26 April 2022 04:38 am
By Shabiya Ali Ahlam
The poverty rate in Sri Lanka will witness further increase in 2022, as the country’s economic crisis worsens.
The World Bank (WB) in its Spring Update on the South Asian region said that the poverty rate in Sri Lanka would increase to 11.7 percent in 2022, compared to 10 percent in 2019.
The increase in poverty rates is expected amid import compression and investor uncertainty, due to high debt levels.
Due to the COVID-19 pandemic, the economy contracted by 3.6 percent in 2020, raising the US $ 3.20 poverty rate to an estimated 11.7 percent.
The US $ 3.20 poverty rate is estimated to have slightly declined to 10.9 percent in 2021, still above the pre-pandemic levels, the WB said.
The World Bank’s April 2022 update of Macro Poverty Outlook for Sri Lanka asserted that the heightened fiscal and external risks as well as the challenging political situation pose significant uncertainty to the economic outlook and the country faces an external financing gap in 2022 and beyond.
“Sri Lanka needs to address the structural sources of its vulnerabilities. This would require reducing fiscal deficits especially through strengthening domestic revenue mobilisation,” the World Bank said. While fiscal consolidation needs to be accompanied by tighter monetary policy to contain pressures on inflation, the global development lender said the island nation also needs to find feasible options to restore debt sustainability.
“The financial sector needs to be carefully monitored amid high exposure to the public sector and the impact of the recent currency depreciation on banks’ balance sheets,” it added.
The necessary adjustments may adversely affect growth and impact poverty initially but will correct the significant imbalances, subsequently providing the foundation for stronger and sustainable growth and access to international financial markets. The World Bank asserted that mitigating the impacts on the poor and vulnerable would remain critical.