World Bank: Sri Lanka's Economic Recovery Strong but Incomplete, Urgent Reforms Needed Amid High Poverty

World Bank Assesses Sri Lanka's Economic Landscape

Colombo, Sri Lanka – The World Bank has released its latest assessment of Sri Lanka's economy, highlighting a robust yet unfinished recovery. In its 'Sri Lanka Development Update – Better Spending for All' report, published on October 7, 2025, the institution emphasized that while economic performance has been strong, significant challenges persist, particularly concerning elevated poverty levels, necessitating urgent structural reforms.

David Sislen, World Bank Division Director for Maldives, Nepal, and Sri Lanka, stated, 'While Sri Lanka's recent economic progress is encouraging, the recovery is uneven and incomplete.'

Economic Progress and Lingering Challenges

Sri Lanka's economy is projected to grow by 4.6 percent in 2025, supported by a modest rebound in industry and steady growth in services, before moderating to 3.5 percent in 2026. Despite this positive trajectory, the country's economic output remains below 2018 levels. The report notes that while inflation is low and external inflows are robust, food prices continue to be high, and the accumulation of reserves has slowed. The World Bank underscored that the recovery remains fragile and dependent on the country's ability to implement deep and sustained reforms.

Persistent Poverty and Social Vulnerability

A critical concern highlighted by the World Bank is the stubbornly high poverty rate, which remains approximately twice as high as in 2019. Poverty levels are projected to decrease from 24.9 percent in 2024 to 22.3 percent in 2025, based on the $3.65 per person per day (2021 PPP) threshold. Furthermore, an additional 10 percent of the population lives just above the poverty line, making them highly vulnerable to economic shocks. The labor market has been slow to recover, with many households yet to regain livelihoods lost during the 2022 crisis, and malnutrition remains a serious issue, particularly among vulnerable groups.

Call for Urgent Structural Reforms

To foster long-term growth and reduce poverty, the World Bank has called for a comprehensive package of structural reforms. Key recommendations include:

• Strengthening macroeconomic stability.
• Implementing more efficient and better-targeted public spending, moving towards 'Better Spending for All.'
• Enabling private sector-led growth by removing barriers to trade and investment, improving the business environment, and modernizing tax administration.
• Reforming the public wage bill to ensure fairer pay structures and modern payroll systems.
• Prioritizing investment in critical infrastructure gaps, ensuring project completion, and increasing funding for maintenance.
• Modernizing regulations governing land and labor markets.

Gevorg Sargsyan, World Bank Country Manager for Sri Lanka and the Maldives, emphasized, 'Sri Lanka must remove barriers to trade, improve the investment climate, and make it easier for businesses to grow and create jobs.' The report underscores that without these reforms, growth is likely to remain consumption-driven, with limited new investment or export expansion, and the benefits of recovery may not reach everyone.