This Poverty Assessment report reviewsthe evolution, and nature of poverty in Sri Lanka, byexamining why its significant, recent economic downturncontrasts sharply with its considerable, economic advancesduring the 1960s; why poverty fell rapidly, and to arelatively, low level in some areas, though it remained highin other parts of the country; and, whether the largeresources given to re-distributive programs, really helpedreduce poverty. In response, Sri Lanka's hesitantattitude towards progressive economic, and social policiesis seemingly the answer, for these policies would haveremoved the regulations that hinder effective markets, andthe private sector, and, would have provided neededinfrastructure, and social services, accommodating diversitywithin its social policies, through resources, andopportunities for the poorest. Notwithstanding gradual,economic liberalization, the economy is still more protectedthan in countries which started liberalization much later.The regulatory environment - particularly restrictions onlabor, and land markets - and weak competitive financialmarkets, make the investment climate less friendly than thatof competitors in the East. Regarding the role of the statein the economy, still large shares in the banking system,insurance industry, power, and water utilities, amongothers, are government owned. In terms of social policies,the country has a long tradition of protecting acquiredrights, and encouraging patronage, rather than stimulatingmarket-based creation of opportunities. The reportstipulates the need for creating a policy environment thatfacilitates poverty reduction, through a strong fiscalpolicy, deregulation and privatization, agricultural growthpolicies, and labor market flexibility, based on publicservices that reach the poor, i.e., improved quality ofeducation, effective social safety nets, and transparentpublic administration.
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