Poverty is projected to rise to 27.9%: World Bank

COLOMBO: Sri Lanka’s poverty is projected to increase to 27.9 percent in 2023 from 25 percent in 2022, the World Bank said, as the country continues to suffer from the most extreme deployment of ‘macro-economic policy’ in the history of its central bank.

“Poverty is projected to increase from 25 percent to 27.9 percent between 2022 and 2023,” the World Bank said in its latest development update.

“Poverty reduction could resume from 2024 and continue in 2025, but this depends on continued implementation of structural reforms and a restoration of economic growth and job creation.

“Inflation is expected to stay in single digits, reflecting weak aggregate demand, improving supply conditions, lower global commodity prices, and discontinued monetization of deficits.”

Sri Lanka’s rupee collapsed from 182 to 360 in 2022 as economic bureaucrats in the central bank and Treasury cut rates and taxes to close a ‘persistent output gap’ after previous rate cuts in 2015 and 2018 triggered currency crises and growth shocks.

Currency crises from aggressive rate cuts make it difficult to collect taxes as economic activity slows or contracts.

At the same time, debt rises due to the twin effect of domestic currency depreciation and higher rates needed to stabilize the busted external sector, driving countries towards default.

Under a new monetary law, printing money for growth (targeting potential output) has been legalized, which violates the previous law, according to critics.