Overall Assessment and Conclusions

For Sri Lanka, facing a major natural disaster and coping with the subsequent reconstruction and recovery needs has been a unique experience. In the circumstances, the initial relief effort can be considered a success. An unusually large amount of aid, from a very large number of organizations, arrived in a very short time. Also, a large proportion of aid flowed through individual, private, and nongovernment organisation hands instead of through the traditional donor agencies or the United Nations. This facilitated rapid relief and early initiation of reconstruction activities, but also raised issues of coordination and aid absorption, and posed some unique challenges. The problems and issues that emerged included:

• Problems related to the absorptive capacity of government and households
• Very high transaction costs and major coordination problems caused by a large number of donor organizations
• Rapid increases in demand for labour and raw materials leading to construction cost escalation
• Excessive focus on the quantity of aid disbursement that undermined the effectiveness of aid (e.g., mal-distribution, poor quality fishing boats, etc.)
• Lack of adequate local capacity to provide the information necessary for effective coordination and monitoring of aid distribution
• Lack of clear and transparent information-sharing mechanisms between various governmental and non-governmental agents
and
• Differences in levels of assistance provided to tsunami-affected households and conflict-affected households in the North and the East.

It must also be pointed out that many initial fears about a range of likely problems either proved to be not well founded or were resolved effectively. In particular, large-scale corruption did not become a major problem, perhaps because the reconstruction did not involve large-scale infrastructure projects. Cases of petty corruption were recorded, such as officials abusing discretionary powers (for example, determining eligibility for different types of housing aid and cash grants). In several such cases the government took disciplinary action. There were also fears that large-scale imports of food as aid would depress domestic producer prices and hurt farmers. But the government ensured that new food purchases by the World Food Programme were domestically sourced to help farmers recover and maintain rural incomes. However, the problems with tsunami aid allocation and distribution have aggravated regional disparities and perceptions of regional/ethnic bias in policy.

There is no doubt that, at the initial relief stage, what is most important is to ensure delivery of basic food, clothing, medicines, and shelter. But aid in kind may not be the most effective mode of assistance later, when markets and links with the rest of the economy have been re-established. Substantial amounts of aid in kind provided later were wasted because they did not meet the requirements or the preferences of the affected households. In contrast, cash grants allow households the flexibility to spend on goods and services they actually desire.

Another issue is whether assistance should be narrowly targeted to the “most needy” groups only, or provided to all affected people. The beneficiary lists drawn up by government agencies not only delayed distribution of grants, but also appeared to be an inefficient, corruption-prone process. In principle, systems can be created where the most needy “self select,” and these can work fairly effectively in some circumstances. But it is not clear that the savings made justify the costs in delays, the incentives for corruption, and the likelihood that some truly needy groups miss out altogether.

A major challenge is to devise appropriate administrative mechanisms to ensure effective cooperation and coordination between central government and local agencies, and to ensure that central coordination does not end up stifling local initiatives. Decisionmaking in disaster situations requires a complex balance of roles between the central government and the locally-affected areas, and the central government must be responsive to the concerns and feedback from local agents. Sri Lanka initially tended to have an overly centralized system, and there were concerns that local governments were not given enough freedom to make decisions and implement them. Also, the central government seemed to have rushed to establish new institutions specifically to deal with tsunami-related aid distribution, ignoring or bypassing existing institutions, resulting in the reduced effectiveness of reconstruction efforts.

The aftermath of the tsunami disaster also raised issues of macroeconomic management that have relevance for any country affected by a major disaster. Sri Lanka was faced with the challenge of absorbing a large, but necessarily temporary, inflow of foreign funds. In itself this is a complex and difficult task. But the task was made even more difficult by the need to direct those funds efficiently to emergency relief, and then to rehabilitation and reconstruction of damaged assets and infrastructure. The initial assumption that foreign financing was more than adequate for reconstruction was quickly dispelled as the large-scale reconstruction programme quickly raised demand for construction inputs that produced steep increases in construction costs. In turn, this produced funding gaps that had to be filled either by the government—widening the already larger fiscal deficit—or by additional foreign assistance. Arguably, the institutional weaknesses and political factors that slowed absorption of foreign assistance may have helped to restrain such cost increases, thereby allowing a larger share of tsunami expenditures to be effective in asset rehabilitation rather than be captured by construction input owners. Sri Lanka’s experience highlights the need for factoring in such cost increases when assessing needs following major disasters, and the need for formulation of a phased programme of reconstruction which takes into account the supply side constraints on construction inputs.

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