Poverty rates continued to rise for the fourth year in a row, with an estimated 25.9 per cent of Sri Lankans living below the poverty line in 2023. Labour force participation has also seen a decline.
The World Bank has underlined the need for Sri Lanka to maintain stability and continue on the reform path following the severe economic downturn of 2022. But, the country still faces elevated poverty levels, income inequality, and labour market concerns, says the World Bank’s latest bi-annual update. Senior officials of the Bank said that despite the narrow recovery path, Sri Lanka’s economy has stabilised for now.
This was contained in the World Bank’s April 2024 Sri Lanka Development Update. It projected the growth of 2024 at 2.2 per cent up from 1.7 per cent projected last year and 2.5 per cent for 2025.
Released on Tuesday, the Sri Lanka Development Update, Bridge to Recovery, highlights that Sri Lanka saw declining inflation, higher revenues on the back of the implementation of new fiscal policies, and a current account surplus for the first time in nearly five decades, buoyed by increased remittances and a rebound in tourism.
“Looking forward, the report projects a modest pickup in growth of 2.5 per cent in 2025, with a gradual increase in inflation and a small current account surplus,” the World Bank press release said, adding that however, high debt service obligations are expected to exert pressure on fiscal balances. “Poverty rates are anticipated to remain above 22 per cent until 2026,” it added, saying that risks to the outlook remain, particularly related to inadequate debt restructuring, reversal of reforms, financial sector vulnerabilities, and the enduring impact of the crisis.
“Sri Lanka’s economy has stabilized and it was essential for stability and reforms to continue,” Sri Lanka Country Manager of the Bank, Chiyo Kanda, told reporters.
Multiple pressures
Sri Lanka’s inflation was low, interest rates were falling and the rupee was appreciating, said the World Bank’s Senior Country Economist Richard Walker, adding that results were already beginning to be seen. Yet, he cautioned that there was unlikely to be a quick bounce back.
However, poverty rates continued to rise for the fourth year in a row, with an estimated 25.9 per cent of Sri Lankans living below the poverty line in 2023. Labour force participation has also seen a decline, particularly among women and in urban areas, exacerbated by the closure of micro, small, and medium-sized enterprises. Households are grappling with multiple pressures from high prices, income losses, and under employment. This has led to households taking on debt to meet food requirements and maintain spending on health and education.
“Sri Lanka’s economy is on the road to recovery, but sustained efforts to mitigate the impact of the economic crisis on the poor and vulnerable are critical, alongside a continuation of the path of robust and credible structural reforms,” emphasized Faris Hadad-Zervos, World Bank Country Director for Sri Lanka. “This involves a two-pronged strategy: first, to maintain reforms that contribute to macroeconomic stability and second, to accelerate reforms to stimulate private investment and capital inflows, which are crucial for economic growth and poverty reduction.” The report emphasizes that strong reform implementation will be fundamental to fostering a resilient economy through continued macro-fiscal-financial stability, greater private sector investment, and addressing risks associated with state-owned enterprises.
