• Delving into hunger and debt as GDP records growth

Sri Lanka’s economy grew by 4.9% in the second quarter of 2025, marking another step forward in its recovery after its unprecedented economic crisis. 

The Department of Census and Statistics (DCS) attributes more than half of output to services, at 52.8%, followed by industry at 25.1% and agriculture at 10.1%. The breakdown shows how the economy is being pulled forward by sectors such as manufacturing, construction, finance, IT services, and agriculture staples like paddy and coconut.

The headline figure signals stability after the turbulence of 2022, when the economy contracted by 7.8%, and 2023, when the first tentative signs of recovery appeared. In 2024, Gross Domestic Product (GDP) grew by 5%, with the latest quarterly rate strengthening that trajectory. But whether this rebound has eased the pressure on households is a separate question.

Data on poverty, child malnutrition, and household debt suggests that the macroeconomic turnaround has yet to filter meaningfully into people’s daily lives.

Poverty after the crisis

The collapse of 2022 brought a surge in poverty. Parliamentary records show that by June 2023, 10% of children were living in poverty. This was in line with wider estimates by the World Bank that overall poverty had risen to one in four people in 2022, a stark increase from the pre-crisis figure of about 14% in 2019 (as per DCS data).

The spike was driven by inflation. Food inflation peaked at 94.9% in September 2022, according to the Central Bank. Families across the country responded by cutting meals, switching to cheaper food, or relying on neighbours. A World Food Programme survey at the end of 2022 found that 68% of households were using food-based coping strategies, while 40% had reduced spending on health and education.

That stress persisted into 2023. The Parliamentary Select Committee on malnutrition noted that 98% of the population was affected by rising food prices in 2022 and that by the third quarter of 2023, 24% of households were food insecure, up from 17% in March. One-third of families had reduced cooking frequency or meal sizes, and one-quarter relied on borrowed or shared food.

Even with growth back on track in 2025, households are still struggling to regain pre-crisis living standards. For many, recovery remains fragile.

No automatic reduction of poverty

Sri Lanka’s recent GDP growth figures do not necessarily translate into improvements in poverty or malnutrition, according to Advocata Institute Chief Executive Officer (CEO) Dhananath Fernando.

He explained that part of the reason was in the way growth was measured and the base from which it was calculated. “Just because the GDP grew by 4.9%, it is not necessarily the case that poverty numbers will come down in the same proportion. Our GDP growth comes from a lower base, after the economy contracted for six or seven quarters, so the recovery does not directly reflect in people’s lives,” Fernando said.

He added that GDP was a broad formula that measured investment, consumption, exports, and imports, and therefore could be influenced by factors that did not always benefit households. As an example, he noted that Government spending could lift GDP without significantly raising living standards.

Fernando recalled how Sri Lanka experienced high growth rates after the civil war, although many citizens did not feel the benefits. “We had about 7–8% GDP growth in those years, but not many people really felt it. That’s because growth can come from multiple sources, and unless it is driven in a productive and sustainable way, the real benefits do not reach the people,” he explained.

Malnutrition: Reversing decades of progress

Sri Lanka has historically been praised for its progress on human development, but nutrition outcomes have now complicated the story. Between 1975 and 1995, the country cut stunting among children under five almost by half, from 49.9% to 26.1%, while underweight prevalence dropped from 57.3% to 29.3%.

Since the mid-1990s, however, improvements slowed, and the economic crisis of 2022 pushed indicators backwards. The Family Health Bureau reported that underweight prevalence among under-fives rose from 12.2% in 2021 to 15.3% in 2022. Stunting increased from 7.4% to 9.2%, and wasting from 8.2% to 10.1%, according to Central Bank data. 

District-level disparities are severe. In 2022, Nuwara Eliya recorded 23.9% underweight prevalence among children under five, compared to 9.8% in Colombo. Stunting followed the same pattern: 22.8% in Nuwara Eliya versus 5.1% in Colombo. These differences reflect the vulnerability of the estate sector, where both poverty and malnutrition rates are consistently higher.

The deterioration did not stop there. The parliamentary committee reported in September 2024 that stunting among children under five had risen by 10.3% in June 2023 compared to the year before. The same report identified Nuwara Eliya as the worst-affected district once again, with 24.6% of children moderately or severely underweight. It also noted that 1.2% of children under five, about 16,000 in total, suffered from severe acute malnutrition.

Global benchmarks confirm the concern. The Global Nutrition Report’s country profile for Sri Lanka shows wasting at 15.1%, among the highest rates worldwide and nearly double the South Asian average of 8.9%. Stunting affects 17.3% of children under five, and 34.6% of women of reproductive age are anaemic. Further, low birth weight prevalence is 15.9%.

Household debt, vulnerability entrenched

The other major marker of household stress is debt. The United Nations Development Programme’s (UNDP) National Citizen Survey 2022–2023 found that 38.5% of households had accumulated debt. The main reasons were economic activities (42.5%), housing construction or repair (32.8%), and basic consumption needs such as food, fuel, and healthcare (19.3%).

When households borrow for consumption, they often turn to high-cost options. Among those borrowing for daily needs, 31.1% used pawning, 24% turned to money lenders, and 23.5% borrowed from banks.

The survey also revealed regional disparities. In the Eastern Province, 54.7% of households borrowed for basic consumption, compared to 21.3% in the Western Province and 19.3% in Sabaragamuwa. Pawning was most common in Batticaloa, where 57% of households resorted to it, while moneylender use was highest in Colombo at 23.8%, according to the UNDP.

The UNDP found that 33.4% of Sri Lankans faced multidimensional vulnerability linked to debt, meaning that indebtedness overlaps with deprivation in areas such as health, education, and disaster resilience. 

Focus groups added texture to this, describing how hyperinflation in 2022, when headline inflation peaked at 69.8%, pushed households to pawn jewellery, take shop credit, and borrow simply to meet daily costs. Participants reported that real incomes had collapsed and that many were still unable to cover essential expenses even in 2024.

The Government responded in October 2023 with a bill to establish a Microfinance and Credit Regulatory Authority, aimed at licensing moneylenders and microfinance institutions, setting interest ceilings, and improving disclosure and consumer protections. 

While regulation may curb predatory practices, the persistence of borrowing for consumption shows how vulnerable households remain, regardless of headline GDP performance.

Not an indication that citizens are better off

Sri Lanka’s economic debate has long centred on growth rates, but GDP expansion alone does not reflect whether citizens are better off, according to Verité Research Lead Economist Raj Prabu Rajakulendran.

He pointed out that while GDP growth served as a macroeconomic indicator, it often failed to capture improvements in living standards. 

“Successful reform is not just about GDP growth. GDP can grow simply through public or private sector activity, but that doesn’t mean people’s lives are improving. Poverty and employment are far better indicators of government success than GDP alone,” he explained.

Rajakulendran stated that reforms should be assessed through the lens of poverty reduction, job creation, and improvements in child nutrition. He added that Sri Lanka still faced significant challenges in these areas, despite recent signs of growth.

On poverty alleviation, he argued that the Government’s existing support mechanisms were poorly designed and insufficiently targeted. “The straightforward answer is targeted social protection. Right now, the system is complicated but not effective, and many of the people who genuinely need assistance, whether to escape poverty or to help their children overcome malnutrition, are not being reached,” he said.

Employment generation, he added, also required stronger policy attention, as job creation remained at historically low levels. Without addressing these issues, Rajakulendran warned, economic growth risked being shallow and unsustainable. 

He noted that much of the rapid growth recorded in 2010, when Sri Lanka posted rates of 6–7%, had been fuelled by heavy borrowing and debt-funded infrastructure projects rather than broad-based development.

He therefore added that Sri Lanka’s reform agenda should focus on improving the quality of growth and its distributional impact. 

GDP and household realities

The divergence between economic growth and household well-being is not unique to Sri Lanka, but the gap has been unusually wide since the crisis. 

On one side, national accounts show steady recovery, with services and industry pulling the economy forward and agriculture stabilising. On the other side, the lived reality for many families is still shaped by high debt, nutritional deficits, and fragile incomes.

Poverty spiked when inflation eroded purchasing power in 2022, and food insecurity climbed again in 2023 despite stabilisation policies. Malnutrition worsened across all key indicators, with wasting in particular reaching emergency thresholds. Debt, often taken for daily essentials, has entrenched vulnerability and reduced resilience to future shocks.

GDP is an essential measure of national output, but it does not automatically translate to reduced poverty or improved human development. The past three years show that clearly. While the economy is growing again, the indicators that shape long-term well-being, nutrition, household security, and poverty reduction are moving at a different pace.