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Puvanya
Puvanya
Oct 19 2026
44Sri Lanka's stalling of necessary reform that would shift economic policy priorities from macroeconomic targets to real economic challenges needs to be addressed within the next three years–starting with the release of up-to-date poverty data, Verite Research Lead Economist Raj Prabu Rajakulendran said, speaking on an Observer Research Foundation (ORF) panel recently.
"Time is really running out. We assessed recovery on the IMF programme and the IMF programme has a bunch of targets, and we're doing good on it," Rajakulendran said, acknowledging Sri Lanka's earlier-than-expected achievements in revenue, primary balance and debt-to-GDP targets.
"We haven't had an official poverty estimate since 2019–the last HIES was conducted that year, and its results still form the basis of our current official poverty statistics. If you want to solve that problem, you start by measuring it. We have not taken active reforms to help the real economy yet."
The topic of accurate and up-to-date data on poverty in Sri Lanka also arose during the Parliament's recent Committee on Public Finance (COPF) meeting on the delayed release of the Household Income and Expenditure Survey (HIES). In a statement released by the Parliament, it noted the necessity of timely data to identify changes in economic and social conditions more accurately.
The statement also said that the COPF discussed the question of whether calculations based on outdated data and commodity baskets accurately reflect the current cost of living and basic public needs. While the pre-crisis poverty rate was estimated at 11% in 2019, the World Bank's 2025 trend estimate sat at 16.9%.
ORF India Senior Fellow Sushant Sareen, speaking during the webinar, noted that while Sri Lanka's focus on the IMF programme introduced necessary fiscal discipline, the Government must not be complacent by pushing its progressive tax reform solely, in place of introducing targeted economic policy and reform that would be key to economic growth.
"It's very easy for governments to fall into a complacent attitude through withholding taxes. It obviates the need for the kind of reforms that actually are needed in the economy, so that it becomes much more efficient and productive. That doesn't seem to be happening," he said.
"The IMF looks for balance-sheet reform, and what they call structural reforms are essentially balance sheet reforms. They have a bankers' approach – which is understandable from their point of view, but that does not help the economy" he concluded.
Rajakulendran, acknowledging the continuation of the economic policy between administrations, said that while reform may not be sweeping, it has yielded outcomes that may have the potential to be leveraged for a progressive social welfare prioritised approach.
"Broadly, on the economic policy it is continuation, I don't see a big change. But there are certain indications–given all the constraints–to move to a more progressive social welfare prioritised approach."
"There is a budget coming up, and there's constant conversation to give tax reliefs for the personal income taxes. You see a lot of rhetoric around moving to a more welfare targeted mechanism. As much as Sri Lanka has recovered, it really is on a knife edge. What 'recovery' means is a question. All of us are assessing recovery on mainly two indicators and they are all fiscal. You have revenue that has recovered, you have primary balance that has recovered, you have debt-to-GDP that is coming down, you have economic growth that has recovered, and we're calling that recovery."
"All of that doesn't matter if poverty is still at 30%” he said, citing an estimate that is yet to be confirmed with an official figure.
“All of that doesn't really matter if real wages are still below pre-crisis levels. All of that doesn't really matter if employment or the number of jobs in the economy is less than what it was pre-crisis."
"Converting those macroeconomic gains to real gains is where the process needs to focus. We are not seeing much of that movement. There is no real poverty reduction target. There is no real job growth, real wages are still quite below. The move from macroeconomic recovery to real economic recovery is what we need to unpack in the next three years."
Rajakulendran also noted that while the Sri Lankan Government's withholding tax (WHT) progressive tax reform may be critiqued as a workaround for more targeted policy, it has also expanded the taxpayer pool to its pre-crisis level.
"That being said, withholding taxes while being complacent, are also a great way to get people into the tax net. So Sri Lanka's biggest problem was on the fiscal side–because we had very few taxpayers for the size of our economy, especially [compared to] our regional peers."
"We have managed to recover that back to where it was pre-crisis, that is 2018-2019. But it is still quite low. The question is, all of this recovery is assessed against a pre-crisis benchmark. The pre-crisis benchmark itself wasn't too great. Are we moving beyond simply a pre-crisis recovery, and just kicking the can down the road–is a real question to ask. That is what is not being sufficiently addressed," Rajakulendran said.
