Sri Lankan economy improving but poverty continues to surge: World Bank

Colombo: Sri Lanka’s bankrupt economy is on the recovery path but the poverty rates have continued to rise for the fourth year in a row, a report released by the World Bank said on Tuesday.

The World Bank’s bi-annual report said that the cash-strapped Sri Lankan economy is projected to see moderate growth of 2.2 per cent in 2024.

“Sri Lanka’s economy is on the road to recovery but sustained efforts to mitigate the impact of the economic crisis on the poor and vulnerable are critical, alongside a continuation of the path of robust and credible structural reforms,” the report quoted Faris Hadad-Zervos, World Bank Country Director for Sri Lanka, as saying.

The report says an estimated 25.9 per cent of Sri Lankans were living below the poverty line in 2023.

“Sri Lanka in April of 2022 declared its sovereign default with the economy recording a negative growth of over 10 per cent. Only 11.3 per cent of the population were below the poverty line in 2019, prior to the economic crisis of 2022,” said the report.

The economy is projected to see moderate growth of 2.2 per cent in 2024, the report says adding that expected high debt service obligations are expected to exert pressure on fiscal balances.

“Poverty rates are anticipated to remain above 22 per cent until 2026. Risks to the outlook remain particularly related to inadequate debt restructuring reversal of reforms, financial sector vulnerabilities and the enduring impact of the crisis”.

Sri Lanka, since its negotiations for the IMF bail-out began in 2022, has been engaging with external creditors for the restructuring of USD 46 billion of debt.

The IMF expects agreements with the creditors to meet the 2.9 billion dollar 4-year facility’s program targets to be finalized by June This year ending protracted talks.

Sri Lanka in the second quarter of 2022 declared bankruptcy announcing the island’s first-ever sovereign default.

The IMF under its bailout facility over 4 years has compelled Sri Lanka to set in hard reforms to revive its bankrupt economy.

Total Central Government external debt as of the end of December 2023 amounted to USD 37.3 billion, according to the Ministry of Finance.