Poverty declining, but still above pre-crisis levels: World Bank

• Aswesuma targeting needs improvement; system slow to respond to new shocks
• Revised series not an official statistic; 2025 HIES due in 2027

Poverty in Sri Lanka is recovering but remains above pre-crisis levels, the World Bank said yesterday. It projected a gradual decline to 14% by 2028, which would still leave the rate above 2019, and warned that the recovery is uneven across the country.

In its October Sri Lanka Development Update, the Bank estimated poverty at 16.9% in 2025, measured at the $ 4.20-a-day line for lower middle-income countries. That is down from a crisis peak of 20.7% in 2023 but above the 11.5% of 2019. The rate is projected to fall to 15.8% this year and 14.8% in 2027.

“Our main finding is that Sri Lanka’s economic recovery continues. It is real, and many households are still waiting to feel it,” World Bank Senior Economist Jakob Engel said at a media briefing in Colombo.

The 2023 peak reflects a new methodology that sharply lowers the Bank’s earlier estimates, which had put it at 27.6%. The 2024 estimate falls to 18.4% from 25%, the 2025 now cast to 16.9% from 22.1%, and the 2028 projection to 14% from 18.9%. At the national poverty line, the 2023 peak is revised to 24% from 31.4%.

In an explanatory note, the Bank stressed that the revision does not mean poverty has fallen by about 7 percentage points. “Poverty on the ground has not changed, it is now measured more accurately,” it said. The 2019 baseline is unchanged, and poverty still roughly doubled during the crisis, pushing an estimated two million people below the poverty line.

The revision stems from a seven-year gap in official data, since the last Household Income and Expenditure Survey (HIES) was conducted in 2019. The Bank’s earlier estimates filled that gap by simulating household welfare from national accounts data, assuming price increases passed almost fully to households. The new estimates instead draw on the annual Labour Force Survey (LFS), which records actual employment, labour incomes and household composition.

The Bank said the results were calibrated against the 2016 and 2019 HIES and corroborated by independent surveys from the International Food Policy Research Institute, the World Food Programme, LirneAsia and its own 2024 phone survey. The International Food Policy Research Institute’s survey, for instance, put poverty at about 15.4% at the $ 4.20 line for 2025.

The Bank cautioned, however, that the revised figures are not official statistics and should be read as a trend rather than precise point estimates. The HIES, produced by the Department of Census and Statistics, remains the official benchmark. The estimates will be updated when 2025 LFS data become available in November, and again when the 2025 HIES is released in 2027.

Whatever the measure, the underlying indicators point to deep and lasting damage. Real labour incomes fell by more than 40% between 2019 and 2023 and, despite a partial recovery, real wages remain about 12% below 2019 levels. Labour force participation fell from 52.3% in 2019 to 47.4% in 2024 before recovering to 49.4% in 2025, while female participation, at 32.4%, remains among the lowest in the region. Stunting among children under five rose from 7.4% in 2021 to 10.1% in 2025.

The recovery is also highly uneven. Poverty outside the Western Province is two to three times higher than within it, and reached 36% in the estate sector in 2024. The poverty gap, the average shortfall between what poor households have and what they need to meet basic needs, doubled nationally between 2019 and 2024 and is four times larger in the Northern Province than in the Western Province. The Bank warned that in more deprived regions, crisis losses risk becoming difficult to reverse or even permanent.

Households also remain exposed to new shocks, with two-fifths of Sri Lankans either poor or living within 50% of the poverty line. Higher energy costs linked to the Middle East conflict stalled the recovery in real incomes in the first half of 2026. Transport costs, a largely unavoidable expense for informal and low-skilled workers, have risen about 21%, while public sector wages have fallen again in real terms.

“Real wages are still lower than they were before the crisis, and many families have been impacted by recent shocks, such as Cyclone Ditwah, and they remain vulnerable to future shocks,” World Bank Acting Country Manager for Sri Lanka Stephan Massing said.

The Bank also cautioned against reading Sri Lanka’s reclassification as an upper middle-income country in July as evidence of a broad recovery, since the classification is based on national average income per capita, which does not reflect how income is distributed. “These are two different measures and should not be read together as a single story of recovery,” it said.

At the $ 8.30-a-day line for upper middle-income countries, poverty stood at 61.1% in 2025 and is projected to fall only to 55.7% by 2028. The Bank described the line as an aspirational benchmark for now. Extreme poverty, at the $ 3-a-day line, is projected to decline from 6% to 4.9% over the same period.

The findings put the focus on social protection. The Bank said the Aswesuma program, expanded during the crisis to cover at least the poorest 20% of the population, has improved targeting and coverage, especially in the estate sector. However, targeting still needs improvement and the system remains slow to scale up support when new shocks hit, which the Bank called a key policy priority.

The Bank expects growth to support a recovery in real wages and labour force participation over the medium term, though progress this year will be slowed by Cyclone Ditwah, higher inflation and households’ depleted savings.