Sri Lanka's growth strong but recovery remains uneven: World Bank

Sri Lanka’s recent economic rebound has been strong but remains incomplete, with growth still below pre-crisis levels and poverty significantly elevated, the World Bank said in its latest Sri Lanka Development Update – Better Spending for All.

The report projects the economy to expand by 4.6 per cent in 2025, supported by an industrial rebound and steady services growth, before moderating to 3.5 per cent in 2026.

Despite low inflation and robust external inflows, reserves have slowed, and economic output is still below 2018 levels. Although poverty is declining, it remains double that of 2019, with around 10 per cent of the population living just above the poverty line. 

The report calls for urgent reforms to strengthen the recovery — including easing trade and investment barriers, improving the business environment, modernising tax administration, and reforming land and labour regulations to foster private sector-led growth.

Public spending efficiency remains a major challenge, as over 80 per cent of government expenditure goes to public sector salaries, welfare, and interest payments, leaving limited fiscal room for infrastructure, health, and education.

The World Bank urged Sri Lanka to reform its wage bill with fairer pay structures and modern payroll systems and to prioritise investment in key infrastructure gaps, project completion, and maintenance funding.

The report accompanies the South Asia Development Update – Jobs, AI, and Trade, which projects regional growth at 6.6 per cent in 2025 but speaks of a slowdown ahead. It emphasises that greater trade openness and AI adoption could help South Asian economies, including Sri Lanka, boost job creation and sustainable growth.

“While Sri Lanka’s recent economic progress is encouraging, the recovery is uneven and incomplete. 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,” said David Sislen, World Bank division director for Maldives, Nepal, and Sri Lanka.

ALCHEMPro News Desk (HU)