World Bank says Sri Lanka’s economic recovery incomplete; poverty levels still high

• WB continues to emphasise that increase in poverty has been a major challenge for Sri Lanka
• About one-third of population currently living in or at risk of poverty 

By Shannine Daniel 

Despite Sri Lanka’s recent strong economic performance, the country’s poverty levels remain significantly high, according to the World Bank’s latest development update, Better Spending for All.

The report notes that although Sri Lanka has experienced robust economic growth, low inflation and strong external inflows, the food prices have remained high. Poverty, while declining, is still twice as high as it was in 2019.

The World Bank projected a decline in the poverty rate from last year’s 24.9 percent to 22.4 percent this year, supported by economic growth, higher wages and low inflation, even though the food prices are expected to remain elevated.

However, the report highlights that vulnerability to falling into poverty remains high, with a further 10 percent of the population living just above the poverty line.

The World Bank also expects transport and energy-driven deflationary conditions to have a positive impact on the households by reducing non-food costs. It stated that lower energy costs are likely to benefit poorer households more, while lower transport and oil prices are expected to have a larger impact on higher-income households.

There is also a possibility of positive spillover effects for workers through higher wages, if lower prices translate into reduced production costs.

Nevertheless, the continued rise in food prices poses further challenges, as lower-income households allocate roughly three times more of their expenditure to food compared to wealthier households and food insecurity remains elevated.

Despite some improvements, the World Bank noted that Sri Lanka’s economic crisis is expected to have reversed a decade of progress in both monetary and non-monetary poverty alleviation.

It also highlighted that limited affordability of essential goods and public services, caused by inflationary pressures in the health and education sectors, is particularly concerning in an environment that had seen gains in human capital since the end of the ethnic conflict.

More importantly, the World Bank emphasised that the international poverty rate, which stood at about 20 percent in 2012-13, is likely to remain at higher levels until 2027.

Other poverty indicators show similar setbacks: in 2024, 17 percent of children under five were underweight and stunting rates among young children have continued to rise.

The latest official poverty rate for Sri Lanka is based on the 2019 Household Income and Expenditure Survey and results in a poverty rate of 14.3 percent when calculated at the national poverty line of Rs.6,966.

The Sri Lanka Development Update is a companion piece to the South Asia Development Update, a twice-yearly World Bank report that examines the economic developments and prospects in the South Asia region and analyses the policy challenges countries face.