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Sri Lanka’s Economy Shows Signs of Stabilization with Projected 2.2% Growth in 2024

The World Bank’s latest bi-annual update, titled “Sri Lanka Development Update, Bridge to Recovery,” released today, underscores a moderate growth projection of 2.2% for Sri Lanka’s economy in 2024. This growth trajectory indicates a shift towards stabilization following the severe economic downturn experienced in 2022. However, the report highlights persistent challenges such as elevated poverty levels, income inequality, and labor market concerns.

Notable improvements include declining inflation, increased revenues due to the implementation of new fiscal policies, and a current account surplus for the first time in nearly five decades. These positive trends are attributed to factors such as heightened remittances and a resurgence in tourism.

Despite these gains, poverty rates have continued to rise for the fourth consecutive year, with an estimated 25.9% of Sri Lankans living below the poverty line in 2023. Moreover, labor force participation, especially among women and in urban areas, has declined, exacerbated by the closure of micro, small, and medium-sized enterprises (MSMEs). Households are facing mounting pressures from high prices, income losses, and underemployment, leading to increased debt burdens for meeting basic needs and sustaining expenditures on health and education.

Faris Hadad-Zervos, World Bank Country Director for Maldives, Nepal, and Sri Lanka, emphasized the need for sustained efforts to mitigate the impact of the economic crisis on the vulnerable segments of society. He stressed the importance of continuing robust and credible structural reforms to maintain macroeconomic stability and stimulate private investment, essential for economic growth and poverty alleviation.

Looking ahead, the report projects a modest growth pickup of 2.5% in 2025, alongside gradual inflation increases and a small current account surplus. However, high debt service obligations are expected to strain fiscal balances, with poverty rates anticipated to remain above 22% until 2026. The report identifies various risks to the outlook, including inadequate debt restructuring, reversal of reforms, financial sector vulnerabilities, and persistent crisis impacts. Strong reform implementation is deemed fundamental for fostering a resilient economy through sustained macro-fiscal-financial stability, increased private sector investment, and mitigation of risks associated with state-owned enterprises.

The Sri Lanka Development Update is complemented by the South Asia Development Update, which projects the region to remain the fastest-growing globally, driven primarily by India’s robust growth and recoveries in Pakistan and Sri Lanka. However, the report warns that growth remains below pre-pandemic levels in most countries, relying heavily on public spending, while private investment growth has significantly slowed. Urgent policy interventions are recommended to stimulate firm growth, enhance employment opportunities, boost productivity, and create space for public investments in climate adaptation.

Source: World Bank, Poverty & Equity and Macroeconomics, Trade & Investment Global Practices. Emissions data sourced from CAIT and OECD.

Notes: e = estimate, f = forecast.

(a)    Components of GDP by expenditure for 2020-2022 are estimates, as the data published on March 15, 2024, by authorities only included GDP by production.

(b)    Calculations based on SAR-POV harmonization, using 2019-HIES. Actual data: 2019. Microsimulation that models sectoral GDP growth rates, inflation, remittances, employment, and cash transfers 2020-2022. Nowcast and forecast (2023-2026) use nominal GDP growth rates by sector and CPI inflation.


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