The ongoing economic crisis in Sri Lanka is estimated to have doubled the poverty rate from 13.1 percent to 25 percent, and it is expected to remain above 25 percent for the next few years due to multiple risks to households’ livelihoods, the World Bank said this week in its twice-yearly update on the country.
“The crisis reversed years of gains in poverty reduction and human capital development,” according to the update, which noted that the crisis had added 2.5 million poor people.
Income shock vulnerability has also increased, with many non-poor households living close to the poverty line – 5.7 percent of the population lives less than 10% above the poverty line, and another 5.6 percent lives between 10% and 20% above it. According to the report, all of these households are extremely vulnerable to falling into poverty in the event of a negative income shock.
The international financial institution also predicted that the country’s economy would face significant challenges this year and beyond, with the economy contracting by 4.3 percent this year as demand remained subdued, job and income losses increased, and supply-side constraints hampered production.
“Growth prospects are subject to high uncertainty and will depend on the progress of debt restructuring, as well as the timely and effective implementation of fiscal consolidation and growth-enhancing structural reforms,” the World Bank said, adding that the country could use the crisis to build a strong and resilient economy.