The World Bank says that although Sri Lanka has shown strong economic performance in recent months, the recovery remains incomplete, with growth still below pre-crisis levels and poverty rates significantly higher than before.

In its latest Sri Lanka Development Update titled “Better Spending for All”, the World Bank projects the country’s economy to grow by 4.6% in 2025, driven by a modest rebound in industry and steady growth in services, before slowing to 3.5% in 2026. However, the Bank warned that this outlook remains vulnerable to global uncertainties.

David Sislen, World Bank Division Director for Maldives, Nepal, and Sri Lanka, said:
“While Sri Lanka’s recent economic progress is encouraging, the recovery is uneven and incomplete. To build a stronger, fairer economy that benefits all households, Sri Lanka needs the private sector to invest and create jobs while ensuring every rupee of public money is well spent.”

The report notes that despite strong growth, low inflation, and improved external inflows, food prices remain high and reserve accumulation has slowed. The country’s total economic output is still below 2018 levels, and poverty—though declining—remains double the rate of 2019. Many households continue to struggle to recover livelihoods lost during the crisis, with an additional 10% of the population living just above the poverty line. Malnutrition also remains a major concern.

To sustain long-term growth and reduce poverty, the World Bank recommends urgent structural reforms and more efficient, better-targeted public spending. It calls for policies to promote private sector-led growth, including easing barriers to trade and investment, improving the business environment, and modernizing tax administration, land, and labor regulations.

The report highlights that over 80% of government spending is tied to public sector salaries, welfare programs, and interest payments, leaving little room for investment in infrastructure, health, and education. Instead of significantly increasing or cutting spending, the World Bank suggests that Sri Lanka focus on maximizing the efficiency of current expenditure through fairer pay structures, modern payroll systems, and stronger project planning and monitoring.

It also urges the government to prioritize completing near-finished projects and to allocate more funds for the maintenance of existing infrastructure.

The Sri Lanka Development Update accompanies the World Bank’s South Asia Development Update titled “Jobs, AI, and Trade”, which forecasts robust 6.6% regional growth in 2025 but warns of a slowdown ahead. The report emphasizes that greater trade openness and AI adoption could help South Asian economies create more jobs and strengthen long-term growth.