The World Bank's recent semi-annual update indicates that Sri Lanka's economy is set to experience a modest growth rate of 2.2% in 2...
The World Bank's recent semi-annual update indicates that Sri Lanka's economy is set to experience a modest growth rate of 2.2% in 2024, marking a stabilization phase after the profound economic challenges faced in 2022. Despite these positive indicators, the country grapples with persistent issues such as high poverty rates, income disparity, and labor market issues.
The Sri Lanka Development Update highlights several positive economic developments, including a decrease in inflation, increased revenue due to new fiscal measures, and the country's first current account surplus in nearly 50 years. This improvement can be attributed to rising remittances and a resurgence in tourism.
Nevertheless, poverty levels have continued to climb for the fourth consecutive year, with an estimated 25.9% of the population living below the poverty threshold in 2023. There has also been a noticeable decline in labor force participation, especially among women and in urban regions, worsened by the shuttering of micro, small, and medium-sized enterprises (MSMEs). Many households face challenges due to elevated prices, reduced income, and inadequate employment opportunities, leading them to accumulate debt to sustain basic needs and essential services like healthcare and education.
Faris Hadad-Zervos, the World Bank Country Director for Maldives, Nepal, and Sri Lanka, emphasized the importance of continued efforts to alleviate the economic hardships faced by the vulnerable segments of society. He highlighted the need for a dual-focused approach: maintaining macroeconomic stability through ongoing reforms and accelerating measures to promote private investment and attract capital inflows, which are vital for economic expansion and poverty alleviation.
Looking ahead, the report anticipates a slight uptick in economic growth to 2.5% in 2025, accompanied by a gradual rise in inflation and a modest current account surplus. However, the country's fiscal balance is expected to be strained due to high debt servicing obligations. The poverty rate is projected to remain above 22% until 2026. Various risks persist, including challenges related to debt restructuring, potential rollbacks of reforms, vulnerabilities in the financial sector, and the lasting repercussions of the economic crisis. The report underscores the critical importance of robust reform implementation to build a resilient economy, focusing on sustaining macroeconomic, fiscal, and financial stability, promoting private sector investment, and managing risks associated with state-owned enterprises.
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