The World Bank’s latest report on Sri Lanka’s economic outlook delivers a mixed message — acknowledging progress while warning that the recovery remains incomplete without deep structural reforms.
Progress Since the Crisis
Sri Lanka’s economy collapsed in 2022 due to severe foreign exchange shortages, spiraling inflation, and political unrest. Since then, the country has made substantial progress:
- Inflation dropped from nearly 70% in 2022 to just over 2% in October 2025.
- Foreign reserves have been rebuilt, and the rupee has stabilized.
- Tourism, remittances, and exports are all rising again.
These improvements are largely attributed to the government’s reform agenda under the IMF program and tighter monetary controls by the Central Bank.
The World Bank’s Concerns
Despite visible progress, the World Bank warns that Sri Lanka’s public debt remains unsustainably high, hovering around 105% of GDP, while tax revenue continues to lag far behind regional averages. The country still depends heavily on imported fuel and food, making it vulnerable to global price fluctuations.
The Bank emphasizes that structural reforms in taxation, trade, and state-owned enterprise management are crucial for long-term stability. It also highlights the importance of improving governance and transparency to rebuild investor confidence.
Human Development and Social Welfare
Beyond economics, the report draws attention to the social cost of austerity. Cuts in subsidies and spending have strained low-income families, while underfunded education and healthcare systems struggle to recover.
The World Bank urges the government to expand targeted welfare programs to protect vulnerable citizens during the reform process.
Future Outlook
The Bank projects GDP growth of around 3.1% in 2025, supported by tourism, agriculture, and manufacturing exports. However, it warns that failure to sustain reforms could lead to stagnation or renewed fiscal instability.
Encouragingly, foreign investment is slowly returning, with new projects in renewable energy, apparel manufacturing, and information technology sectors.
Building a Resilient Economy
The key to Sri Lanka’s sustained recovery lies in balancing reform with inclusiveness — pursuing growth that benefits all citizens. Analysts believe that transparent governance, prudent fiscal management, and consistent policymaking could help Sri Lanka transform from crisis to stability within the next five years.
