Beyond Economic Stability: Bridging the Gap Between Recovery and Household Prosperity
“The test of our progress is not whether we add more to the abundance of those who have much; it is whether we provide enough for those who have too little.”
— Franklin D. Roosevelt, Second Inaugural Address, 20 January 1937.
By Prof. Asoka.S.Seneviratne
Introduction
Sri Lanka’s economic recovery has achieved important milestones following the devastating crisis of 2022. Economic growth has resumed, fiscal management has improved, inflation has moderated from crisis levels, foreign reserves have strengthened, and debt restructuring has progressed. However, the recovery remains incomplete because improvements in macroeconomic indicators have not yet translated sufficiently into household prosperity. Recent observations highlighting the difficulties experienced by ordinary citizens raise an important question: how can the gap between macroeconomic recovery and people’s everyday economic experiences be closed? Rather than treating these two perspectives as competing realities, Sri Lanka needs an integrated policy framework that connects economic stability with institutional accountability, productive employment, financial inclusion, efficient public services, and inclusive growth. Sri Lanka must move beyond restoring macroeconomic stability and ensure that economic recovery translates into better living standards, productive employment, stronger institutions, and improved public services.
Beyond two contrasting perspectives
An article recently published in the Daily FT, titled “Bird’s-eye view: Economy stable and growing. Worm’s-eye view: Not so rosy” (2 November 2026), draws attention to an important dimension of Sri Lanka’s economic recovery. It contrasts encouraging macroeconomic developments with the difficulties experienced by ordinary citizens in their daily lives.
The author, a former Deputy Governor of the Central Bank of Sri Lanka, identifies several concerns: (i) private-sector malpractices, (ii) difficulties experienced by senior citizens, (iii) shortcomings in public healthcare and education, (iv) administrative inefficiencies, (v) regulatory weaknesses and (vi) the exclusion of small borrowers from formal banking services.
These observations deserve serious consideration. Economic recovery cannot be assessed exclusively through (i) national accounts, (ii) fiscal balances, (iii) inflation rates and (iv) foreign-exchange reserves. The quality of economic recovery must also be evaluated by examining how it affects (i) households, b(ii) businesses, (iv) employment (v) opportunities, and (vi) access to essential services.
However, I would approach the issue from a somewhat different analytical perspective.
My strong view is that the bird’s-eye and worm’s-eye views should not necessarily be treated as two competing descriptions of the economy. They represent two interconnected dimensions of the same economic reality. Macroeconomic stability provides the foundation for recovery, while improvements in household welfare demonstrate whether that recovery is reaching the wider population.
The more important question, therefore, is not which perspective is correct, but (i) why the benefits of economic stabilization are not yet sufficiently reflected in people’s living standards and (ii) what needs to be done to address this gap.
Recognizing the achievements without overlooking the unfinished task
Sri Lanka’s economic recovery should not be underestimated. Following the unprecedented economic crisis of 2022, restoring economic stability required (i) difficult policy decisions, (ii) fiscal adjustments, (iii) monetary discipline, (iv) external financing arrangements, and (v) debt restructuring.
The World Bank’s October 2026 Sri Lanka Development Update provides important evidence of this progress. Real GDP returned to its 2018 level, and the economy recorded 4.7% growth during the first half of 2026. The Bank projects growth of 4.4% for the year.
These achievements represent a significant stage in the recovery process.
Nevertheless, the same World Bank assessment highlights that the recovery remains incomplete and uneven. Poverty was estimated at 16.9% in 2025, substantially above its pre-crisis level (i. e., according to data from the World Bank, poverty rose sharply during the economic crisis, peaking at 20.7% in 2023). Household incomes and labor-market outcomes continue to lag behind the broader economic recovery.
This distinction is fundamental.
An increase in GDP does not automatically translate into an equivalent increase in household disposable income. Similarly, improved fiscal balances do not necessarily mean that public services are being delivered more efficiently.
The challenge is therefore to preserve the achievements of macroeconomic stabilisation while creating the conditions necessary for those achievements to generate wider economic and social benefits.
The point is that stability should not be regarded as the final destination. It should be the platform from which Sri Lanka moves towards sustainable and inclusive prosperity.
From economic growth to household prosperity
One of the central challenges facing Sri Lanka is ensuring that economic growth generates sufficient productive employment and sustainable improvements in real household incomes.
Economic growth driven primarily by a recovery in existing activities may restore output without necessarily creating enough new opportunities. My concern is that Sri Lanka needs a broader transformation of its productive capacity.
This requires encouraging private investment, expanding exports to generate new FX earnings, diversifying sources of foreign exchange, improving productivity, and developing new areas of economic activity.
Agriculture, manufacturing, tourism, information technology, professional services and knowledge-based industries can all contribute to this transformation.
The agrifood sector, for example, offers opportunities extending beyond primary agricultural production. Food processing, packaging, storage, logistics, quality certification and international marketing can generate additional value and employment while strengthening export earnings.
Similarly, digital services and international professional services can create opportunities for skilled young people without depending entirely on traditional merchandise exports.
However, identifying potential opportunities is only the beginning. Businesses need predictable policies, access to finance, appropriate infrastructure, skilled workers and efficient administrative procedures.
Economic growth must increasingly be driven by productivity, investment and competitiveness rather than simply by the expansion of consumption and government expenditure.
Ultimately, the success of recovery should be reflected in (i) more employment opportunities along inclusive growth, (ii) higher real incomes and (iii) a gradual reduction in the financial pressures experienced by households. The latter is vitally important.
Strengthening institutions and accountability
The original article identifies several weaknesses in public and private institutions. These concerns point towards a broader issue: the quality of governance and institutional accountability.
Private-sector enterprises are important drivers of economic growth. However, commercial success should not provide protection for misconduct. Delayed payment of workers’ wages, insurance fraud and other unfair business practices require effective regulatory supervision and enforcement.
The Government must ensure that existing labour, consumer-protection and financial regulations are implemented consistently. Regulatory institutions should have the independence, resources and authority necessary to investigate complaints and take appropriate action.
The same principle applies to public institutions.
The difficulties identified in hospitals, schools, licensing departments and law enforcement agencies cannot be addressed simply by increasing expenditure or introducing new regulations.
What is required is a stronger performance-management culture.
Every major public institution should have (i) clearly defined service-delivery standards, (ii) measurable targets, (iii) transparent reporting arrangements and (iv) effective mechanisms for receiving and resolving public complaints.
For example, hospitals should monitor waiting times for essential procedures, medicine availability and the reasons for postponing scheduled operations. Educational authorities should assess actual classroom learning outcomes rather than relying exclusively on examination results. Administrative departments should establish reasonable time limits for issuing licences, registrations and other essential documents.
Public accountability should focus not only on whether budgets have been spent but also on what citizens have received in return.
Making financial inclusion meaningful
The concerns raised in the original article about small borrowers and informal moneylenders deserve particular attention.
Financial inclusion should not be measured merely by the number of bank accounts, branches or digital banking facilities available to the population. It should be assessed by whether individuals and small businesses can obtain suitable, affordable and responsible financial services when they need them.
Many small entrepreneurs operate viable businesses but lack conventional collateral, documented income or established credit histories. Consequently, they may be excluded from formal banking facilities even when they have reasonable prospects of repayment.
This creates opportunities for informal lenders charging excessive interest rates and imposing repayment arrangements that can trap borrowers in continuing debt.
Commercial banks and specialised financial institutions need to develop more flexible approaches to assessing small borrowers. These could include cash-flow-based lending, simplified documentation, appropriate credit guarantees and financial advisory services.
At the same time, regulatory supervision of microfinance and moneylending activities must be strengthened to protect vulnerable borrowers from abusive practices.
Financial literacy is also important, but it should not become an excuse for transferring responsibility to borrowers. Financial institutions and regulators must ensure that products are transparent, lending practices are responsible and customers have access to effective complaint-resolution mechanisms.
A financially inclusive economy should enable small businesses to grow, create employment and contribute to national productivity rather than leave entrepreneurs dependent on expensive informal credit.
Protecting vulnerable households and strengthening social protection
Economic recovery must also recognise that different groups experience economic changes differently.
Senior citizens dependent on interest income, pensioners, low-income families, persons with disabilities and households with limited employment opportunities may experience considerable difficulties even when national economic indicators improve.
The concerns raised about senior citizens are particularly relevant in a society experiencing demographic change and increasing life expectancy.
Policy responses should be based on a careful assessment of household incomes, taxation, healthcare expenditure, pension adequacy and the availability of social assistance.
Rather than relying on broad and costly subsidies, the Government should strengthen well-targeted social protection programmes. Assistance should reach those who genuinely need it, with transparent eligibility criteria and periodic assessments.
Similarly, tax policy should seek an appropriate balance among revenue mobilization, fairness, and the protection of vulnerable groups. This means that increasing revenue as a percentage of GDP alone is not a good performance criterion.
Indeed, the objective should not be to undermine fiscal consolidation. It should be to ensure that the burden of adjustment does not fall disproportionately on households least able to absorb it.
Protecting vulnerable citizens is not separate from economic development. It contributes to social stability, human capital formation and the productive capacity of the economy.
Improving public expenditure and service delivery
Sri Lanka’s fiscal adjustment has placed considerable emphasis on increasing government revenue and controlling expenditure. Both are important for maintaining debt sustainability.
However, fiscal discipline should not be interpreted simply as spending less. It should also mean obtaining better outcomes from every rupee of public expenditure.
The Government must examine whether resources are being allocated to activities that generate the greatest economic and social returns.
In healthcare, priority should be given to essential medicines, diagnostic facilities, preventive care and the efficient management of hospitals.
In education, investment should focus on improving teaching quality, classroom learning, technical and vocational training and the alignment of education with labour-market requirements.
Public investment should also address infrastructure bottlenecks affecting agriculture, manufacturing, tourism and export-oriented businesses.
Equally important is the need to improve public procurement, project selection and implementation. Delays in executing approved development projects can undermine economic growth even when fiscal targets appear satisfactory.
The objective should be to establish a public sector that is not merely fiscally disciplined but also (i) efficient, (ii) responsive and (iii) accountable.
Preventing another crisis through early action
The original article raises the possibility that ground-level dissatisfaction could develop into social, economic and political instability similar to that experienced in 2022.
My in-depth understanding is that this warning deserves consideration, but the comparison requires careful economic analysis.
The 2022 crisis was not simply the result of public dissatisfaction or inadequate public services. It involved a combination of serious macroeconomic imbalances, unsustainable debt, foreign-exchange shortages, inadequate external financing, and major policy failures.
The problems identified in the recent article are important, but they should not automatically be equated with the conditions that produced the 2022 collapse.
Nevertheless, they can weaken public confidence, undermine institutional credibility and reduce the social support necessary for sustaining difficult economic reforms.
The appropriate response is not to predict another crisis but to establish mechanisms for identifying and addressing emerging vulnerabilities before they become systemic problems.
The Government and relevant institutions should monitor not only (i) inflation, (ii) reserves, (iii) fiscal balances and (iv) debt indicators but also (v) household purchasing power, (vi) real wages, (vii) employment, (viii) poverty, (ix) access to essential services and the (x) financial health of small businesses.
A comprehensive early-warning framework should connect macroeconomic indicators with household and institutional performance.
This would enable policymakers to identify problems earlier and take corrective action before economic and social pressures become more difficult to manage.
Bridging the gap: An integrated policy framework
The issues discussed above cannot be addressed through isolated interventions. Sri Lanka needs a coordinated policy framework that links macroeconomic management, institutional reform, and household welfare.
Five priorities deserve particular attention.
First, preserve macroeconomic stability through sound fiscal management, monetary discipline, prudent debt management, and adequate external buffers. Without these foundations, improvements in household welfare will be difficult to sustain.
Second, accelerate productivity-led economic transformation by promoting investment, export diversification, innovation, skills development and new sources of foreign exchange. This should create productive employment and improve real incomes.
Third, strengthen institutional governance and accountability by improving regulatory enforcement, public-sector performance, procurement systems and the delivery of essential services.
Fourth, expand financial inclusion and social protection through affordable credit for viable small businesses, responsible lending, better-targeted assistance and appropriate protection for vulnerable households.
Fifth, introduce measurable household-welfare indicators alongside conventional macroeconomic targets. Economic policy should be assessed by examining whether people’s purchasing power, employment opportunities, access to education and healthcare, and overall economic security are improving.
These priorities require coordination among the Ministry of Finance, the Central Bank, regulatory institutions, provincial and local authorities, private-sector organisations and civil society.
Importantly, responsibilities should be clearly assigned, progress should be publicly reported, and outcomes should be independently evaluated.
Without such coordination, even well-intentioned policy initiatives may remain fragmented and produce limited results.
Conclusion: Stability must translate into prosperity
Sri Lanka has traveled a difficult road since the economic crisis of 2022. The restoration of macroeconomic stability represents an important achievement, but it should not be confused with the completion of economic recovery.
The concerns highlighted in the Daily FT article are a reminder that national economic performance must ultimately be judged by its impact on people’s lives. However, identifying ground-level difficulties is only the beginning of the policy discussion.
The more important task is to understand why these difficulties persist, identify the institutional and structural weaknesses responsible for them, and establish practical measures to address them.
There is no inherent contradiction between macroeconomic stability and household prosperity. Indeed, they should reinforce each other. Stable economic conditions create opportunities for investment and employment, while stronger household incomes, productive businesses, efficient institutions, and public confidence contribute to the sustainability of economic recovery.
Sri Lanka should therefore move beyond the debate over whether the bird’s-eye or worm’s-eye view provides the more accurate picture. Both perspectives matter. The real challenge is to connect them through coherent economic policies and institutional reforms.
The ultimate test of Sri Lanka’s economic recovery is not simply whether the economy is stable and growing, but whether that stability generates productive opportunities, improves household prosperity, and creates a better quality of life for its people.
That is the transition Sri Lanka must now pursue: from economic stabilisation to sustainable and inclusive prosperity.
(The writer served as the Special Advisor to the Office of the President of Namibia from 2006 to 2012 and was a Senior Consultant with the UNDP for 20 years. He was a Senior Economist with the Central Bank of Sri Lanka (1972-1993). He can be reached via asoka.seneviratne@gmail.com.)