Sri Lanka made great progress in improving livelihoods and welfare
Sri Lanka has a great track record in raising living standards and reducing poverty. In the decade preceding the COVID-19 crisis poverty was declining. The share of poor people came down from 16.2 percent in 2012/13 to 11 percent in 2016—measured at the World Bank’s $3.20 international poverty line (in 2011 PPP). Projections indicate that this figure fell further to 9.2 percent in 2019. Other measures of wellbeing also exhibited progress—maternal and child health outcomes improved over the past decade and access to electricity is now almost universal. These are highly commendable achievements.
Such broad-based improvements in welfare are typically the result of improvements in livelihoods. “The key factor behind sustained poverty reduction was labor-income growth, particularly in nonfarm sectors. Productivity improved and workers moved out of agriculture into better-paying sectors—a process described as economic transformation,” says Yeon Soo Kim, Senior Economist at the World Bank. The past decade was characterized by impressive dynamism. Infrastructure investments improved access to markets and services; opportunities in nonfarm sectors expanded, in particular, tourism boomed with visitors quadrupling in less than 10 years, which culminated in the designation of Sri Lanka as a top travel destination; and the “sharing economy” was introduced and services such as Uber, PickMe and Airbnb became popular urban areas.
COVID-19 crisis led to a significant setback as poverty and inequality increased
However, COVID-19 led to an abrupt halt to years of progress as the economy suffered its worst contraction on record. Jobs and earnings losses were widespread in the immediate aftermath of the outbreak. The government acted swiftly to contain the pandemic and buffer the economic shock, but the measures were not sufficient to offset the full-blown impact. The share of $3.20 poor is estimated to have increased to 11.7 percent in 2020, or by over half a million people—a huge setback equivalent to five years’ worth of progress. Vulnerability was high among the workforce due to high informality and weak safety nets, which reduces their capacity to cope with shocks. Inequality is poised to increase as well.