The current economic crisis is estimated to have doubled the country’s poverty rate between 2021 and 2022. The jump from 13.1 to 25.6 percent ($3.65 per capita PPP) has increased the number of poor people by 2.7 million. The COVID-19 crisis had already increased poverty from 11.3 percent in 2019 to 12.7 percent in 2020, a change which translated to over 300,000 new poor people in that year.
The World Bank, in its Sri Lanka Development Update warns the country is now experiencing its highest poverty rate since 2009, resulting in an erosion of the steady gains in welfare made between 2006 and 2019.
It points out that while 80 percent of the poor still live in rural areas, the poverty rate in urban areas has tripled from 5 to 15 percent between 2021 and 2022. ‘Half the population in estate areas is now living below the poverty line. Across districts, Mullaitivu continues to be the poorest (57 percent poverty in 2022), followed by Kilinochchi and Nuwara Eliya’.
A sharp increase in the cost of basic needs is one of the key mechanisms through which welfare has been impacted, while livelihoods and productive potential are also being substantially eroded.
Unlike many countries around the world that relied on well-functioning and robust social registries to respond to the pandemic, there were inefficiencies in Sri Lanka because it could not rely on existing systems and institutions to respond to the crises rapidly and effectively.
The Update explains how the impact of the government’s response was limited by a lack of data on which households were worst affected, as well as manual identification and payment systems.
It elaborates how even before the pandemic, the main cash transfer programs were poorly targeted and how the cost of their poor targeting performance is borne by the most vulnerable households. The main social assistance programs such as Samurdhi, Elderly Allowance, Disability Allowance, suffered from significant exclusion and inclusion errors in 2019. ‘Resources that are haemorrhaged to less deserving households could instead be redirected to those in the bottom 20 percent of households who do not receive any social assistance’, it said.
The impact of the emergency social assistance response could have been even more effective if the adequate social protection institutional and delivery systems had been in place. The Welfare Benefits Board (WBB) – the institution responsible for coordinating the management of data on welfare applicants and beneficiaries and advising on selection mechanisms for welfare programs – was dormant during the pandemic. In the absence of a well-functioning social registry and payment system, assistance was provided based on existing lists of current program beneficiaries and waiting lists assembled between 2016 and 2019. This meant that social assistance did not reach the newly poor – who had not earlier needed assistance – and that some beneficiaries received more transfers and top-up than planned.
Further undermining the already low generosity and effectiveness of social assistance programs were inflation and volatility in the price of basic needs through the commodity market.
The World Bank recommends short and medium term steps that can be taken to protect the poor and vulnerable during the period of macroeconomic adjustment. Among the short term measures are increasing financing for social assistance as a priority, investing in establishing and operationalising the Welfare Benefits Board and a social registry and revisiting the generosity of cash transfers, particularly for some vulnerable groups. It also recommends that Sri Lanka adopts more modern payment systems for cash transfer programs and develops a social protection system that can scale up and phase out where needed. In the medium to long-term it suggests that Sri Lanka needs to transition to a more fiscally sustainable and inclusive social insurance and aged care system, and the strengthening of its productive inclusion programs. The need for a social protection strategy is highlighted to guide overall social protection reform to ensure coordination across government.
