Sri Lanka recovering but poverty enduring

Crisis-hit Sri Lanka will return to growth this year, the World Bank said on Tuesday, but around a quarter of the country’s citizens will remain living in poverty.

The Indian Ocean island nation was hammered by its worst-ever economic crisis in 2022, when it ran out of foreign exchange and protests over the resulting shortages of food, fuel and pharmaceuticals forced its president to resign.

Sri Lanka’s economy shrank by 7.3% that year, followed by another contraction of 2.3% in 2023.

But in a new report the World Bank said Sri Lanka’s GDP was expected to stabilise this year, projecting growth of 2.2%.

Even so, the bank warned that the recovery would make little difference for many of those who were still suffering from the crisis.

More than 5.5 million Sri Lankans – or a quarter of the country’s population of the 22 million – were living below the poverty line of US$3.65 (RM17.35) a day, the World Bank said. That compared to 11.3% in 2019.

“The modest economic recovery will be insufficient to reverse welfare losses experienced during the crisis,” the bank said, estimated poverty would stay above 22% until 2026.

Utility price rises and government revenue measures meant household budgets would “remain stressed”, it added.

The bank warned that Sri Lanka must carry out a “deep debt restructuring” and restore its access to international financial markets, blocked since it defaulted on its US$46 billion foreign debt in April 2022.

Colombo secured a US$2.9 billion IMF bailout early last year after sharply raising taxes and cutting energy subsidies.

The government has secured financial assurances from its bilateral creditors, including China, the biggest official lender to the island, but formal debt deals are yet to be signed.

Sri Lanka’s inflation slowed to 0.9% last month, a huge drop from the peak of nearly 70% in September 2022.

The central bank last week cut its benchmark lending rate from 10% to 9.5% to boost “the ongoing revival of economic activity”.