Despite its healthy economic growth, Sri Lanka,s development is perceived to be well below its potential, due to good macroeconomic management, and progress in trade liberalization. The civil conflict has not only taken a heavy social and economic toll on the country,s performance, it hasalso weakened governance and public institutions, although a dominance on the financial sector and utilities has been maintained.This further exacerbates productivity, having lost opportunities in terms of growth, and employment. The study examines recent economic and social performance, indicating the priority challenges the country needs to face and vulnerabilities it needs to overcome. Resolving the civil conflict should be paramount. In addition, the role of the Government needs to be revised as well as reduced, through strong policy reforms, the fiscal deficit needs to be reduced,the structure of expenditures improved, and policy distortions in the labor market, removed. The privatization process needs to be enhanced, through reduced numbers of public institutions, effective decentralization, and addressing weaknesses in governance. The study also addresses the dimensions of poverty, exploring vulnerability, insecurity, and marginal poverty, and suggesting governance issues in poverty programs, and issues for future poverty strategy. Above all, success lies in the full collaboration of all stakeholders.