Analysis of Sri Lanka’s recent progress
in reducing poverty and inequality is directly relevant to
the new government’s development agenda. The newly sworn-in
president ran for election on a platform that featured,
among other goals, inclusive growth and support to the
agricultural sector. The pursuit of these and other goals of
the new administration can be informed by a fuller
understanding of recent developments in household living
standards across the country. Yet the World Bank’s most
recent poverty assessment in Sri Lanka, covering the period
from 1990 to 2002, was published a decade ago. Since then,
domestic economic growth, the end of the civil conflict and
fluctuations in global markets has led to substantial
changes in Sri Lanka’s economic environment. To inform the
new government’s development policies, this report examines
five topics related to recent developments in poverty and
welfare. Sections two through five of the report focus on:
(i) trends in poverty, welfare, and inequality since 2002,
(ii) labor market outcomes associated with the observed
reduction in poverty, (iii) four potential causes of this
poverty reduction, (iv) the state of poverty and inequality
in 2012/13, and (v) the role of social protection in
reducing poverty. Section six concludes by pointing out
future implications and remaining knowledge gaps to continue
to reduce poverty and improve living standards. This
analysis draws mainly on data from the 2002, 2006-07,
2009-10, and 2012-13 rounds of the Household Income and
Expenditure Survey, supplemented by annual rounds of the
labor force survey from 2002 to 2012. Since the surveys
could not be conducted in parts of the Northern and Eastern
provinces before 2011 due to the civil conflict, their
geographical coverage varies from year to year. To ensure
comparability, all historical trends presented in this
report correspond to the same geographic area. With the
exception of figures that are based solely on 2012-13 data,
the figures exclude Northern and Eastern provinces, which
account for about 12.9 percent of the total population. A
more detailed description of the data is provided in
appendix one.