Sri Lanka is well known for achieving high levels of human development at relatively low levels of GDP per capita. Successive governments have invested heavily in education, health and welfare programmes and this has been associated with the country achieving levels of life expectancy and literacy that are comparable to industrial countries. However, these human development achievements and high levels of public expenditure on social welfare, have not eradicated deprivation. Over one-fourth of pre-school children still suffer from undernutrition and between one quarter to a third of the population experienced income poverty in the mid 1990s. Further since the 1950s, the income accrued to the bottom 20% of the population is static at less than 4% of total income accrued to all households in the country. The country may have graduated from being ‘low income’ to ‘lower-middle income’ in 1999 when per capita GDP passed the US$800 hurdle, but poverty persists. Several factors contribute to the prevailing poverty levels and these are inadequate economic growth, low economic benefit trickle down to the poor, high state expenses on defence due to the prevailing secessionist conflict in the North and inefficient allocation of resources to the deprived populations and regions in the country.