Analysis of Sri Lanka’s recent progressin reducing poverty and inequality is directly relevant tothe new government’s development agenda. The newly sworn-inpresident ran for election on a platform that featured,among other goals, inclusive growth and support to theagricultural sector. The pursuit of these and other goals ofthe new administration can be informed by a fullerunderstanding of recent developments in household livingstandards across the country. Yet the World Bank’s mostrecent poverty assessment in Sri Lanka, covering the periodfrom 1990 to 2002, was published a decade ago. Since then,domestic economic growth, the end of the civil conflict andfluctuations in global markets has led to substantialchanges in Sri Lanka’s economic environment. To inform thenew government’s development policies, this report examinesfive topics related to recent developments in poverty andwelfare. Sections two through five of the report focus on:(i) trends in poverty, welfare, and inequality since 2002,(ii) labor market outcomes associated with the observedreduction in poverty, (iii) four potential causes of thispoverty reduction, (iv) the state of poverty and inequalityin 2012/13, and (v) the role of social protection inreducing poverty. Section six concludes by pointing outfuture implications and remaining knowledge gaps to continueto reduce poverty and improve living standards. Thisanalysis draws mainly on data from the 2002, 2006-07,2009-10, and 2012-13 rounds of the Household Income andExpenditure Survey, supplemented by annual rounds of thelabor force survey from 2002 to 2012. Since the surveyscould not be conducted in parts of the Northern and Easternprovinces before 2011 due to the civil conflict, theirgeographical coverage varies from year to year. To ensurecomparability, all historical trends presented in thisreport correspond to the same geographic area. With theexception of figures that are based solely on 2012-13 data,the figures exclude Northern and Eastern provinces, whichaccount for about 12.9 percent of the total population. Amore detailed description of the data is provided inappendix one.