A complex political environment and the impact of natural disasters, such as floods in May and prolonged drought across the country, made 2017 a challenging year for Sri Lanka. As a result, Sri Lanka’s macroeconomic performance slowed down. In fact, the growth rate declined to a 16-year low of 3.1 percent in 2017 – the lowest it has been since 2001.  

    However, a primary surplus was recorded for the first time in decades. Hence, even though the overall deficit has slightly increased due to a sharp increase in interest expenditure, public debt to GDP ratio has marginally decreased due to a primary surplus and relatively low currency depreciation.

    With the support of World Bank, the government is carrying out fiscal reforms, improving public financial management, increasing public and private investments, addressing infrastructure constraints and improving competitiveness. The launch of its Vision 2025 on September 4, 2017 was designed to strengthen democracy and reconciliation, inclusive and equitable growth and ensure good governance.

    Nonetheless, despite government commitment, the progress of reforms to enhance competitiveness, promote good governance and continued fiscal consolidation, have already been slowed by the effects of political uncertainty. Since these reforms are critical for sustained growth, and the key risks remain, a favorable outlook is uncertain.


    Sri Lanka is a lower middle-income country of 21.4 million people with per capita GDP in 2017 of $4,065. Since the civil war ended in 2009, the economy has grown on average at a rate of 5.8 percent a year, reflecting a peace dividend and a commitment to reconstruction and growth, but there have been signs of a slowdown in the last three years. The economy is transitioning from a predominantly rural-based economy towards a more urbanized economy oriented around manufacturing and services.

    The country has made significant progress in its socio-economic and human development indicators. Social indicators rank among the highest in South Asia and compare favorably with those in middle-income countries. Economic growth has translated into shared prosperity with the national poverty headcount ratio declining from 15.3 percent in 2006/07 to 4.1 percent in 2016. Extreme poverty is rare and concentrated in some geographical pockets; however, a relatively large share of the population subsists on slightly more than the extreme poverty line. The country has comfortably surpassed most of the MDG targets set for 2015 and was ranked 73rd in the Human Development Index in 2015.

    The economy’s weak competitiveness is an issue to address. Restrictive trade policies over the past decade have created a strong anti-export bias, which has been reflected in a dramatic decline in trade. While growth in Sri Lanka has been strong over the past few years, it has been inward-oriented and based on the growth of non-tradable sectors. Sri Lanka also attracts a much lower volume of FDI than peer economies and the shortcomings of the investment climate pose obstacles for new firms.

    Moreover, significantly high state participation in the economy has implications on competitiveness in a number of sectors and labor market dynamics. Low revenues as a share of GDP has been a structural issue that adversely impacts fiscal position. The major causes are the low number of number of tax payers (less than 7 percent of the labor force and formal establishments pay income tax), reductions in statutory rates without commensurate efforts to expand the tax base, inefficiencies in administration and numerous exemptions. Low revenues combined with largely non-discretionary expenditure in salary bill, transfers, and interest payments has constrained critical development spending and squeezed expenditure on health, education and social protection, which is low compared to peers.


    Sri Lanka’s improvement in its macroeconomic performance was masked by inclement weather in 2017. Fiscal and monetary policy measures contributed to stabilization.  However, the adverse economic impact of a prolonged drought took a toll on growth (3.1 percent) and the external sector while raising inflation (6.6 percent, annual average). A primary surplus recorded for the first time in decades, albeit small, and passing of the new Inland Revenue Act helped with the successful completion of the third review of the IMF program. However, a sharp increase in interest expenditure forced the overall deficit to slightly increase while public debt to GDP ratio marginally decreased thanks to primary surplus and relatively low currency depreciation. FDI, due mainly to the long-leasing of a port asset and a large land reclamation project along with other debt creating capital flows, helped improve the reserve cover of imports to 3.8 months of imports. The currency depreciated by 2 percent against the US Dollar.


    The outlook remains favorable, provided the government is committed to the reform agenda of improving competitiveness, governance and public financial management. Growth is projected to rebound in 2018 from a low base and continue to be around 4.5 percent in the medium term, driven by private consumption and investment.  Inflation will stabilize at mid- single digit level as the impact of natural disasters wears off, although the upward trend in oil prices may exert some upward pressure. The external sector will continue to benefit from the GSP+ preferential access to the European Union and tourism receipts, despite the deceleration of remittances. External buffers are expected to improve, with emphasis on purchasing foreign exchange, maintaining a more market-determined exchange rate, and increased FDI. The overall fiscal deficit is projected to fall in the medium term, supported by the ongoing implementation of revenue measures. Growth should continue to translate into poverty reduction and improvement in living standards. 


    Political uncertainty is the key risk to an otherwise favorable medium-term outlook.  External risks include lower growth in key countries that generate foreign exchange inflows to Sri Lanka. Steeper than expected global financial conditions would increase the cost of debt.  It will also make rolling over the Eurobonds maturing from 2019 more difficult.  Faster than expected rises in commodity prices would increase pressure on the balance of payments and make domestic fuel and electricity price reforms more difficult. On the fiscal and debt management front, risks include the delay in implementing revenue and liability management measures, and slower than expected improvement in tax administration. The increasing occurrence and impact of natural disasters could adversely impact growth, the fiscal budget, the external sector and poverty reduction.

    Sri Lanka faces several challenges that increasingly put its future economic growth and stability at risk, which must be addressed through macro and structural reforms: (1) stay on the fiscal consolidation path by broadening and simplifying the tax base and aligning spending with priorities: this is important given high public debt, SOE debt and guarantees; and large gross financing requirements;  (2) shift towards a private investment-tradable sector-led growth model by improving trade, investment, innovation and the business environment; (3) improve governance and accountability by implementing the Right to Information Act and improve SOE performance and service delivery; and (4) reduce vulnerability and risks in the economy by enhancing disaster preparedness and mitigating the impact of reforms on the poor and vulnerable with well-targeted spending.

    Last Updated: Apr 12, 2018


    The World Bank Group has supported Sri Lanka’s development for nearly six decades. Although in many ways it is a development success story, Sri Lanka still faces critical challenges as it strives to become an upper middle-income country. WBG’s Country Partnership Framework (CPF) for FY2017-20, endorsed by the Institution’s Board of Directors in June 2016, is based on the 2015 Systematic Country Diagnostics (SCD) and the country’s priorities.

    The World Bank Group supports Sri Lanka’s transition to a more competitive, inclusive, and resilient upper-middle income country including through promoting macro-fiscal stability and competitiveness and creating conditions where there are opportunities for all. There is also a focus on seizing green growth opportunities, improving environmental management and adapting to, and mitigating, the impact of climate change. Sri Lanka graduated from IDA in FY2017 and is receiving IDA transition financing during IDA18 period (FY2018-20).

    As Sri Lanka works to end extreme poverty and promote shared prosperity, some of its key challenges identified in the 2015 SCD are to achieve fiscal sustainability, enhance competitiveness and promote more and better jobs for the bottom 40 percent, advance social inclusion for disadvantaged people and attain longer term sustainability. Strengthening governance is a cross-cutting challenge.

    The Government’s Vision 2025 largely confirmed the SCD findings and identified four main constraints to growth: (i) structural weaknesses in a growth model which did not foster productive investments, competitiveness and innovation; (ii) inward rather than outward- and export-led growth, which would leverage the global market and international supply chains; (iii) public finances dogged by increasing debt repayments and inefficient State-Owned Enterprises which crowded out more productive investments and development spending;  and (iv) regulatory barriers that stifled private sector development and job creation. The World Bank is supporting government reforms aimed at addressing these constraints.


    The current active IDA-IBRD portfolio consists of 15 projects with a total net commitment of nearly USD 1.9 billion (13 IDA, 1 IBRD and 1 Blend). Urban operations account for 21 percent of the overall portfolio, followed by water (16.5 percent) and resilience to climate and disaster risk (13 percent).  The education (13 percent) and health (10 percent) sectors also continue to be core sectors for Bank support. The World Bank has provided a mix of financing – investment project, development policy, and program-for-results – to meet the development needs. The first development policy financing (approved in July 2016) focused on policy reforms to strengthen the country’s trade and competitiveness while the first program-for-results financing (approved in May 2017) supports the government’s program to improve higher education. 

    The ongoing Country Partnership Framework (CPF) for Sri Lanka for the period ending June 2020, reflects the development vision of the government. The CPF’s policy reform emphasis mirrors the strong policy reform orientation of the government, particularly in the areas related to improving macro-fiscal stability, enhancing the enabling environment for private sector development, export competitiveness and global integration. Support for improving living standards in the lagging regions, including the conflict-affected areas of the Northern and Eastern regions, and strengthening education and training systems are viewed as indispensable to promoting social inclusion. Additionally, there is a focus on balancing development with environmental conservation and enhancing resilience to climate change, which entails protecting and managing the country’s extraordinary natural assets for sustained growth. The Bank continues to provide policy advice, analytical support and technical assistance, funded both through trust funds and its own budget, to assist government efforts on fiscal reform, the governance and efficiency of public enterprises, pension reform, trade and competitiveness, and sustainable urban development.


    IFC’s activities in Sri Lanka support the World Bank Group’s CPF goals. By working closely with the private sector, the government, and the World Bank, IFC focuses on facilitating inclusive growth by attracting private sector finance.

    IFC in Sri Lanka addresses key development gaps by focusing on financial and social inclusion, infrastructure, productivity, and sustainability. To foster inclusion, IFC is working on increasing access to finance, especially to SMEs and women, and seeking opportunities to help expand quality healthcare, affordable housing, and training and education for skills development. IFC in partnership with the Government of Australia launched in April 2017 the “Women in Work” program to demonstrate that corporate performance can improve by closing gaps between men and women in the private sector. IFC’s support for sustainable infrastructure aims to improve electricity service, complete critical last mile infrastructure, and revamp logistics and services infrastructure. In sustainability, IFC will promote renewable solutions, narrow the green/affordable housing gap and support climate change adaptation and resource efficiency applications IFC is also targeting sectors with significant job creation impacts especially agribusiness, tourism, and pharmaceuticals.

    As of June 30, 2017, IFC’s total committed investment portfolio stood at about $334 million. IFC also has an advisory program comprising 12 portfolio projects with a combined value of $12.8 million. IFC’s advisory projects are helping boost access to finance and insurance, build business skills for entrepreneurs, develop supply chains, and promote the growth of tourism.


    MIGA has no exposure in Sri Lanka. However, the Agency stands ready to consider productive projects, across sectors, as appropriate opportunities emerge. In assessing potential transactions, MIGA will coordinate closely with the World Bank and IFC, to maximize collaboration across the World Bank Group.

    Last Updated: Apr 12, 2018

  • Education

    Sri Lanka’s achievements in education have been impressive, including universal access and participation in primary education, high enrollment in secondary education, and gender parity in general education. The primary education net enrollment rate is 99 percent and the primary education completion rate is over 95 percent. Gender parity in the education system is high compared with many other South Asian countries, with an equal proportion of girls and boys enrolled in primary education and a slightly higher number of girls than boys in secondary education. 

    The World Bank is helping the development of human capital across all levels of education and training. The Sri Lanka Early Childhood Development Project will increase the ability of children from disadvantaged households to access early learning opportunities. World Bank assistance to the general education sector will be strengthened through a new General Education Modernization project which is expected to commence in mid-2018.

    This project will enhance quality and strengthen the stewardship of the general education system. It will also contribute to improve learning outcomes in English and Mathematics, and enhance teacher performance. The Accelerating Higher Education Expansion and Development (AHEAD) Operation is new in the higher education sector and will help the country to increase enrollment in priority disciplines for economic development, improve the quality of degree programs, and promote research and innovation. This AHEAD Operation is the first Program for Results (PforR) Operation in Sri Lanka and in the higher education sector worldwide.


    The World Bank has been supporting Sri Lanka’s health sector through analytical work and credits from the International Development Association since the late 1980s.

    Sri Lanka’s health system has a long track record of strong performance. For at least 50 years it has achieved much better outcomes in maternal and child health and infectious disease control than would have been predicted by its income level. The remarkable success in reducing maternal and infant mortality to very low levels (30 per 100,000 and 8 per 1,000 live births, respectively) in the last half-century is in part due to effective and integrated maternal and child health services.

    A national health sector program is currently being supported under a $200-million Second Health Sector Development Project (approved in FY2013), designed to improve the standards of performance of the public health system and enable it to better respond to the challenges of malnutrition and NCDs. The project is also supporting innovation, results monitoring, and capacity building in the health sector.

    The project supports the achievement of 20 results (a subset of the National Health Development Plan results). So far, after three years of implementation and results reporting (2015), several third-year targets have been met or surpassed. Of particular note:

    • 58 percent of the 3,883 Maternal and Child Health (MCH) clinics across the country supported to reach full capacity to provide MCH services have achieved the target; 260 Medical Officer of Health areas out of 330 have at least three Health and Nutrition Community Support Groups, surpassing the target.
    • 55 percent of the 330 Medical Officer of Health areas report having at least two functioning Healthy Lifestyle Centres, surpassing the target.
    • National guidelines for rehabilitation services for disabled persons have been developed.
    • 62 percent of the 855 primary health care facilities have one-month buffer stock of 16 essential NCD drugs, surpassing the target.
    • The percentage of hospitals linked to the quality assurance program for laboratory tests conducted by the Medical Research Institute surpassed the target, reaching 94 percent.
    • Guidelines for Quality Management Units were prepared and training for administration of the guidelines was completed, with Quality Management Units functional in more than 95 percent of secondary care hospitals.
    • 55 percent of centrally managed hospitals are reporting indoor morbidity and mortality data electronically, surpassing the target.

    Urban Development

    Sri Lanka’s economic growth has been primarily driven by the Colombo Metropolitan Region (CMR), which currently generates 45 percent of the country’s GDP and is home to 28 percent of its population. Sustainable growth and long-term prosperity are expected to result from a more balanced distribution of economic opportunity, which in addition to Colombo also includes other major urban centers such as Kandy, Galle, and Jaffna. The World Bank is supporting Sri Lanka to implement its urbanization and rural-urban integration agenda.

    The Metro Colombo Urban Development Project (MCUDP), approved in 2013, is assisting the Colombo Metropolitan Region to upgrade basic urban infrastructure and to implement an innovative integrated urban flood control and urban wetland management approach. Results achieved: 3 km of primary canals have been completed, 2 micro-drainage subprojects have been implemented, and 29 km of roads that have been built or rehabilitated based on prescribed standards. The newly opened Beddegana Wetlands Park aids in flood control and allows the public to experience the city’s unique urban wetlands. In addition, the project rehabilitated the Town Square and Viharamahadevi Park, which included the creation of playgrounds, bicycle paths and public facilities.

    The Strategic Cities Development Project and the Additional Financing to the project (approved in May 2016) are expanding the approach to urban infrastructure upgrading to Kandy, Galle and Jaffna—three strategic city regions in the center, south, and north—and supporting investments in urban water supply, sewage and drainage systems, cultural heritage rehabilitation, urban transport and traffic management, among other areas.

    Environment, Climate Change and Disaster Risk Management

    In recognition of the social and economic effects of climate-related hazards, the government has made it a priority to strengthen the country’s resilience to natural disasters and climate change. Responding to the government’s expression of interest for assistance in this regard, a comprehensive program of support involving adaptation-enhancing investments and a Catastrophe Deferred Draw-Down Option (CAT-DDO) was prepared and approved in FY14. To increase resilience, physical investments will be financed to address short-term infrastructure weaknesses, coupled with a contingent credit line to safeguard against immediate fiscal impacts of a disaster.

    Trade and Competitiveness

    The Trade and Competitiveness program is a package of technical assistance to support GoSL’s economic reform objectives to ultimately create more and better private sector jobs and become an upper-middle income country. The program is a joint initiative from the World Bank and the Australian Department of Foreign Affairs and Trade (DFAT).

    All activities in the program are underscored by a strong focus on gender, youth, disability and poverty. Specifically, the program intends to enhance the trade and competitiveness of the private sector as a way to support private-sector led growth, increase economic diversification and enhance the volume and value addition of exports via the following areas:

    Enhancing Sri Lanka’s Trade Potential: via the establishment of a more open trade policy regime; the development of an agile trade facilitation system and the reduction of regulatory barriers to trade.

    Enhancing Sri Lanka’s Investment Climate and Policy and Regulatory Simplification: Activities to foster domestic and foreign direct investment (FDI) through (i) institutional, legal and regulatory reforms to reduce transaction cost to enterprises and improve the overall domestic business environment; (ii) strengthening the Board of Investment’s capacity for investment promotion and advocacy to attract FDI in the country’s most strategic sectors; (iii) facilitating investment approval processes through a single window for investment; (iv) improving the effectiveness of the investment incentive regime and; (v) strengthening legal framework governing investment.

    Firm Growth, Productivity and Jobs: Building a more resilient innovative economy and entrepreneurial society; also inclusive of a Public Expenditure Review that will comprises of a functional and institutional review of current R&D, innovation and entrepreneurship programs and GoSL spending.

    Tourism: Leveraging on the Sri Lanka Tourism Strategic Plan 2017-20’s recommendations, a new Sustainable Tourism Development project will focus on enhancing the sustainable growth of the tourism sector by leveraging PPPs, strengthening local economy linkages and building institutional capacity for planning and implementing tourism-related projects.

    Logistics: Sri Lanka’s geographically strategic location suggests enormous potential for the country to thrive in the logistics sector, provided an enabling regulatory environment.

    SMEs: Inclusive of a Financial Sector Modernization Project together with complementary technical assistance for capital market development; a proposed innovative SME project focuses on business development and innovative finance for SMEs and entrepreneurs.

    Last Updated: Apr 12, 2018



Sri Lanka: Commitments by Fiscal Year (in millions of dollars)*

*Amounts include IBRD and IDA commitments



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Additional Resources

Country Office Contacts

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