Sri Lanka’s growth strong but uneven, warns World Bank

Colombo, Oct. 7 (Daily Mirror) - Sri Lanka’s recent economic performance has shown strong progress, but the country’s recovery remains incomplete, with growth still lagging behind pre-crisis levels and poverty remaining significantly high, according to the latest Sri Lanka Development Update released by the World Bank today.

Titled Better Spending for All, the report projects Sri Lanka’s economy to grow by 4.6 percent in 2025, supported by a modest rebound in industry and steady growth in services, before easing to 3.5 percent in 2026. However, it cautions that this outlook faces elevated risks due to global economic uncertainty.

“While Sri Lanka’s recent economic progress is encouraging, the recovery is uneven and incomplete,” said David Sislen, World Bank Division Director for Maldives, Nepal, and Sri Lanka. “To build a stronger, fairer economy that benefits all households, in a fiscally constrained environment, Sri Lanka needs the private sector to invest and create jobs — and ensure that every rupee of public money is well-spent.”

The report notes that although inflation remains low and external inflows are strong, food prices continue to stay high and foreign reserve accumulation has slowed. Economic output remains below 2018 levels, while poverty, though declining, is still twice as high as in 2019. The labor market recovery has been sluggish, with many households yet to regain the livelihoods lost during the economic crisis. The report adds that another 10 percent of the population lives just above the poverty line, with malnutrition persisting as a serious issue, particularly among vulnerable communities.

To sustain growth and alleviate poverty amid fiscal constraints, the World Bank calls for urgent structural reforms aimed at enabling private sector–led growth. These include removing barriers to trade and investment, improving the business environment, and modernizing tax administration as well as land and labor market regulations.

A major focus of the report is improving the efficiency of public spending. Over 80 percent of government expenditure currently goes toward public sector salaries, welfare programs, and interest payments, leaving limited room for essential investments in infrastructure, education, and health.

While acknowledging that Sri Lanka has little room to either expand or drastically cut public expenditure, the World Bank suggests that the government should maximize the effectiveness of existing spending, particularly on public wages and capital projects.

Key recommendations include reforming the public wage bill through fairer pay structures and modern payroll systems, and focusing public investment on closing critical infrastructure gaps. The report also urges the government to strengthen project planning, evaluation, and monitoring processes, prioritize the completion of near-finished projects, and allocate more resources to maintaining existing infrastructure.

The World Bank emphasizes that sustained macroeconomic stability, stronger governance, and efficient resource use will be crucial for Sri Lanka to achieve a durable and inclusive economic recovery.