Debt restructuring and the implementation of a deep reform program are critical for Sri Lanka’s economic stabilization, says the World Bank in its twice-a-year update, underscoring the need for Sri Lanka to build resilience.
Released this week, the latest South Asia Economic Focus, Coping with Shocks: Migration and the Road to Resilience, projects regional growth to average 5.8 percent this year - a downward revision of 1 percentage point from the forecast made in June.
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Also released this week as a companion piece is the latest Sri Lanka Development Update, which highlights the poverty and welfare impacts of the crisis and the role of social protection in protecting the vulnerable populations.
"Protecting the vulnerable is critical as Sri Lanka fast tracks deep reforms to navigate the deepening economic crisis.The crisis calls for immediate action to protect the poorest and most in need while also focusing on strengthening the social protection system," said Faris H. Hadad-Zervos, World Bank Country Director for Maldives, Nepal and Sri Lanka in a media release on Thursday.
"In the face of the economic crisis, poverty estimates doubled to 25.6 percent between 2021 and 2022, increasing the number of people living in poverty by 2.7 million. Sri Lanka will need to expand employment in industry and services and recover real value of incomes to mitigate the impacts of the crisis, and build long-term resilience of its people. ”"added Hadad-Zervos.
The South Asia Economic Focus also put a spotlight on Sri Lanka’s economic crisis, drawing lessons from the Asian Financial Crisis of 1997.
"As Sri Lanka goes through the historically largest contraction in its economy, looking at global experiences such as the crisis in Latin America in the 1980s and the Asian Financial Crisis of 1997 can help chart solutions," said Hans Timmer, World Bank Chief Economist for South Asia.
"The East and Southeast Asian countries regained momentum by implementing sound reforms, which provide lessons for Sri Lanka to build back better," Timmer added.
To this end, the spotlight highlights two key experiences of the Asian financial crisis as lessons for Sri Lanka. Firstly, the short-term measures needed to address structural weaknesses, buffers to mitigate external shocks and build resilience to future shocks. Secondly, critical policies to promote future growth.