COUNTRY PRIVATE SECTOR DIAGNOSTIC - Creating Markets in Sri Lanka - Private Sector-Led Inclusive Growth from Islands of Excellence - Executive Summary

Jul 19, 2026

Country Private Sector Diagnostic for Sri Lanka evaluates how market distortions, fiscal pressures, and the state’s extensive role have shaped the country’s growth trajectory and social outcomes. The executive summary reviews recent macroeconomic performance before COVID-19, highlights drivers such as apparel exports, tourism, remittances, and post-conflict reconstruction, and notes declining global integration and structural underinvestment. Recommendations aim to support private sector-led inclusive, sustainable growth through actionable policy directions.

LanguageEnglish

CategoryResearch & Report

FormatPDF

Pages15

Reading Time38 min

Executive Summary and Matrix of Actions

Status of the Economy

Public Disclosure Authorized Public Disclosure Authorized Public COUNTRY PRIVATE SECTOR DIAGNOSTIC CREATING MARKETS IN SRI LANKA Private Sector-Led Inclusive Growth from Islands of Excellence Executive Summary July 2022 About IFC IFC—a member of the World Bank and member of the World Bank Group—is the largest global development institution focused on the private sector in emerging markets. We work in more than 100 countries, using our capital, expertise, and influence to create marketsand opportunities in developing countries. In fiscal year 2021, IFC committed a record $31.5 billion to private companies and financial institutions in developing countries, leveraging the power of the private sector to end extreme poverty and boost shared prosperity as economies grapple with the impacts of the COVID-19 pandemic. For more information, [visit www.ifc.org](visit www.ifc.org). © International Finance Corporation 2021. All rights reserved. 2121 Pennsylvania Avenue, N.W. Washington, D.C. 20433 [www.ifc.org](www.ifc.org) The material in this work is copyrighted. Copying and/or transmitting portions or all of this work without permission may be a violation of applicable law. IFC does not guarantee the accuracy, reliability or completeness of the content included in this work, or for the conclusions or judgments described herein, and accepts no responsibility or liability for any omissions or errors (including, without limitation, typographical errors and technical errors) in the content whatsoever or for reliance thereon. The findings, interpretations, views, and conclusions expressed herein are those of the authors and do not necessarily reflect the views of the Executive Directors of the International Finance Corporation or of the International Bank for Reconstruction and Development (the World Bank) or the governments they represent. [Cover Photo: Rakitha Wickramaratne/Shutterstock.com](Cover Photo: Rakitha Wickramaratne/Shutterstock.com) EXECUTIVE SUMMARY AND MATRIX OF ACTIONS Sri Lanka is a country of paradoxes. With the lowest poverty rates, best social indicators, and highest per capita income in South Asia, Sri Lanka’s economic performance since independence had generally been hailed as a success before the current debt crisis. However, past performance occurred amidst many distortionsand an economy less open than its peers, largely reflecting the strong involvement of the state in the economy. Even if this interventionist model of economic policy and the presence of many state-owned enterprises (SOEs) served the country well through the years of conflict and their aftermath, it is no longer sustainable. Indeed, after the rapid growth of the peace dividend in the years post-2009, the economy has faltered and progress on social indicators has stagnated. Many of market distortions remain and have been exacerbated by COVID-19. Understanding how, despite these handicaps, Sri Lanka achieved positive economic and social outcomes in the past provides the building blocks ofa realistic, forward-looking growth strategy—one of the objectives of this Country Private Sector Diagnostic (CPSD). The research for this report was conducted prior to the current crisis, but the recommendations remain relevant to implement public policies that will support private sector led inclusive and sustainable growth. ES.1 STATUS OF THE ECONOMY In 2019, Sri Lanka became one of two upper-middle-income countries in South Asia, before falling back to lower-middle-income status in 2020. While in the immediate postwar period (2009–2013) gross domestic product (GDP) growth averaged a healthy 6.5 percent, it slowed from 2014–2018 to 4.3 percent and reached an 18-year low of 2.3 percent in 2019. This was before the COVID-19 outbreak, which has further weakened immediate growth prospects substantially and exacerbates an already challenging environment of low growth and pressures on fiscal and external accounts. The World Bank projects

FAQs

What core objective does the Country Private Sector Diagnostic pursue for Sri Lanka?

To build blocks for a realistic, forward-looking growth strategy by understanding past positive economic and social outcomes despite existing constraints, and by supporting private sector-led inclusive and sustainable growth through policy recommendations.

How did Sri Lanka’s economic status change from 2019 to 2020?

It became an upper-middle-income country in 2019, then fell back to lower-middle-income status in 2020.

Which factors supported growth in Sri Lanka over the last decade?

Favorable apparel and tourism export performance, consumption boosts partly from remittances, and government infrastructure investments after the end of the war.

Jul 19, 2026

Upload by Theodore