Sri Lanka's economy has demonstrated robust recovery in 2024, achieving a growth rate of 5 percent, which surpasses the previously projected 4.4 percent, according to the World Bank. This recovery is attributed to strong performances within its industry and services sectors, notably construction and tourism-related services. However, the World Bank anticipates a moderation in growth to 3.5 percent in 2025, influenced by ongoing global challenges and persistent trade policy uncertainties.
In the report released today, the World Bank's bi-annual Sri Lanka Development Update, titled "Staying on Track," points out that despite positive economic indicators, significant challenges endure. The report highlights that a considerable segment of the Sri Lankan population still struggles financially, with household incomes, employment, and overall welfare remaining below pre-crisis levels. Moreover, the poverty rate alarmingly held at 24.5 percent in 2024, and the labor market's difficulties have spurred increased emigration.
"While Sri Lanka's economy is bouncing back stronger than expected, a significant portion of the population—about a third—remains in poverty or is at risk of falling back into poverty," said David Sislen, World Bank Division Director for Maldives, Nepal, and Sri Lanka. "To ensure this recovery works for everyone, especially those who have been hit hardest, Sri Lanka can focus on policies that create jobs and support the poor."
The report emphasizes that sustaining medium-term growth and poverty reduction requires maintaining macroeconomic stability and executing pivotal structural reforms in an uncertain global context. The World Bank projects a growth rate of approximately 3.1 percent for Sri Lanka in 2026. Achieving a higher growth trajectory is deemed critical, necessitating successful implementation of reforms aimed at enhancing trade, investment, competition, and female labor force participation to benefit all Sri Lankans. The World Bank further stresses the necessity for policy reforms to foster macro-fiscal and financial stability, boost competitiveness, increase productivity, and expand job opportunities.
The Sri Lanka Development Update is a companion to the South Asia Development Update, an annual publication by the World Bank assessing economic progress and challenges in the South Asia region. The April 2025 edition, titled "Taxing Times," forecasts a regional growth slowdown to 5.8 percent in 2025, which is 0.4 percentage points below previous October projections. The growth rate is expected to rise to 6.1 percent in 2026. This outlook is subject to enhanced risks stemming from global uncertainties and domestic vulnerabilities, such as constrained fiscal space. The report analyzes domestic resource mobilization, noting that despite higher tax rates, the region's tax revenues remain lower than average in emerging markets and developing economies. It provides recommendations on addressing inefficiencies in tax policy and administration to bolster revenues and resilience amid challenging global economic conditions.