World Bank : Four Priorities to Accelerate Economic Transformation and Poverty Reduction in Sri Lanka

Four priorities to inform post-COVID recovery efforts

A new World Bank report, Sri Lanka Poverty Assessment: Accelerating Economic Transformation, unpacks the drivers of the success behind Sri Lanka's recent efforts to improve the livelihoods of its people. It also carefully analyzes the initial impact of the COVID-19 crisis on livelihoods and poverty.

The first priority is to increase agricultural productivity and earnings. Structural transformation is happening, but rather slowly. Supporting farmers' transition toward higher-value, export-oriented crop mixes will be important given that farmers are significantly more likely to be poor. The sector could also benefit from a mix of programs that support the adoption of climate-smart technologies, improved agro-logistics, or expanded access to value chains.

The second priority is to address the constraints to accessing remunerative nonfarm jobs in rural areas. Nonfarm activities are an increasingly important and potentially productive source of livelihoods. Education plays a key role when it comes to livelihoods decisions: the more educated are significantly more likely to work in nonfarm sectors over farm sectors, and within nonfarm sectors, in more remunerative jobs. This implies that diversifying into low-return activities will not help increase incomes. While the nonfarm sector is diverse, strategic investments in tourism could support rural income growth, given its job creation potential for low-skilled and vulnerable groups.

The third priority is to support broader reforms to increase labor productivity and create jobs which could ultimately helpimprove the quality of jobs. In Sri Lanka, informality is widespread, estimated at around 70 percent, and strongly associated with inferior working conditions, limited job security, and heightened risk of poverty due to low earnings. In line with international evidence, reforms could aim to address the causes and consequences of informality rather than target informality itself.

The final priority is to promote spatial transformation and strengthen inclusion. This includes priorities to close spatial disparities and improve access to basic services. "Investments in human capital-health, education and social protection-are key to unlocking the potential of Sri Lankan children and boosting future productivity and economic growth," says Chiyo Kanda, Country Manager for Sri Lanka and Maldives.

As Sri Lanka emerges from the crisis, economic growth will be critical to restore livelihoods. . Considerations are needed to help the poor and vulnerable get back on their feet and prevent long-term scarring-for example, extensive school closures led to significant learnings losses and widened disparities in human capital that could undermine growth and lower social mobility in the long term.