World Bank Country Director for Sri Lanka and Maldives Naoko Ishii says the government is not only serious about containing high budget deficits but was vigorously looking at redefining its role as facilitator to private sector led economic growth.

The peace dividend alone is expected to boost Sri Lanka’s economy by a further 2 percent and Ishii said this could easily be achieved with the right policies in place.

"I have been in Sri Lanka for a long time and I witnessed the cost of the conflict imposed on Sri Lanka’s economic development, not only in terms of physical costs to infrastructure and capital, but also in terms of human resources, where committed people left the country which was a huge loss," Ishii said, addressing the media at the launch of a World Bank report titled ‘South Asia Economic Update: Moving Up, Looking East.

Ishii said: "Even the mindset of Sri Lankans about long term prospects was not very good. But now I see a clear change. People are more forward looking, not only the private sector but the public sector as well.

The public sector is vigorously discussing the role of the State, and this is very important. The government is not only showing interest in reducing the budget deficit but is trying to understand the role of the private sector and public sector in economic development.

"The effort the government is taking is significant. I have never seen anything like this for the four years I have been in Sri Lanka," Ishii said.

She said the government was also exploring ways in which to improve its ranking in the World Bank Doing Business Report. Sri Lanka fell to 105th position from 183 countries in 2010 from 97 in 2009.

The World Bank says Sri Lanka’s economy is going through a post-conflict bounce. The economy is projected to grow by 6 percent this year and 2 percent of this is due to the peace dividend.

Given the positive change in attitude of the public sector, Ishii said 2 percent would easily come.

She said, however, governance would remain a challenge.

"Giving the people of the North and East a voice will not happen overnight. I think the government’s intension of holding provincial council elections in the region is the first step and a step in the right direction," Ishii said.

Last month Central Bank said the government would have to be mindful when planning ahead as its financial operations have a profound impact on the rest of the economy, especially when recurrent expenditure was 125.2 percent of revenue in 2009.

It said the government was usually the single largest consumer in an economy and its fiscal operations have an impact on a country’s economy; The thirty year conflict and the global financial crisis which affected Sri Lanka in 2009 did not make things easy, but stressed the government would have to be conscious of its economic size.

In Sri Lanka, the government contributes 22.8 percent to the total economy, which was a little more than Rs. 4.8 trillion last year, with the private sector accounting for the rest. About 27 percent of total investments are made by the government while it accounts for 21.5 percent of consumption.

The government does not save and the private sector has to make up for this. While the private sector accounts for 120.6 percent of all savings in Sri Lanka, the government’s contribution is -20.6 percent.

The government consumes 33.5 percent of all domestic credit and employs 15.5 percent of the workforce, while the private sector holds 84.5 percent of the domestic credit stock and employs 84.5 percent of the county’s workforce, which includes employers, self employed and unpaid family workers.