seriesby basic areas of expenditure by source, functions, and provider No.1, Issue No 2, Colombobasis and also provides estimates of expenditure at Central andProvincial level by source and by functions. The results of thisstudy are used by the Ministry of Healthcare and Nutrition to track health expenditure trends, as an essentialelement in health care monitoring and evaluation.As a part of the routine updating of Sri Lanka’s National Health Accounts, with assistance from the Ministryof Healthcare and Nutrition, IPS also conducted a Census of Private, Co-operative and Estate Hospitals forthe year 2002. The main objective of this survey is to collect basic data on private hospital facilities,utilization and revenues for the year 2002 of all private, estate and co-operative hospitals in the country. Thesurvey finds that in the year 2002, there were 111 non – government inpatient institutions in operation, ofwhich 68 were private hospitals, 33 estate hospitals and 10 co-operative hospitals with a total bed capacity of2,634. During the same year, these private hospitals provided care for 125,000 inpatients and 3.6 millionoutpatients. This is the second series of the annual private hospital surveys carried out by the IPS. The firstseries covered the private hospital activities for the calendar year 2001.Research PersonnelNisha Arunatilake, G.D. Dayaratne, Priyanka Jayawardena, Roshani De Silva andDinithi Siriwardhana29__________ Annual Report 2005

IPS Research ThemesGovernanceIPS research on governance cuts across all research themes under the IPS research programme, and aims toprovide the decision makers in the Government as well as lead actors in civil society with its findings oncurrent issues in governance as they impact on the political, economic and social development of Sri Lanka.Towards this end, the research analyses the developments in regard to the effectiveness of the different areasof governance in Sri Lanka in contributing to the search for economic, social and political development.Currently, this research area focuses mainly on several inter-related issues.HighlightsEffectiveness of the Current Structures and Process of the Sri Lankan PolityThis relates to the effectiveness of the current structures and processes of the Sri Lankan polity in furtheringthe active participation of the citizenry in the processes of the making of policy and strategy decisions andtheir implementation management at the different spatial levels of governance . In this context, the researcharea continuously analyses the structures and processes of devolution that were superimposed throughconstitutional changes. And in particular, seeks to explore the nature and degree of resistance from vestedinterests against reforms that seek to enhance the direct participation of citizens in the processes of governancethrough progressive devolution. Further, as part of its pursuit of this issue area, issue of the responsibilitiesand functions as well as the structures and processes of the Cabinet of Ministers at the Centre of the polity, arealso addressed.Effectiveness of the Human Resources within the Different Institutions ofGovernanceThis relates to the effectiveness of the human resources within the different institutions of governance at itsthree levels. As a part of this focus, research seeks to address issues that relate to the approaches to theassessment of requirements of cadres for the achievement of specific programme outcomes, to the determinationof the tenures of such cadres, to the setting of remuneration and compensation packages for the different tasksthat are required to achieve governance objectives as well as to issues related to capacity development ofdifferent job-holders in a changing employment context.Impact of Spread of Corruption in the Different Public Sector Institutions on theEffectiveness of the Country’s GovernanceThis research is concerned with the progressive growth of corruptionin almost all institutions of governance – both political andadministrative – over the post-Independence decades. It also addressesthe impact of such factors as the constitutional changes that wereeffected over time, the effectiveness of the internal management ofpublic service cadres, the level of effectiveness of organizations ofcivil society in combating corruption as well as the effectiveness ofjudicial processes on the spread of corruption.ForthcomingPublicationsWanasinghe, Shelton,“Devolution Revisited(Towards A MoreEffective DevolutionaryPolity), IPS, Colombo, SriLanka30__________ Annual Report 2005

Photo GalleryMalathy Knight-John participated in ALERT SRI LANKA,a YATV talk show aired on ETV on “Creating Better PublicAwareness of the Need for a National Early Warning System”,19, 20 February.Expert Consultation on the Interim Concept Paper on “RegulatoryImpact Assesment: A Tool for Better Regulatory Governance inSri Lanka?”, IPS, 5 May.PEP Conference - Group PhotoParticipants of the Fourth General Meeting of the Poverty and Economic Policy(PEP) Research Network, Colombo, 17 June.The IPS organized a felicitation event to honour the twoFounder Governing Board members viz., Godfrey Gunatillekeand Buddhadasa Hewavitarana at the IPS premises amidst agathering of IPS staff and well wishers , IPS, 26 July.The Executive Director made a presentation on “Trade inServices with India” at a seminar on “Comprehensive EconomicPartnership Agreement (CEPA) with India: Opportunities forTrade and Investment”, organized by the Ceylon Chamber ofCommerce, 8 July.

Photo GalleryLaunch of IPS report on “Listening to those who Lost: Surveyand Analysis of Rebuilding and Relocation of TsunamiAffected Households in Sri Lanka” with a press briefing, IPS,12 August.Dilhani Marawila with research personnel during a case studyin Nuwara Eliya on the project “Empowerment of the AgrarianSociety through the Rationalizing of Land Use and Tenure”,6-7 September.The Executive Director delivered a speech on “Expectations of South Asia from the WTO Hong Kong MinisterialMeeting” at the Inaugural Session of the South Asia conference on “Trade and Development: MainstreamingDevelopment in Trade Negotiations” organized by the Centre for Trade and Development (CENTAD), New Delhi,India, 27-28 October. The South Asia Year Book on Trade and Development: 2005 was released by Gopal K. Pillai,Additional Secretary, Ministry of Commerce and Industry, Government of India.The Executive Director delivered the Guest of Honour addressat the Annual Sessions of the Ceylon National Chamber ofIndustries on “Opportunities for Industries in the Current GlobalEnvironment”, Hotel Holiday Inn, 25 November.

IPS Research Themes__GovernanceEnhancing the Capacity of Governance at the Levels of the Local Communitiesand of the Regional Conglomerations of Such Local CommunitiesTowards this end, the research focuses on the strengthening of the devolutionary polity with particularemphasis on issues of local governance and the progressive introduction of the principle of ‘subsidiarity’ asthe basis of Sri Lanka’s polity. Hence, it seeks to identify the vested-interest-based obstacles to the progresstowards the introduction of ‘subsidiarity-based’ structures and processes of governance.Research PersonnelShelton Wanasinghe○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○ ○The IPS Governing Board appoints Dushni Weerakoon as theDeputy Director of the InstituteThe IPS Governing Board appointed Dushni Weerakoon, Research Fellow and the Head of the MacroeconomicPolicy Unit, as the Deputy Director of the Institute with effect from 01 January, 2005. She has served the IPSfor more than a decade and has represented the Institute in a number of official delegations and conferences.As the Deputy Director, she will be in charge of the Institute’s Core-Research Programme, seminars, and bookreviews, and the Institute’s annual publication on the State of the Economy.31__________ Annual Report 2005

Linkages & NetworkingThe IPS has established formal linkages with a number of research organizations around the world. Inaddition to formal linkages, IPS has developed working relationships with researchers and researchorganizations through its collaborative work.• Australian South Asian Research Centre of the Australian National University in Canberra• Brazilian Institute of Studies on Competition, Consumer Relations and International Trade –IBRAC (www.ibrac.org.br)• Centre for Policy Dialogue (CPD), Dhaka, Bangladesh (www. cpd-bangladesh.org)• Centre on Regulation and Competition (CRC) based at the University of Manchester, U.K.(www.competition-regulation.org.uk)• Coalition for Action on South Asian Cooperation (CASAC)• Consumer Unity and Trust Society (CUTS), Jaipur, India (www.cuts-india.org)• Edith Cowan University (www.ecu.edu.au)• Global Development Network (GDN) (www.gdnet.org)• Indian Council for Research in International Economic Relations (ICRIER), New Delhi, India(www.icrier.res.in)• Indian Council for South Asian Cooperation (ICSAC), New Delhi, India• Indian Ocean Rim Association for Regional Cooperation, IOR-ARC and IORAG(www.dfat.gov.au/trade/iorarc)• International Development Research Centre (IDRC), Ottawa, Canada (www.idrc.ca)• International Labour Organization (ILO) (www.ilo.org)• International Network of Civil Society Organization on Competition – INCSOC(www.incsoc.net)• Institute of Social Studies, The Hague, Netherlands (www.iss.nl)• La Trobe University, Australia (www.latrobe.edu.au)• Learning Initiatives on Reforms for Network Economies (LIRNEasia) (www.lirneasia.net)• North South Institute, Ottawa, Canada (www.nsi-ins.ca)• Research and Information Systems for Non- aligned and Other Developing Countries (RIS),New Delhi, India (www.ris.org.in)• South Asia Centre for Policy Studies (SACEPS), Dhaka, Bangladesh (cpd-bangladesh.org/saceps)• South Asia Watch on Trade, Economics, and Environment (SAWTEE), Kathmandu, Nepal(www.sawtee.org)• Sri Lanka by the Youth Employment Network (YEN) (www.ilo.org/yen)• United Nations Economic and Social Commission for Asia and the Pacific (UN-ESCAP)Bangkok, Thailand (www.unescap.org)• World Bank (www.worldbank.org)32__________ Annual Report 2005

IPS Support ServicesAdministration and FinanceThe Administration and Finance department of IPS comprises of five units, Administration, FinancialOperations, Human Resources, Maintenance Operations and Procurement Services. These provide essentialinternal services to each of the research units in IPS.This year the Administration and Finance Department concentration was mainly on the budgeting andfunding of the Institute. Unit wise budget allocations were worked out and strategies were put in place toensure the smooth operations of the Institute taking into consideration the changes made to the financialstrategy of the Institute.PersonnelIloka Wickremasinghe, G.L.B. Pooliyadda, Dhanuja David, K.A.R.T. WijekoonMalini Fernando, Nirmala Meegama and Urmila JayasekeraLibraryIn keeping with its mission, the IPS library in 2005 continued to meet the information needs of the Institute’sresearch staff in support of the research and administrative functions of the Institute. The library furtherprovided access to quality information resources and facilitated information transfer using the best of traditionaland innovative technologies. During the year, the Library Committee continued to play an advisory roleassisting the librarian in setting overall library policy and in defining broad guidelines for further developmentof the IPS library.CollectionAs in the previous years, the library continued to increase its acquisitions and a large number of items wereadded to the library’s collection. Currently the collection consists of about 12,000 volumes of books, 7000pamphlets, 60 titles of Sri Lankan and international print journals which are relevant to new and existingresearch programmes. A substantialamount of publications anddocuments were also added to theLibrary Collection up to 2005repository, which library maintainson Sri Lankan economic and sectoral Books 11,090policy. Besides the direct Journals – Local (Printed) 15purchasing, library obtainedpublications through exchangeprogrammes and gifts from variouslocal, regional and internationalorganizations.Journals – International (Printed)PamphletsCD-ROMSOn-line Full Text Databases45709538333__________ Annual Report 2005

IPS Support Services__LibraryDe-selecting of JournalsAs the Library spends a large amount of its budget on purchasing journals, it is important to evaluate the realuse of these journals for determining the cost-effectiveness of the process. With the aim of comparingrelative usage of journals with their costs, Librarycollected usage data from January to DecemberAcquisitions2004 which is useful for selecting and de-selecting1992-2005journal titles depending on their usage.14,000Electronic DatabasesLibrary continued to provide access to EBSCO and6,000Blackwell-synergy databases with the generous 4,000support of International Network for the 2,000Availability of Scientific Publications (INASP) and01 2 3 4 5 6 7 8 9 10 11 12 13 14Programme for the Enhancement of ResearchSeries1 Series2Information (PERI) funded by SAREC and MicroImpacts of Macroeconomic and Adjustment Policies(MIMAP) programme supported by the International Development Research Centre (IDRC), Canada. Inaddition, Library continued its subscription to JSTOR database.Enhancing ServicesAs stated in the previous report, the Library intranet was redesigned with introductory tutorials and guidesto enhance users’ information on literacy skills. A test version was launched in October 2005.The demand for using the Library from the outside research community was also notably increased and nearly85 researchers personally visited the library.During the year, the library staff participated at various conferences, and meetings. The Librarian presenteda poster on ‘Rising from the Rubble - Tsunami Affected Libraries in Sri Lanka’ at the 71 st World LibraryInformation Congress, Oslo, Norway, 14-18 August 2005. She also delivered a speech at the Chartered Instituteof Library and Information Professionals, London, 25 August 2005. It is worthwhile to note that during the71st World Library and Information Congress and International Federation of Library Associations andInstitutions (IFLA) General Council held in Oslo, the Librarian was elected as the Secretary to the RegionalStanding Committee of Asia and Oceania (RSCAO). This is the first time that a Sri Lankan was elected to thisposition.12,00010,0008,000Priorities for the Coming YearLibrary will focus on developing ‘Digital Library’ using open source software to utilize existing provision ofelectronic resources to its users.PersonnelPremila Gamage, Manoja Botheju, Dilrukshi Ariyaratne and Chamari Yapa34__________ Annual Report 2005

IPS Support ServicesPublications and Communications UnitPublications and Communications Unit continued its role as the Centre of information dissemination. Duringthe year, the existing dissemination strategies were revisited, to develop more effective ways and means bywhich the Institute’s research activities can reach a much wider audience, both locally and internationally.The unit also focused on bringing innovative and cost effective methods for its desktop publishing activities.With streamlined systems and processes in place, the unit was able to complete all the activities that wereundertaken during the year, in a timely and efficient manner.New AvenuesDuring the year, the IPS took an initiative to translate the Institute’s main research publications into Sinhalaand Tamil languages, for wider acceptance of the Institute’s research, locally. The staff of the PCU contributedextensively to this exercise, and was successful in bringing out the summary of the working paper ontsunami. In addition to the existing local bookstores, these publications in the official languages were arrangedto made available at Sinhala and Tamil book stores for wider access.Publications of 2005In total the unit brought out 11 publications during 2005. This included eight publications under the IPSresearch series, a special volume on the impact of the MFA phase-out, a report on Sri Lanka’s national healthaccounts for the Ministry of Healthcare and Nutrition, and the IPS State of the Economy report, the flagshippublication of the Institute (for more details, refer section on IPS publications of 2005).International conferences, workshops and seminars organized by the unitThe Publications and Communications unit successfully organized a number of international conferences,workshops, seminars and media conferences during the year. The unit’s efforts towards the organizing of the4th General Meeting of the Poverty and Economic Policy Group (PEP) Research Network, with over hundredinternational participants and over 200 seminar participants over a period of 4 days of the general meetingand 9 days of workshop sessions, was a main highlight of the unit calendar, during 2005.These conferences and seminars are organized mainly in keeping with the Institute’s attempt to developinstitutional networking within and outside of Sri Lanka, while creating awareness of the major policy issuesand development challenges facing Sri Lanka and the world at large.Staff ContributionsDuring the year, the publications unit staff worked with IPS research staff and support staff to compile, edit,present and disseminate their work through the IPS web in a timely and attractive manner. In addition, workwas carried out towards standardizing web content as well as content generating process.PersonnelManu Tissera-Gunasekara, D.D.M. Waidyasekera, K. SothinathanAsuntha Paul, Ayoni Rangala and Sharmini de Silva35__________ Annual Report 2005

IPS Support ServicesInformation Systems UnitThe Information Systems Unit (ISU) of the Institute of Policy Studies concentrates its activities on the coreareas of, a) software, hardware, networking and IT infrastructure management; b) web development,maintenance and information dissemination; and c) database development, maintenance and management.Computing Facilities and ResourcesAll the IPS staff members are provided with personal computers operating on a Windows environment alongwith relevant software. The two buildings occupied by the IPS are fully networked and interlinked via anunderground optic fiber cable.All centralized IT services are facilitated through an array of state of the art servers located in a dedicatedserver room powered by an independent online Uninterrupted Power Supply system. These servers run allcentralized applications and services such as the IPS Email system, File sharing and Microsoft Active DirectoryService, IPS databases, finNGO; the IPS accounting system, IPS Corporate web, the back end facilities for theIPS public web www.ips.lk and a host of other applications, and are available round the clock. Data Backupfacilities are made available to the IPS staff and an institution wide Disaster Recovery Solution is also inplace.IPS Public WebIPS public web (www.ips.lk ) now consisting about 450 web pages and many other downloadable files, is thefocal point for the latest details of IPS research and findings, its latest (and archived) publications as well asIPS news and other related information. The web site is designed,developed and maintained by the ISU.IPS web site has seen a significant improvement in its access ratesince its inception in 2003, where the IPS commenced developingits web site in-house, and currently the IPS web attracts around100,000 hits and disseminates around 2 Gigabytes of data/information per month. It was planned to redesign the IPS publicweb under a new theme. Initial work was started during 2005,where a new home page based on this theme was developed. Workis underway to re-develop and re-engineer the entire websiteenabling it to meet the current requirements of the IPS.The ISU also possesses the ability to provide web development/information dissemination services and solutions customized tothe requirements of various research projects undertaken andother related activities.IPS Public Web Home Page36__________ Annual Report 2005

IPS Support Services__Information Systems UnitIPS Corporate WebThe prototype of the main corporate web wasdeveloped towards the latter part of the year.One of the key objectives of the developmentof the Corporate Web was to locate the largecollection of IPS economic research data anddatabases accessible to staff members via thecorporate web round the clock in acomprehensive, user friendly and a secureway. The corporate web, accessible onlywithin the Institute LAN will serve as aknowledge management platform, integratingexisting online facilities such as the LibraryIPS Corporate Web Home PageCatalog and the newly developed Economic Research Databases section and providing a platform to hostresearch information etc. online and updated. It will also help the Institute’s administrative and maintenancefunctions.Data & DatabasesThe ISU maintains a vast range of economic research databases and data sets (such as Macroeconomic data,Trade data and Agriculture data obtained from various Government Departments, NGOs and other relevantOrganizations as well as primary data collected by the IPS) that are necessary for the Institute’s researchactivities. Database analysis & development, data entry and processing as well as questionnaire/surveydesigning based on the needs of research projects are also handled by the ISU.In 2005, the following data sets were incorporated into the IPS data bank: Annual Customs Returns (Imports/Exports) in 2004, Customs Tariff Guides 2005, Child Activity Survey, School Census 2003 and 2004, LabourForce Survey 2004, Public and Semi-Government Sector Employment Survey, and Tsunami Data publishedby the Department of Census and Statistics, Petroleum data from the Ceylon Petroleum Corporation, ConsumerFinances and Socio Economic Survey Report 2003/2004 Part 1 and 2 from the Central Bank and Sri Lanka,India Free Trade Agreement Data for 2004, 2005 from the Department of Commerce.SoftwareA range of econometric, statistical, mathematical and related software packages are made available to theresearchers along with installation, usage and maintenance support by the ISU. Several training sessionswere conducted by the ISU to various staff members in this regard.PersonnelHaren Kodagoda, Nandaka Pothuwewa, Indika Siriwardena, Deepika NawavickramaLasitha Fernando and Dumidu Karunaratne37__________ Annual Report 2005

Training & DevelopmentResearch Staff• Thusitha Kumara participated in a DiplomaProgramme on Universalizing Socio-economicSecurity for the Poor at the Institute of SocialStudies, The Hague, The Netherlands fromJanuary to March.• Apsara Threiratnam participated in thetraining programme on Practical Aspects ofConsumer Affairs Authority organized by theAssociation of Corporate Lawyers in April.• Thusitha Kumara attended the Modeling andPolicy Impact Analysis Advanced TrainingWorkshop organized by IDRC, Canada and IPSat the Sri Lanka Institute of InformationTechnology, 9-10 June.• Nisha Arunatilake attended the advancedtraining workshop on “Assessment of PovertyImpact of Public Programmes” organized byIDRC, Canada and IPS at the Sri LankaInstitute of Information Technology, 11-12June.• Ganga Tilakaratna participated in the BoulderMicrofinance Training Programme organizedby the International Training Centre of theInternational Labour Organization (ILO),Turin, Italy, 25 July - 12 August.• Jagath Dissanayake participated in a workshopon Social Science Research organized by theNational Science Foundation, Sri Lanka, 25-26November.• Asha Gunawardena participated in theRegional Advance Training Course onEconometrics organized by South AsiaNetwork for Development and EnvironmentalEconomics, 8 -10 December.• Amrit Rajapakse continued with hisPostgraduate Diploma in EconomicDevelopment at the University of Colombo.• Dilhani Marawila continued her M. PhilDegree in Agricultural Economics at the PostGraduate Institute of Agriculture, Universityof Peradeniya.• Jayanthi Thennakoon commenced her MastersDegree in Economics at the Department ofEconomics, University of Peradeniya.• Manoj Thibbotuwawa commenced his MastersDegree Agricultural Economics at the PostGraduate Institute of Agriculture, Universityof Peradeniya.Support Staff• Dhanuja David attended the workshop onTransforming Thoughts at CIMA, Sri LankaDivision on 17 January.• P.U.K. Rajasiri and A.G. Amarasena attendedthe workshop on Driving Excellence atINTRAD Institute on 25 January.• Renuka Wijekoon attended the trainingprogramme on Vehicle Knowledge & VehicleMaintenance at INTRAD Institute on 30March.• Deepika Nawawickrema attended a 5 daytraining course on Computing Service –Upgrade and Maintenance of PC Systems atthe University of Colombo in May.• Nandaka Pothuwewa and Indika Siriwardenaattended the training programme onPersonality Development and RealisticThinking at the Institute of GovernmentAccounts & Finance, 14-15 May.• G. Dharmasiri attended a workshop on VehicleMaintenance, Safe and Scientific DrivingResponsibilities and Good Attitudes atINTRAD Institute, 16 June.38__________ Annual Report 2005

Conferences, In-House Seminars & Book ReviewsConferences & WorkshopsWTO Doha Round & South Asia: LinkingCivil Society with Trade NegotiationsHotel Galadari, Colombo, 9-10 MarchA regional seminar on “WTO Doha Round & SouthAsia: Linking Civil Society with Trade Negotiations”jointly organized by the Institute of Policy Studiesof Sri Lanka, CUTS Centre for International Trade,Economics & Environment, Jaipur, India and theSouth Asia Watch on Trade, Economics &Environment, Nepal was held at the Hotel Galadari,Colombo during 9-10 March. Hon. JeyarajFernandopulle, Minister of Trade, Commerce &Consumer Affairs was the Chief Guest and MohanKumar, Deputy High Commissioner of India was theGuest of Honour at the Inauguration of the seminar.Executive Director making the Welcome Address at the regionalseminar on “WTO Doha Round & South Asia: Linking CivilSociety with Trade Negotiations”, Hotel Galadari, 9 March.The seminar was of crucial importance especially because by the end 2005 December South Asian TradeMinisters, Trade Officials and members of the civil society were to gather in Hong Kong for the 6th WTOMinisterial.The event involved academicians, business chambers, government and inter-governmental organizationsand civil society representatives from the region. In addition to focusing on the five key issues of agriculture,non-agricultural market access, development dimensions, services, trade facilitation, crosscutting issues suchas technical assistance and capacity building, gender implications of particular measures were also exploredduring the sessions.After the Quota System: The Impact ofthe MFA Phase-Out on Growth andEmployment in AsiaHotel Taj Samudra, Colombo, 26-27 AprilAn International Conference on “After the QuotaSystem: The Impact of the MFA Phase-Out onGrowth and Employment in Asia” jointly organizedby the IPS and the Friedrich-Ebert-Stiftung (FES)was held on 26 and 27 April at Hotel Taj Samudra,Colombo. S. Virithamulla, Secretary, Ministry ofTrade, Commerce & Consumer Affairs inauguratedthe conference.S. Virithamulla, Secretary, Ministry of Trade, Commerce &Consumer Affairs, making the Inaugural Address at the seminaron “After the Quota System: The Impact of the MFA Phase-Out on Growth and Employment in Asia”, Hotel Taj Samudra,26 April.At the Inaugural Session, world trends in textile andgarments were discussed by Sarika Gupta of UNCTAD India, while Denis Audet of OECD, Paris elaboratedon estimates of the implications of the MFA expiry on Asian countries.39__________ Annual Report 2005

Conferences, In-House Seminars & .........__Conferences & WorkshopsThe conference brought together stakeholders from the government, private sector, trade unions, internationalorganizations, and, the research community.Poverty and Economic Policy (PEP) Research Network Fourth General MeetingHotel Galadari, Colombo, 13-17 JuneThe Fourth General Meeting of the Poverty andEconomic Policy (PEP) Research Networkorganized by the IPS in collaboration with theInternational Development Research Centre(IDRC), Canada, Angelo King Institute, De La SalleUniversity, Philippines, and the University ofLaval, Canada was inaugurated on 13 June, at theHotel Galadari, Colombo. Hon. SarathAmunugama, Minister of Finance was the ChiefGuest and Hon. Wiswa Warnapala, DeputyMinister of Foreign Affairs was the Guest ofHonour at the Inauguration of the conference.Over 150 researchers from over 40 countriesparticipated in this event. A number of papers on awide range of topics related to poverty, based onexperiences from several countries were presentedand discussed at the conference.Executive Director with Hon. Minister of Finance, SarathAmunugama and Deputy Minister of Foreign Affairs, WiswaWarnapala at the Inauguration Ceremony of the “Poverty andEconomic Policy Research Network Fourth General Meeting”,Hotel Galadari, 13 June.WTO Doha Round and South Asia: Linking Civil Society with Trade NegotiationsHotel Galadari, Colombo, 22 SeptemberThe IPS organized an international conference on“WTO Doha Round and South Asia: Linking CivilSociety with Trade Negotiations” in Colombo on22 September in the run up to the forthcomingSixth WTO Ministerial Meeting scheduled to beheld in Hong Kong in December 2005.The event touched on areas of agriculture, nonagriculturemarket access, services, tradefacilitation and development dimensions of theDoha Agenda. Papers were presented from Nepal,Pakistan, India, Sri Lanka and Bangladesh,respectively on each of the issues.The participants included representatives of thegovernment, civil society organizations, businesscommunity and the academia.Jayanthi Thennakoon making a presentation at the conferenceon “WTO Doha Round and South Asia: Linking Civil Societywith Trade Negotiations”, Hotel Galadari, 22 September.40__________ Annual Report 2005

Conferences, In-House Seminars & ................__Conferences & WorkshopsPost Tsunami Recovery: One Year OnBMICH, Colombo, 1-2 DecemberA seminar on “Post Tsunami Recovery: One YearOn” was organized by the IPS at the BMICHduring 1-2 December. The proceedingscommenced with the presentation of a report titled“Post Tsunami Recovery: Issues and Challengesin Sri Lanka” jointly prepared by the IPS and theAsian Economics Centre, University ofMelbourne in collaboration with the AsianDevelopment Bank Institute, Tokyo. A copy ofthe report was handed over to the Chief Guest,Hon. Ratnasiri Wickramanayake, Prime Minister,Minister of National Disaster Management andDeputy Minister of Defence by the ExecutiveDirector.Executive Director handing over a copy of the report to theChief Guest, Hon. Ratnasiri Wickramanayake, Prime Minister,Minister of National Disaster Management and Deputy Ministerof Defence, BMICH, 1 December.Training of South Asian Economic Journalists on Bilateral Trade AgreementsClub Hotel Dolphin, Waikkal, 3-4 DecemberA two-day workshop on “Training of South AsianEconomic Journalists on Bilateral Trade Agreements”organized by the IPS in collaboration with the UNDPRegional Centre in Colombo and South Asian Centrefor Economic Journalists, Islamabad was held at ClubHotel Dolphin, Waikkal during 3-4 December. NivardCabraal, the Economic Advisor to His Excellency thePresident and Secretary, Ministry of PlanImplementation was the Chief Guest at the InauguralSession.Nivard Cabral, Economic Advisor to His Excellency thePresident and Secretary, Ministry of Plan Implementationmaking the Inaugural Address at the workshop on “Training ofSouth Asian Economic Journalists on Bilateral TradeAgreements”, Club Hotel Dolphin, 3 December.41__________ Annual Report 2005

Conferences, In-House Seminars & Book ReviewsIn-House SeminarsTopic Speaker DateEducation and Employment in Sanjaya de Silva, Assistant Professor of 04 JanuarySri LankaEconomics, Bard College, USA, and VisitingResearch Fellow of the University of ColomboInternational Competition Report Apsara Thureiratnam 18 JanuaryResearch Assistant, IPSEffectiveness of Legislation Roshani De Silva 18 Februaryfor the Prevention of Child Labour Research Assistant, IPSDesigning an Effective All-Hazard Malathy Knight-John 30 MarchPublic Warning System forResearch Fellow, IPSSri LankaRegulatory Impact Assessment – A Shantha Jayasinghe 21 AprilTool for Better Regulatory Governance Research Officer, IPSin Sri LankaA Comparative Economic Analysis Manoj Thibbotuwawa 12 Mayof the Efficiency of Public andResearch Assistant, IPSPrivate Agricultural Extension inSri LankaMicrofinance in Sri Lanka: A Ganga Tilakaratna 7 JuneHousehold Level Analysis ofResearch Economist, IPSOutreach and Impact on PovertySurvey and Analysis of Asha Gunawardena 7 JulyRebuilding and Relocation ofResearch Officer, IPS andTsunami Affected HouseholdsDinusha Dharmaratne,in Sri LankaResearch Assistant, IPSMajor Characteristics of the Dilhani Marawila 18 AugustRural Land Sector and theirResearch Assistant, IPSDeterminants in Sri LankaSri Lanka’s National Health G.D. Dayaratne 28 SeptemberAccounts 2000-02Consultant, IPSImport of Motor Vehicles and Apsara Thureiratnam 25 OctoberLocal Assembly of Cars: The Effects Research Officer, IPSon Government Tax Revenue,Environmental and Social Costs andImpact on the Regulatory EnvironmentTrade Liberalization and Digital K.J. Joseph, Fellow 28 OctoberDivide: A South-South Cooperation Centre for Development StudiesPerspectiveKerala, IndiaTrade Policy and IMF Stabilizations Ravindra A. Yatawara 10 NovemberResearch Fellow, IPSDoes Education Cause Growth in Sri Roshen EpaarachchiLanka: Or the Other Way Around? Visiting Research Officer, IPS 16 NovemberDevelopment Goals and the Tilani Jayawardhana, Research 22 DecemberUnderlying Policy Environment Economist, IPS and Shihanain Sri LankaSamad, Research Officer, IPS42__________ Annual Report 2005

Conferences, In-House Seminars & Book ReviewsBook ReviewsTitle of Book Author/Publisher Reviewed by DateSri Lanka: Development The World Bank, Ayodya Galapattige, 04 MarchPolicy Review 2004 Research Assistant, IPSWorld Development The World Bank, Thusitha Kumara, 26 MayReport 2004: Making September 2003 Research Officer, IPSServices Work for PoorSri Lanka: Improving the The World Bank and S.A. Karunaratne, 14 SeptemberRural and Urban ADB 2005 Senior Visiting Fellow, IPSInvestment ClimateIn Defence of Jagdish Bhagwati, Wimal Hettiarachchi, 12 OctoberGlobalization Oxford University Press, Senior Visiting Fellow, IPSNew Delhi, 2005The Development Round Joseph Stiglitz & Andrew Amrit Rajapakse, 28 Novemberof Trade Negotiations in Charlton, Commonwealth Research Assistant, IPSthe Aftermath of Cancun Secretariat, 2004Pro-Poor Intervention Intizar Hussain, Parakrama Samaratunga 29 DecemberStrategies in Irrigated International Water Research Fellow, IPSAgriculture in Asia Management Institute,May 200543__________ Annual Report 2005

IPS PublicationsPublications of 2005Phoenix from the Ashes? Economic Policy Challenges andOpportunities for Post-Tsunami Sri LankaEdited by Paul SteeleWorking Paper No. 7, April 2005This publication highlights the policy challenges, particularly the economicchallenges and opportunities presented by the devastating tsunami of 26December 2004. It reviews the relief phase, the need for equitable and pro-poorgrowth in tsunami affected areas, the importance of an accountable system to drivethe reconstruction process, strengthening the monetary and fiscal position after thetsunami and introducing scientific and cost effective disaster prevention. Thepublication highlights the importance of placing the tsunami in the broader debateover policy choices, of ensuring an equitable process to allocate funds, of ways to actively involve affectedpeople in the reconstruction, while not forgetting the needs of other poor groups such as conflict refugees. Forthe key issue of housing, it recommends greater dialogue by the authorities with beneficiaries over housedesign, land selection and criteria to allocate land.Sri Lanka ‘s National Accounts 1950 – 2002Terrence SavundranayagamMacroeconomic Policy Series No. 15, May 2005This publication fills a vacuum in the available estimates of National Accountsby presenting a long term comparable series of Gross National Product andGross National Expenditure measured at both current and constant prices. Thepublication has separate Chapters which analyse the effects of the ethnic conflict onthe National Accounts estimates and the trends in GNP growth, structural change,investment and savings during the period 1950-2002. The publication includes aStatistical Appendix of 47 tables which provides a comprehensive and comparableset of National Accounts data for the years 1950-2002.Input Output Tables for Sri Lanka - 2000D. Amarasinghe and Jayatilleke S. BandaraMacroeconomic Policy Series No. 16, June 2005Input-output (I-O) analysis has been popular among policy analysts for morethan six decades. The first I-O tables have been compiled for the year 1963. Thispublication by the IPS is a part of the IPS research programme on “Economy-WideModelling for Policy Analysis”, and presents a detailed Input-Output (I-O) tableand other associated tables (import matrix, direct coefficient matrix, and the Leontiefinverse) for Sri Lanka compiled for the year 2000. The main I-O table presents adetailed structure or the “snap-shot” of the Sri Lankan economy. After two decades,for the first time, the IPS is proud to release I-O tables for Sri Lanka with a detaileddocument on the procedures of compilation with an electronic version of I-O tables.44__________ Annual Report 2005

IPS Publications__Publications of 2005Labour Standards and International Trade: The Case of EU GSP Concessions to SriLankaBilesha WeeraratneWorking Paper Series No. 8, July 2005This publication analyses implications of deeper tariff concessions extendedto Sri Lanka under the Labour Arrangement of the European Union’s (EU)Generalized System of Preferences (GSP). The publication traces the labour-tradelinkage, and underscores the implications and issues of the GSP scheme in thecontext of the textile and apparel industry in Sri Lanka. The analysis of Sri Lanka‘stextile and apparel trade performance in EU sets the local industry in the context ofits competitors and evaluates implications of the tariff concessions for this industryunder two broad themes, namely- market access and image/branding. Someprominent issues addressed are EU GSP scheme’s rules of origin requirements, SriLanka’s low utilization of concession and underlying reasons.Regulatory Impact Assessment: A Tool for Better RegulatoryGovernance in Sri Lanka?Research Team led by Malathy-Knight JohnWorking Paper Series No. 9, August 2005Regulations – broadly understood in the sense of laws, regulations, orders andrules of all levels of government – have a key role to play in promotingeconomic growth and development. However, even as Sri Lanka has moved alongthe path of economic reforms, priority has not been given to implementing a wellstructured,“independent” regulatory mechanism in the country. Regulations haveoften been implemented that had unintended adverse impacts, did not realize theanticipated benefits, or that became unnecessarily burdensome. This publicationdescribes an international best practice tool for addressing such regulatory failures – Regulatory ImpactAssessment (RIA). It goes on to set out a suitable framework to implement RIA in Sri Lanka , taking account ofthe specific local context.Impact of Trade Liberalization on Poverty and Household Welfarein Sri LankaSanath Jayanetti and Ganga TilakaratnaPoverty and Social Welfare Series No. 6, September 2005This publication attempts to look at the impact of trade liberalization onpoverty and welfare of households, with a special focus on the rice and potatosectors of Sri Lanka. Both a descriptive approach (for rice and potato sectors) and ananalytical model (for the rice sector) are used in this regard. The publication alsoanalyses various trade policy reforms undertaken during the last decade, and theextent and nature of poverty in Sri Lanka It further stresses the need to eliminatead hoc trade policies and move towards a low uniform ad valorem tariff rate for riceand potato. Moreover, it highlights the importance of having both compensatory and complementary policiesto minimize the adverse effects of trade liberalization on households, particularly those which affect the poor.45__________ Annual Report 2005

IPS Publications__Publications of 2005South Asia After The Quota System: Impact of The MFA Phase-OutEdited by Saman KelegamaInternational Economic Policy Series, October 2005This book shows the preparatory work done by the South Asian countries forthe post 2005 quota phase-out period and measures taken by them to face theglobal challenge. It also highlights the new issues in global trade in the context ofmaintaining competitiveness of Textile and Clothing (T&C) of the South Asianregion. The book consists of nine chapters which include five South Asian casestudies (India, Pakistan, Sri Lanka, Bangladesh, and Nepal). It also covers newmarket access issues such as social protection, decent work, Generalized System ofPreferences-Plus scheme, and many others. The material in the book will be ofinterest to policy makers, academia, and those actively engaged and working in theT&C industry.IPS: Sri Lanka State of the Economy: 2005October 2005The ‘State of the Economy 2005’ report offers an analysis of key indicatorsof Sri Lanka’s macroeconomic performance as well as developments in theglobal economy. In the backdrop of the massive human and asset losses resultingfrom the tsunami of 26 December 2004, a slowdown in the pace of reforms and aballooning oil import bill, Sri Lanka saw a growth rate of 5.6 per cent in 2005. Thereport notes that a weakening of the macroeconomic environment – manifested ina persistent build up of inflationary pressure from mid-2004 – will require thatappropriate policies be adopted to confront and resolve growing structuralimbalances if the country is to ensure an effective post-tsunami recovery.Decentralization and Provincial Finance in Sri Lanka: 2004 - An UpdateD D M WaidyasekeraGovernance Series No. 8, November 2005This publication analyses the fiscal and financial issues pertaining to theProvincial administrative system including the relative insignificance andinadequacy of the revenue sources devolved to the Provinces, provincial revenuebuoyancy, the wide disparity between the different provincial administrations, thenature of provincial expenditure and the weaknesses of the prevailing grantssystem on which the Provincial Councils depend for their existence and functioning.The publication includes a list of the financial powers and functions devolved tothe provinces, those in the list reserved to the centre and the functions relating toplanning in the concurrent list as provided in the Thirteenth Amendment. It alsoincludes a summary of the recommendations made to enhance the revenueperformance of provincial administrations so as to reduce the vertical and horizontalimbalances presently prevalent.46__________ Annual Report 2005

IPS Publications__Publications of 2005Sri Lanka National Health Accounts 2000 - 2002IPS Research TeamHealth Economic Policy Series, December 2005This report presents the Sri Lanka National Health Accounts (SLNHA)preliminary estimates for the period of 2000-2002. Estimates throughoutthis report are derived from the Data Base of the IPS Health Policy Programme.The estimates cover total national health expenditures, disaggregated by basicareas of expenditure by source, functions, and by provider. It also providesestimates of expenditure at the Central and Provincial level by source and byfunctions. The report concludes with comparative health expenditures of selectedcountries, for which data exist.Microfinance in Sri Lanka: A Household Level Analysis of Outreach and Impact onPovertyGanga Tilakaratna, Upali Wickramasinghe, Thusitha KumaraPoverty and Social Welfare Series No. 7, December 2005Despite the long history and the large number of institutions providingmicrofinance services particularly to the poor, there is limited knowledge onthe impact of microfinance on poverty alleviation in Sri Lanka. This publicationfills this gap by highlighting some important issues related to the microfinancesector: outreach of microfinance, role of informal sources of finance and the impacton poverty and welfare of households. The publication further notes that financialservices alone are not sufficient to raise the living conditions of the poor. Itfurther stresses the need to take into account the heterogeneity of microfinanceclients and their needs in designing more effective microfinance instruments.South Asia Economic JournalVolume 6:1, 6:2, 2005Two issues of the South Asia Economic Journal (SAEJ) were brought out in2005. The SAEJ is a bi-annual publication jointly managed by the IPS andthe Research and Information System for Non-aligned and Other DevelopingCountries (RIS), India.(Details on the journal can be obtained from www.ips.lk/South _asia _economic_journal.html/)47__________ Annual Report 2005

IPS PublicationsForthcoming Publications of 2006A Framework for Social AccountingMatrices (SAMs) for Sri LankaMacroeconomic Policy SeriesThe use of Social Accounting Matrices (SAMs) hasa long history similar to the input-output (I-O)accounting approach. Although a large number ofSAMs have been developed for many otherdeveloping countries in recent years under theInternational Food Policy Research Institute(IFPRI) and the Micro Impact of Macro AdjustmentPolicies (MIMAP) research projects, not a singledetailed SAM has been compiled for Sri Lanka(except for a few aggregated SAMs) for the last twodecades or so. Therefore, there has been an urgentneed to compile a SAM for Sri Lanka to developeffective policies and to undertake effectiveeconomic policy analyses using an economy-widemodelling framework.To fulfill the above need, thepaper introduces a systematic framework toconstruct a SAM for the Sri Lankan economyfollowing the methods developed in compilingrecent SAMs for some other developing countries.This paper develops a framework and the proceduresfor compiling a SAM for Sri Lanka. To illustratethis framework, a disaggregated SAM is developedwith 1995 as the base year.Devolution Revisited: Towards a MoreEffective Devolutionary PolityGovernance SeriesThis publication seeks to assess the experience ofthe functioning of the Provincial Council systemin Sri Lanka since its introduction in 1987 and,offer a more relevant approach to policies, structuresand processes that would contribute to theachievement of an effective devolutionary system.It further proceeds to suggest how such an approachcould be realistically introduced and implementedin the Sri Lankan context. The analysis of the pastexperience is placed in the context of the historyand culture of governance in Sri Lanka. Thepublication further discusses the post-1987experience in regard to the sharing of governanceresponsibilities within the polity, the reality offiscal devolution, the management of public humanresources, issues of accountability and transparencyas well as the setting of intra-provincial structures.In offering its suggestions for strengthening of thefuture devolved polity, the publication focuses on48__________ Annual Report 2005issues related to the sharing of governanceresponsibilities, the introduction of a relevantelectoral system, the setting of political andadministrative structures, the introduction of anequitable system of fiscal devolution and thechanges required to policies and practices of humanresources management. The publication also dealswith issues related to the introduction of the reformagenda – both in the immediate and long term –and highlights the steps to be taken to cope withthe inevitable obstacles to the introduction ofreforms.Annotated Bibliography of Microfinancein Sri Lanka: 1980-2005Poverty & Social Welfare SeriesMicrofinance has attracted a great deal ofinternational attention in recent years, as aneffective tool for reducing poverty and improvingwelfare of households. In Sri Lanka, provision offinancial services to the poor has a long historydating back to the early years of the twentiethcentury. Particularly during the last two decades,the microfinance sector has expanded significantly,embracing all the sectors in the country namelygovernmental, non-governmental and co-operativesectors. Nevertheless, unavailability of properrecords on the existing literature has constrainedtheir access and dissemination to a large group ofstakeholders in the microfinance sector. In thecontext, IPS intends to compile and document thedetails of the existing literature on microfinance inSri Lanka published during 1980-2005. This‘Annotated Bibliography’ contains details of overone hundred documents related to microfinanceincluding books, reports, journal articles and paperspresented at international and national conferences/workshops.Livelihoods in Post-Tsunami Sri Lanka:“Building Back Better”?IPS Working Paper SeriesThe aim of this working paper is to provide analysisto the government, NGOs and developmentagencies to support livelihood recovery amongtsunami affected households so that they may “buildback better”. Building back better requires anunderstanding of the pre-tsunami context and theconstraints limiting livelihood opportunities. Thepaper suggests that post tsunami interventions mustbe placed in a broader economic, social and politicalcontext with more use of existing research andexperience of poverty reduction in Sri Lanka.

FinancialsReport of the Auditor GeneralScanned Image49__________ Annual Report 2005

Financials__Report of the Auditor General50__________ Annual Report 2005

Financials__Report of the Auditor General51__________ Annual Report 2005

Financials__Report of the Auditor General52__________ Annual Report 2005

FinancialsManagement Response to the Audit ReportInstitute of Policy StudiesManagement Response to the Report of the Auditor General on the Accounts forthe Year Ended 31 December 20052.2 Comments on Accounts2.2.1 Accounting DeficienciesManagement Response:Assets transferred from other institutions refer to an amount of Rs. 2,144,144, which has been recorded asassets transferred, from previous years, going back to 1996. This is the value of assets transferred from Phase1 of this project. (Currently Phase IV is in operation). It should be noted that this is an item that was in thebooks since 1996. Due to the time period that has lapsed it is not possible to obtain the details required. Thishas been communicated to the auditors in previous years as well.2.2.2 Non Compliance with Laws, Rules and Regulations etc.Audit Report:(a) Sri Lanka Accounting Standards(i) Management Response:The investment income of Rs. 11,559,482 has not been shown in the cash flow statement as the investmentincome is re-invested. The cash and cash equivalents held for dealing purposes includes this amount. Thereforethis is as per SLAS 9. This was communicated to the auditors in writing.(ii) Management Response:Computers sold in the year have been disclosed in the final accounts. Please refer Note no: 2 of the “Notes tothe Accounts as at 31 st December 2005” of the final accounts.Management Response:The HPP Unit was not terminated. The senior researcher of the HPP Unit resigned in 2005. HPP work, inkeeping with the research agenda of the Institute is currently carried out by staff members of IPS.(b) Financial RegulationsManagement Response:The Institute of Policy Studies (IPS) was created as an autonomous research institute, by an Act of Parliament.The IPS was envisaged as a policy “think tank” that would have the operational freedom and resources toengage in socio-economic research requiring long term commitment. Although closely linked to the policymaking process, its financial and administrative independence enables it to be both constructive and critical.Therefore by its very nature the IPS is not required to administratively conform to obtaining the approval ofthe Ministry of Finance in its operations. The IPS does not come under the Government of Sri LankaAdministrative Regulations (ARS) and Financial Regulations (FRS).2.2.3 Lack of Evidence for AuditManagement Response:As already communicated and disclosed to the auditors all debtors are less than one year and all creditors areless than one year. Therefore an aged analysis is not relevant.Cont’d ..........................53__________ Annual Report 2005

Financials__Management Response to the Audit Report2.2.4 Identified Losses(a) Management Response:The HPP unit cannot be termed a “closed down unit”. The payments to the senior research consultants weremade on their departure from HPP, for work done even though all monies had not been received.(b) Management Response:Books and publications printed are not for sale only to government institutions. Numbers to be printed arenormally decided by the funding agency and is funded by these agencies.2.2.5 Transactions not Supported by Adequate Authority(a) & (b) Management Response:Same as (b) financial regulations above.(c) Management Response:Rent has been paid as per the rent agreement.3. Financial and Operating Review3.2 PerformanceManagement Response:The finalization of projects and the relevant numbers cannot be compared against previous years as stated inthe audit report. There is no relevance as some projects undertaken are finalized within the year and some areof longer duration. This is as per the requirements of the donor and the nature of the research project. Newprojects undertaken have increased in year 2005 as compared to year 2004 (38%). Therefore the finalizationof most of these new projects will be in year 2006 or after, especially considering that some of these newprojects undertaken may have commenced in the latter part of year 2005.4. Systems and ControlsManagement Response:(a) Fixed Asset RegisterThe Fixed Asset Register has been computerized from year 2002. All new assets are maintained and updatedin the month of purchase from year 2002.(b) Paid VouchersDetails required are input into the accounting system and printed on the voucher. All vouchers are authorizedin the computer system by the Director Finance and Administration. Without this authorization voucherscannot be posted in the system.All details wherever possible are attached onto the vouchers. For confidential purposes certain details cannotbe attached. Where details could not be attached the auditors were given the backing documentation (salaryand other confidential information).(c) Monthly Bank ReconciliationsThe staff strength in the finance department does not allow for the preparation of monthly bank reconciliations.The Assistant Accountant is the only person who is qualified to undertake this task. With the volume of workhandled by the Assistant Accountant, bank reconciliations are prepared once a quarter. The funding constraintfaced by the Institute does not allow for additional support services staff recruitments at this point of time.(d) Inventory RegistersAn inventory register is maintained for all stationery, IT consumables and cafeteria items such as tea, sugar,coffee etc. This is monitored periodically.54__________ Annual Report 2005

FinancialsBalance Sheet as at 31st December 2005Represented By :Notes 31.12.2005 31.12.2004Rs. Rs.Fixed Assets (2) 8,705,058 13,302,596Fixed Deposits (3) 164,956,006 91,505,702Current AssetsStaff Debtors 1,131,055 1,250,200Other Debtors (4) 10,283,663 2,728,878Deposits (5) 545,000 695,000Interest Receivable 1,757,786 2,927,034Pre-Payments (6) 3,915,986 3,698,541Cash/Bank (7) 18,149,385 67,284,54235,782,875 78,584,195Current LiabilitiesAccruals (8) 1,160,886 9,699,546Other Creditors (9) 801,232 2,607,308Deferred Income- IPS 16,763,118 7,323,141- IPS - HPP Unit 7,101,104 13,660,01525,826,341 33,290,010Net Current Assets 9,956,535 45,294,185Long term LiabilitiesRetirement Benefits 3,316,013 2,757,286Payable to Consortiums (10) - 12,783,500180,301,586 134,561,697Financed By :Assets Transferred 2,144,144 2,144,144Revenue Reserves 132,417,553 133,779,913Surplus / (Deficit) for the year 45,739,889 (1,362,360)180,301,586 134,561,697The notes to these accounts are annexed, signed for and on behalf of the Board.…………………………………) Executive Director25th April 200655__________ Annual Report 2005

FinancialsIncome & Expenditure Statement for the Year Ended31st December 2005IncomeNotes 2005 2004Rs.Rs.Grant from RoyalNetherlands Embassy 55,904,412 43,221,805Contribution from the Ministryof Finance and Planning 9,000,000 6,000,000Income on Research Projects 33,019,652 34,444,294Investment Income (11) 11,559,752 7,703,952Sales of Publications 917,739 815,736Miscellaneous Income 33,229 296,586Net Profit on Disposal of Assets 17,270 561,000Net Gain on Fluctuation of Exchange rates 328,705 2,309,762110,780,759 95,353,135Less: ExpenditureLocal Staff Salaries (12) 28,798,998 30,191,341Research Costs (13) 14,239,788 44,757,987Operational Costs (14) 21,732,900 21,766,167Institute of Social Studies 269,185 -65,040,870 96,715,495Income/(Loss) before Tax (15) 45,739,889 (1,362,360)Taxation - -Income/(Loss) after Tax 45,739,889 (1,362,360)Surplus / (Deficit) Brought Forward 132,417,554 133,180,455Prior year adjustment - 599,459Surplus / (Deficit) Carried Out 178,157,443 132,417,55456__________ Annual Report 2005

FinancialsCash Flow Statement for the Year Ended31st December 200531.12.2005 31.12.2004Rs. Rs.Income /(Expenditure) before tax 45,739,889 (1,362,360)Adjustments forDepreciation 5,455,696 5,216,596Provision for Gratuity 558,726 420,361Project Income - 221,357Profit/(loss) on Disposal of Plant, Equipment& Motor vehicles 66,804 -Operating Profit before Working Capital Charges 51,821,115 4,495,955Changes in Working Capital(Increase)/Decrease in Staff Receivables 119,145 (339,700)(Increase)/Decrease in Other Receivables (6,235,537) 19,618,977(Increase)/Decrease in Pre Payments (217,445) (150,244)Increase/(Decrease) in Other Payables 1,074,990 (5,968,356)Increase/(Decrease) in Accruals (8,538,660) 9,623,046Cash Flow from Operations (13,797,507) 22,783,724Income Tax Paid - -Net Cash Flow after Operating Activities 38,023,608 27,279,679Payable to Consortiums (12,783,500) 4,742,500Purchase of Property, Plant & Equipment (972,731) (2,118,118)Reclassification of Fixed Assets - -Sales proceeds from Disposal ofProperty, Plant & Equipment 47,770 -Net Cash Flow from Investing Activities (924,961) (2,118,118)Net Increase/(Decrease) in Cash &Cash Equivalents (Note) 24,315,147 29,904,061Cash & Cash Equivalents at thebeginning of the Period 158,790,244 128,886,183Cash & Cash Equivalents at the end of the Period 183,105,391 158,790,244NOTE 31.12.2005 31.12.2004 Changes inthe periodRs. Rs. Rs.Cash at Bank and in Hand 18,149,385 67,284,542 (49,135,157)Fixed Deposits 164,956,006 91,505,702 73,450,304183,105,391 158,790,244 24,315,14757__________ Annual Report 2005

FinancialsNotes to the Accounts as at 31st December 20051. Accounting Policies1.1 The financial statements have been prepared in accordance with generally acceptedaccounting principles and no adjustments have been made for the inflationary factorsaffecting the accounts.1.2 Fixed AssetsFixed assets are stated at cost less accumulated depreciation.Assets are depreciated on the Straight-line method using the following rates per annum:Computer Equipment - 33%Web Page Design - 33%Motor Cycle - 20%Furniture - 20%Office Equipment/Generator - 20%Motor Vehicles - 20%Lease-hold Improvements - 50%Library Books - 25%They are not depreciated in the year of purchase.1.3 Debtors are stated at the amount estimated to be realised.1.4 TaxationThe profits and the income of the Institute of Policy Studies are exempt from tax as persection 19 (4) of the Institute of Policy Studies of Sri Lanka Act No.53 of 1988 and section2 (3) (LIX) of the Inland Revenue (Amendment) Act No. 42 of 1990.1.5 Recognition of RevenueIncome is recognised only when realised. Therefore revenue is recorded at the end of aparticular phase and/or at the end of the project when research work is fully completed.58__________ Annual Report 2005

Financials__Notes to the Accounts as at 31st December 20052. Fixed AssetsCost Computer Motor Furniture Office Library Lease-hold TotalEquipment Vehicles & Fittings Equipment Books ImprovementsRs. Rs. Rs. Rs. Rs. Rs. Rs.Opening Balance as at01st January 2005 20,221,556 5,048,625 3,463,827 6,761,853 422,573 772,182 36,690,616Add: Additions 652,750 - 76,186 195,886 - 47,909 972,731Less: Disposals (1,393,888) - - - - - (1,393,888)Closing Balance as at31st December 2005 19,480,418 5,048,625 3,540,013 6,957,739 422,573 820,091 36,269,459Accumulated DepreciationOpening Balance as at01st January 2005 12,959,424 2,509,630 2,362,911 4,726,747 183,639 645,669 23,388,019Add: Depreciation chargefor 2005 3,596,458 745,000 308,438 624,967 115,814 65,019 5,455,696Less: Depreciation onDisposal (1,279,314) - - - - - (1,279,314)Closing Balance as at31st December 2005 15,276,567 3,254,630 2,671,349 5,351,714 299,453 710,688 27,564,401Written down value31st December 2005 4,203,851 1,793,995 868,664 1,606,024 123,120 109,403 8,705,058Written down value31st December 2004 7,262,133 2,538,995 1,100,916 2,035,105 238,934 126,513 13,302,596Note:The disposal of Computer Equipment was valued at historical cost prevailing at the time of purchase.The items were recommended for disposal by the IT Commitee & approved by the Executive Director..These items were not valued by an external valuer as the scrap value of these items did not justify doing so.3. Fixed Deposits 2005 2004Rs.Rs.Fixed Deposits 300,000 300,000Treasury Bonds 27,982,575 17,022,280Treasury Bills 11,188,574 71,714,585Treasury Bills - Gratuity Fund Investment 2,674,281 2,468,838Repo 122,810,577 -164,956,006 91,505,7024. Other Debtors 2005 2004Rs.Rs.Debtors 9,317,089 -Interest Suspense 168,159 302,686Other Advances 12,000 1,070,195Other Receivables 1,917,470 1,355,99711,414,718 2,728,878Cont’d ..........................59__________ Annual Report 2005

Financials__Notes to the Accounts as at 31st December 20055. Deposits 2005 2004Rs.Rs.Deposit on IPS Annex 200,000 200,000Deposit on IPS HO 200,000 200,000Deposit for Fuel 80,000 80,000Mobile phone - Roaming facility 60,000 60,000Deposit - Mr. Rohitha Fonseka - 150,000Deposit - American Premium Water 5,000 5,000545,000 695,0006. Pre-Payments 2005 2004Rs.Rs.Rent 3,274,750 3,035,000Vehicle Insurance 36,935 33,628Medical Insurance 513,225 519,612Other Insurance 91,076 110,3013,915,986 3,698,5417. Cash/Bank 2005 2004Rs.Rs.HSBC 1,674,705 20,608,984Commercial Bank 135,771 47,579Commercial Bank MIMAP 10 472Peoples Bank 27,182 23,107Citibank 52,906 1,040,407Peoples Bank PHR SAR HPP 160,639 160,639Citibank Euro 753,179 11,756,375Commercial Euro 11,264,806 7,124,754Peoples Bank USD 455,907 20,531,122Citibank USD 628,544 4,033,737Citibank GBP 508,176 -Commercial Debit Tax 2,450,561 1,902,367Petty cash IPS 36,999 35,000Petty cash HPP - 20,00018,149,385 67,284,5428. Accruals 2005 2004Rs.Rs.Audit fees 145,000 140,000Electricity 199,062 -Fuel 51,280 -Foliage 750 -Telephone/Internet Charges 563,833 371,476Training and Development 200,961 200,961Surcharges - IPS Staff - 140,750Consultations/surcharges - HPP Staff - 7,293,618Consultations - External HPP - 1,547,968Courier charges - HPP - 4,7731,160,886 9,699,5469. Other Creditors 2005 2004Rs.Rs.Creditors 733,852 2,051,660EPF/ETF Payable - 423,085Withholding Tax Payable 67,380 132,563801,232 2,607,30860__________ Annual Report 2005

Financials__Notes to the Accounts as at 31st December 200510. Payable to Consortiums 2005 2004Rs.Rs.Health Policy Programme736 - APNHAN escrow account - 2,150,000735 - APNHAN escrow account - 300,000926 - Mongolia NHA Project - 500,000932 - Regional Res Ini on Soc Protection - 3,000,000925 - World Bank Kyrgz - 1,833,500916 - Rockefeller Foundation - 5,000,000- 12,783,500Note: These items consist of amounts payable to other countries on the above grants.11. Investment Income 2005 2004Rs.Rs.Interest Income - 115,468Savings Account Interest 820,271 982,209Investment Income 10,739,482 6,606,27511,559,752 7,703,95212. Local Staff Salaries 2005 2004Rs.Rs.Salary 27,721,487 28,388,166Medical 534,662 449,433Retirement Benefits 457,033 656,700Other 85,816 697,04128,798,998 30,191,34113. Research Costs 2005 2004Rs.Rs.Research Papers 7,794 2,767,717Printing & Publication Cost 2,126,336 1,297,915Consultancy fees 5,511,664 28,296,515Professorial Chair 197,794 496,195Data Entry Operators 30,100 26,025Doc: data retr & Libr: 413,141 856,724Seminars/Workshops 1,078,893 363,442Networking 125,577 265,870Staff Travel 2,075,567 7,340,207Data & Survey Cost 290,030 931,915Internet Costs/Website costs and IT other 2,382,893 2,115,46214,239,788 44,757,98714. Operational Costs 2005 2004Rs.Rs.Depreciation 5,455,696 5,216,596Consumables 645,061 914,225Office Costs 3,732,777 4,002,031Rent & Office Maintenance 11,899,366 11,633,31521,732,900 21,766,16715. Total income in year 2005 increased by 16% & expenses decreased by 33% respectively in comparison to year 2004. Theincreased income in 2005 is mainly due to the increased funding by the Dutch Govt. & GOSL. The main attribute for thedrop in expenses is due to the closure of HPP unit, resulting in reduced research & consultancy costs.Glossary of Financial TermsAccounting PoliciesSpecific principles, bases, conventions, rules & practices adopted by an enterprise in preparing & presenting FinancialStatements.Deferred IncomeThe income on incomplete projects deferred in the Balance Sheet to be recognised as income over the period of projects.Revenue ReservesReserves considered as being available for distribution & investments.61__________ Annual Report 2005

Two Decades at a Glance 1985 -20051985198919911985 - 1996• IPS Project located inthe Ministry of Financeand Planning with aResident Coordinatorfrom the ISS, TheHague, with fundingunder Phase I of SriLanka-NetherlandsTechnical Cooperationproject1988• IPS established underAct of Parliament No.53 of 1988• Appointment of theExecutive Director andBoard of Governors• Office premises shiftedto the DFCC Building,Colombo 31990• IPS comes into formaloperation under theMinistry of Financeand Planning byGazette Notification inApril• Commencement of IPSPhase II funding• Appointment of a newResident Coordinator1992• Initiation of the IPSState of the EconomyReport• Initiation ofmacroeconomic database1997199920011997 - 2005• Commencement of IPSPhase III funding• Introduction of the IPSAnnual Report• Appointed as the focalpoint of the IOR-ARCacademic group in SriLanka• Appointed as theMIMAP project partnerin Sri Lanka1998• Introduction of amonthly Book Reviewseries• Initiation of aProfessorial Chair• Appointed as the focalpoint of the SAARCResearch Network• Donation of land by theGovernment of SriLanka for constructionof the IPS Head Office• Amendment to the IPSAct• Endowment Fund Trustcomes into operation• Resident Coordinatorposition abolished inAugust2000• Launch of the SouthAsia Economic Journal,an international journaljointly with RIS India• Partner Institution inSri Lanka for the SouthAsia Centre for PolicyStudies (SACEPS)• IPS placed underMinistry of IndustrialDevelopment byGazette Notificaiton inAugust• Commencement of IPSPhase IV Operation• Core ResearchProgramme andResearch Units comeinto Operation• Creation of newposition of Director-Administration andCorporate Affairs anddecentralization ofadministrationfunctions• IPS placed underMinistry of PolicyDevelopment andImplementation byGazette Notification inDecember• IPS public websitelaunched• IPS library intranetservices launched

Two Decades at a Glance 1985 - 20051993• Initiation of the IPSEndowment Fund• Introduction of theSenior Visiting Fellowand Project Internshipprogrammes1994• Office premisesrelocated to St.Michael’s Road,Colombo 3• Appointment of a newExecutive Director inDecember1995• Introduction of a policyinput-oriented monthlypublic seminarprogramme, andmonthly in-houseseminar programme• Initiation of projectwork• Initiation of IPS HealthPolicy Programme as anindependent pilotproject• Introduction of aManual of Operations• First contribution to theEndowment Fund ofC$ 1 million from theGovernment of Canada1996• First ExternalEvaluation of the IPS• MOUs with foreignuniversities forexchange programesinitiated2002• Creation of thePublications andCommunications Unitand initiation of inhousedesktoppublishing• Production of SriLanka National HealthAccounts• Initiation of in-houseweb developmentactivities2003• Creation of theInformation SystemsUnit• Launch of redesignedIPS public website2004• Initiation of an intranetIPS Corporate Websiteand increasing the IPSIntranet Bandwidth to512 kbps• IPS placed under theMinistry of AdvancedTechnology andNational EnterpriseDevelopment byGazette Notification inNovember2005• Creation of newposition of DeputyDirector• Initiated translation ofIPS publications intoSinhala and Tamillanguages• Compilation of inputoutputtables for SriLanka• IPS placed under theMinistry of PlanImplementation byGazette Notification inDecember