This publication is a paper presented at the Assessment of Poverty Reduction Policies conference under the Micro Impacts of Macroeconomic Adjustment Policies (MIMAP) Project in January, 2002. Sri Lanka is well known for achieving high levels of human development at relatively low levels of GDP per capita. Heavy investments have been made by successive governments in education, health and welfare programmes. However these human development achievements and high levels of public expenditure on social welfare have not irradiated poverty in Sri Lanka, malnutrition, ageing population, unemployment (especially for those in the informal sector) continues. This paper seeks to understand the reasons and characteristics of poverty in Sri Lanka and propose strategies to overcome these problems. The MIMAP Project in Sri Lanka primarily aims at informing policymakers of the possible effects of macroeconomic adjustment policies on vulnerable groups.The research project aims to fill perceived gaps in information and knowledge regarding the impact of macroeconomic and adjustment polices on the welfare of the poor, and also channels of transmission through which macro policy reaches the micro level.