Sri Lanka

Between 2002 and 2012-13, most of the
reduction in poverty was due to increased earnings, as
opposed to higher employment or higher transfers. Although
it is hard to be certain, increases in earnings are
associated with: (i) a slow structural transformation away
from agriculture and into industry and services that led to
productivity increases; (ii) agglomeration around key urban
areas that supported this structural transformation; (iii)
domestic-driven growth, including public-sector investment
that led to increases in labor demand, particularly in
industry and services; and (iv) a commodity boom that led to
higher labor earnings for agricultural workers in the
context of lower agricultural employment. Sri Lanka’s has
had impressive development gains but there are strong
indications that drivers of past progress are not
sustainable. Solid economic growth, strong poverty
reduction, overcoming internal conflict, effecting a
remarkable democratic transition in recent months, and
overall strong human development outcomes are a track record
that would make any country proud. However, the country’s
inward looking growth model based on non-tradable sectors
and domestic demand amplified by public investment cannot be
expected to lead to sustained inclusive growth going
forward. A systematic diagnostic points to fiscal,
competitiveness, and inclusion challenges as well as
cross-cutting governance and sustainability challenges as
priority areas of focus for sustaining progress in ending
poverty and promoting shared prosperity.