Sri Lanka’s economy is bouncing back faster than anticipated, according to the World Bank, which recently upgraded its growth forecast for the island nation to 4.4% for 2024, up from its previous estimate of 2.2% made in April.
The surge in growth is largely attributed to the revival of tourism, financial services, and improvements in the construction sector. However, the country’s growth rate, although promising, still lags behind the projected 6.4% growth for the broader South Asia region.
The World Bank’s latest Sri Lanka Development Update, titled “Opening Up to the Future,” highlights that the country has seen four consecutive quarters of growth, primarily driven by its industrial and tourism sectors.
This economic progress has been supported by structural reforms and policy adjustments aimed at stabilizing the economy. Despite this positive trajectory, the World Bank warns that the recovery remains fragile, with future growth heavily dependent on maintaining macroeconomic stability, restructuring debt, and implementing additional reforms.
Key areas of focus for Sri Lanka include boosting exports, attracting foreign investment, increasing female labor force participation, enhancing productivity, and tackling ongoing challenges like poverty, food insecurity, and vulnerabilities within the financial sector.
The World Bank estimates that Sri Lanka has the potential to increase its export revenues by $10 billion annually, which could lead to the creation of approximately 142,500 new jobs if the necessary reforms are enacted.
David Sislen, the World Bank Regional Country Director for Maldives, Nepal, and Sri Lanka, emphasized that the recent economic stabilization presents a significant opportunity for the nation.
He noted that Sri Lanka could deepen its engagement in global value chains and leverage its geographical advantages to generate jobs and sustain long-term growth. Sislen highlighted the importance of continued economic and governance reforms to unlock the country’s full export potential and benefit from the evolving global economic landscape.
Looking ahead, the World Bank projects that Sri Lanka’s growth will moderate to 3.5% in 2025 and slow further to 3.1% in 2026. This deceleration is partly due to the lingering effects of the recent economic crisis.
Although poverty rates are expected to decline gradually, they are likely to remain above 20% until at least 2026. Inflation is forecasted to stay below the central bank’s target of 5% in 2024, but it may rise as economic demand increases. Meanwhile, the current account surplus, driven by tourism and remittances, is expected to continue in 2024.
The World Bank’s report also ties Sri Lanka’s economic outlook to the broader regional context outlined in the South Asia Development Update. This regional analysis forecasts a growth rate of 6.4% for South Asia in 2024, making it the fastest-growing region among emerging markets and developing economies (EMDEs).
The report stresses that increasing women’s participation in the labor force and expanding global trade and investment opportunities are crucial for accelerating growth across the region.
Despite Sri Lanka’s progress, the World Bank’s cautionary tone underscores the need for sustained reforms and strategic investments to ensure long-term economic resilience. The country’s ability to navigate its current challenges will be critical in determining its future trajectory toward more inclusive and sustainable growth.
