Sri Lanka’s economy recorded a remarkable 5 percent growth in 2024, surpassing the World Bank’s earlier projection of 4.4 percent, according to the World Bank’s newly released bi-annual Sri Lanka Development Update, titled Staying on Track.
The stronger-than-expected recovery has been driven by robust performances in industry and services, particularly in construction and tourism-related sectors. However, the report projects that growth will moderate to 3.5 percent in 2025, reflecting the lingering impacts of the crisis, structural barriers to growth, global headwinds, and rising trade policy uncertainties.
Despite the positive growth and improved fiscal performance, the World Bank warns that significant challenges remain. Household incomes, employment rates, and overall welfare levels are still well below pre-crisis figures. Alarmingly, the poverty rate remained high at 24.5 percent in 2024. The struggling labor market has also triggered increased emigration as many Sri Lankans seek opportunities abroad.
“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 medium-term growth and poverty reduction hinge on maintaining macroeconomic stability and advancing key structural reforms in an increasingly volatile global environment. The World Bank forecasts further moderate growth of around 3.1 percent for Sri Lanka in 2026. Achieving a higher, more inclusive growth trajectory will require reforms that promote trade, investment, competition, and female labor force participation.
Looking ahead, the World Bank stresses the importance of continued policy reforms aimed at ensuring macro-fiscal and financial stability, boosting competitiveness, improving productivity, and expanding job opportunities across the economy.
The Sri Lanka Development Update is a companion piece to the World Bank’s South Asia Development Update, a twice-yearly report that examines economic developments and policy challenges across South Asia. The April 2025 edition, Taxing Times, projects regional growth to slow to 5.8 percent in 2025—0.4 percentage points below the previous forecast—before ticking up to 6.1 percent in 2026.
This outlook faces heightened risks from a highly uncertain global landscape and domestic vulnerabilities, including limited fiscal space. The report also features a special chapter analyzing the state of domestic resource mobilization in South Asia, highlighting how inefficiencies in tax policy and administration continue to hamper revenue collection despite relatively high tax rates, and outlining ways to strengthen fiscal resilience amid global economic challenges.
