Poverty And Human Development In Sri Lanka
Poverty and Human Developmentin Sri LankaRamani Gunatilaka, Guanghua Wan, and Shiladitya Chatterjee
Poverty and Human Development in Sri Lanka 2009 Asian Development BankAll rights reserved. Published 2009.Printed in the Philippines.ISBN 978-92-9092-202-5Publication Stock No. RPT102857Cataloging-In-Publication DataAsian Development Bank.Poverty and human development in Sri Lanka.Mandaluyong City, Philippines: Asian Development Bank, 2009.1. Poverty 2. Human development 3. Sri LankaI. Asian Development Bank.The views expressed in this publication are those of the authors and do not necessarily reflectthe views and policies of the Asian Development Bank (ADB), its Board of Governors, or thegovernments they represent.This report was finalized in 2008, before the end of Sri Lanka’s conflict in May 2009. The finalsection dealing with Human Development in Conflict-Affected Areas needs to be read againstthis background.ADB does not guarantee the accuracy of the data included in this publication and accepts noresponsibility for any consequence of their use.By making any designation of or reference to a particular territory or geographic area, or byusing the term “country” in this document, ADB does not intend to make any judgments as tothe legal or other status of any territory or area.ADB encourages printing or copying information exclusively for personal and noncommercialuse with proper acknowledgment of ADB. Users are restricted from reselling, redistributing,or creating derivative works for commercial purposes without the express, written consentof ADB.Asian Development Bank6 ADB AvenueMandaluyong City1550 Metro ManilaPhilippinesTel 63 2 632 4444Fax 63 2 636 2444www.adb.orgFor orders, please contact:Department of External RelationsFax 63 2 636 2648adbpub@adb.orgii
ContentsExecutive SummaryviiIntroduction1Poverty and Inequality in Sri Lanka3Income Poverty and Inequality3Non-Income Millennium Development Goal Indicators6Correlates of Poverty11Location-Specific Factors11Sector-Specific Factors12Attributes of Individuals and Households15Government Policies and Initiatives17The History of Pro-Poor Policy Initiatives17Current Approach: Mahinda Chintana18Institutional Constraints22Human Development in Conflict-Affected Areas24Introduction24Human Development Issues25Food, nutrition, and social protection25Education and health26Loss of identification documentation27Prospects for Resettlement27Prospects for Regeneration of Livelihoods28Institutional Arrangements for Relief, Rehabilitation, and Development29Conclusions31References33iii
Poverty and Human Development in Sri LankaList of TablesivTable 1: Sri Lanka’s Macroeconomic Indicators2Table 2: Poverty and Inequality in Sri Lanka3Table 3: Poverty Indices and Access to Infrastructure, by Province4Table 4: Progress Toward Millennium Development Goals7Table 5: Selected Human Development Indicators, by Sector and Province10Table 6: Poverty Rates by Industry, Education, and Occupation ofHousehold Head, 200213
ADB–Asian Development BankCCHA–Consultative Committee on Humanitarian AssistanceGDP–gross domestic productIDP–internally displaced personLTTE–Liberation Tigers of Tamil EelamMDG–Millennium Development GoalPMTF–proxy means test formulaSMEs–small and medium-sized enterprisesUAS–Unified Assistance SchemeUN–United NationsWFP–World Food ProgrammeAcknowledgmentAbbreviations
Poverty and Human Development in Sri LankaMap Showing Sri Lanka’s Provinces81o 30'E80o00'EPalkStraitKankasanturaiKodikamamSRI LANKAJaffnaKilinochchiPalkNational CapitalBayMullaittivu9o00'NChief Provincial TownCity/TownTanniyuttuNational RoadMankulamTalaimannarProvincial ovincial BoundaryBoundaries are not necessarily authoritative.VavuniyaGulf of MannarTrincomaleeHorowupotanaAnuradhapuraNORTH SRI JAYAWARDENEPURA KOTTEMoratuwaAmparaTalawakeleNuwara Eliya aAkuressaGalleSOUTHERNMataraNHambantotaTangalle010 20 30 40 50KilometersINDIAN80o00'EOCEAN81o 30'E09 SRIbase HR
Executive SummaryThis report aims to summarize the current state of poverty in Sri Lanka by tracing its causes and recommending policies. Special attention is paid to humandevelopment issues in the conflict-affected areas. The ongoing conflict in thenorth and east remains both the principal cause for poverty and the most binding constraint to human development in Sri Lanka.Poverty Profile and Millennium Development Goals in Sri LankaSri Lanka is an early achiever in the Millennium Development Goals (MDGs) of universal primary school enrolment, gender parity in school enrolment, under-five mortality,universal provision of reproductive health services, tuberculosis prevalence and deathrates, and sanitation. Sri Lanka is on track to halve extreme poverty between 1990 and2015. Nevertheless, 15% of all Sri Lankans remained poor in 2006 and differences byregion and sector are large.Poverty was significantly reduced in the urban and rural sectors between 1990and 2006. However, poverty in the estates increased by over 50%.1 In the estates,there is widespread child malnutrition and maternal mortality rates are exceptionallyhigh. Western Province has performed much better than other regions. It accounts forhalf of national gross domestic product (GDP) while other provinces contribute 10%or less each.Poverty reduction in recent years was entirely due to income growth as incomeinequality rose in all three sectors. The rise in inequality was driven by uneven accessto infrastructure and education, and by occupational differences. Demographic factors such as gender composition of household labor and ethnicity contributed little tototal inequality.Sri Lanka did not achieve the kind of structural transformation that could haveprovided greater employment opportunities for the poor in the nonfarm sector. Since1985, the share of manufacturing in total GDP has hardly changed. Low rates of jobcreation in the formal sector, plus high wages there because of collective bargaining,and periodic statutory directives lead to the rationing of formal jobs on the basis of classand connections, which the majority of the poor lack. This problem is compoundedby the lack of labor mobility as labor markets are highly segmented with spatial,skills-related, and institutional barriers to the movement of labor within and betweenregions. Many are pushed into informal employment by greater distance from commercial centers; lack of access to roads, electricity, schooling, and health facilities; andby poverty which limits their investment opportunities.Geographic isolation is particularly acute for the estates sector. Poverty reducedmuch faster in Western Province than elsewhere because the province had geographical1Estates are tea plantations, mainly in southern and central Sri Lanka. The majority of the workers areethnic Indian Tamils.vii
Poverty and Human Development in Sri Lankacomparative advantages that enabled it to benefit from the macroeconomic liberalization of 1977. The factors that constrain investment and growth in poorer provincesappear even stronger at the district level. Holding other factors constant, the probability of a household being poor falls by almost 3% with a unit increase in the accessibility index of the district where the household is.2Poor performance in agriculture is caused by the unintended fallout of government interventions to protect the rural sector. Agricultural research, carried out almostexclusively by public sector organizations, paid little attention to the profitability ofrice production. Private sector investment in agricultural research has been hamperedby the absence of intellectual property rights protection and restrictive seed and phytosanitary policies. Private sector research and development institutions face considerable hurdles for accessing funding schemes established by the government. Theagriculture extension service was weakened by its devolution to the provincial councilsand the reassignment of field agricultural extension workers as grama niladharis, orvillage administrative officials of the central government. Inadequate funding of operations and maintenance of irrigation systems led to the rapid deterioration of canalsystems and poor quality of services. Agricultural tariffs have been subject to frequentchange, driven by political imperatives to dampen the cost of living. This has increasedprice risks for farmers, consumers, and local entrepreneurs.Poverty is also associated with low educational attainment. The education systemhas been based on rote learning, abstraction, and authority which have inculcatedattitudes that avoid challenges. This has placed children from poor families at a disadvantage as they lack the means to obtain work-oriented skills from fee-levying institutions. Certain cultural factors such as male dominance, alcoholism, and high tolerancefor domestic abuse make for poverty in some communities.Policy Initiatives on Poverty and GrowthGovernment preoccupation with poverty, inequality, and welfare goes back to the19th century when sectarian conflicts forced the colonial government to intervenein the health and education sectors. The grant of universal franchise in 1931 and theinfluence of Marxist politics since the 1930s have ensured that this preoccupationremains largely in place. The post-liberalization era saw continued social conflict andgreater political instability related to unequal income distribution in spite of fastereconomic growth. A violent youth insurrection that reached its heights in 1989 triggered growth and balance of payments crises which necessitated a second wave ofeconomic reform.The government increased expenditure on health and education and initiatedother programs to increase consumption and self-employment among the poor. Theold food stamps scheme was replaced by the Janasaviya (Self-Help) Programme, atargeted income transfer program. Credit facilities were provided through the WorldBank–funded Janasaviya Trust. The government also sought to bridge the development gap between the urban and rural areas by providing incentives for industries tolocate in rural areas. Following a change of government in 1995, the Janasaviya Programme was replaced by the Samurdhi (Prosperity) Programme, consisting of a smallrural infrastructure component and a large income transfer component, and a seriesof pro-poor credit schemes including the Grameen-type Samurdhi Bank scheme.2viiiThe accessibility index is defined and constructed as the reciprocal of the road network travel time tonearby town.
Executive SummaryRecently, the government recognized that there are many correlates of poverty,which require an integrated development policy. The current policy framework isencapsulated in Mahinda Chintana (President Mahinda’s Vision), a 10-year development plan. Its mission is to develop regionally dispersed urban growth centers andsmall and medium-sized townships, and to integrate them with well-serviced ruralhinterlands, as well as with domestic and international markets, through provincialand rural access roads, highways, railways, and ports. Under the Mahinda Chintana,industrial export zones, techno parks, and industrial estates will be established on abuild–operate–transfer or build–operate–own basis.Nevertheless, problems remain. Several Mahinda Chintana programs are vulnerable to political capture by local elites. The Samurdhi income transfer program needs tobe reformed so that it can target more support for those who really need it. Proposedcredit lines to help small and medium-sized enterprises (SMEs) may be unsustainablein the long run. A better way to help entrepreneurs who have no collateral is to furtherdevelop the Samurdhi Bank system and provide credit plus services to members whohave proved their creditworthiness.Human Development in Conflict-Affected AreasFood and nutrition are serious issues in the conflict-affected areas. Restrictions on thetransport of certain inputs that might be diverted to military use have depressed localproduction of essentials, thereby exacerbating shortages. Nevertheless, access to education for internally displaced persons (IDPs) has been relatively high. Also, coverageof basic health services such as immunization, antenatal care, and skilled attendanceat childbirth in the IDP population was not much lower than elsewhere.A major problem with human development in the conflict-affected areas is causedby the loss of identity documentation such as birth certificates and national identitycards, which severely constrains the mobility and security of IDPs. Restoration of livelihoods for IDPs depends mainly on the prospects of resettlement, which may be moredifficult for those who lost their identification documentation.Almost all young IDPs lack a working knowledge of Sinhala, which is essential forrelocating to and working in southern Sri Lanka, where employment prospects arebetter and Sinhala is the lingua franca.The government has recently adopted a coordinated approach to deal with rehabilitation and development in conflict-affected areas. Lack of resources is the mainconstraint. While planning and coordination of activities for the development phasein Eastern Province are progressing apace, they are still being developed for NorthernProvince.Future OutlookThe current global economic crisis is likely to curb future growth, making it hard toachieve a marked reduction in poverty. However, if the security situation in the conflict-affected areas improves, Sri Lanka may be able to weather the crisis better. ForSri Lanka as a whole and for conflict-affected regions in particular, urgent measuresare needed to speed up rehabilitation of IDPs and further the peace process.Sri Lanka’s most pressing need is to generate a growth dynamic that would integrate markets and regions, engineer a more intensive structural transformation ofix
Poverty and Human Development in Sri Lankathe economy and workforce, and see more rural poor move into better paying nonfarm employment. Investment in human capital will generate expected returns onlyif the nonfarm sector generates more jobs at higher wages. This requires a massiveinfrastructure push to improve connectivity to domestic and international markets.Otherwise, better education in conjunction with limited job opportunities is a recipefor insurrection and violence, as forcefully demonstrated by Sri Lanka’s experienceover the last three decades.Sri Lanka has the highest electricity tariffs for businesses in the region due todelayed development of power projects. The energy sector also faces underinvestment and delayed investment, poor reliability and quality of electricity supply, highdebt, and high price of petroleum products. It is strongly recommended that the AsianDevelopment Bank (ADB) and other development agencies continue their programs ofassistance to develop infrastructure in Sri Lanka, but with an eye to integrating markets and regions and enhancing productive capacity in strategic growth centers. This isone of the most effective and efficient ways to reduce poverty in Sri Lanka.
IntroductionSri Lanka’s complementary mixof growth-oriented and welfare policies over the last threedecades have seen average incomes rising across the board and morepeople in higher income ranges thanever before (Gunatilaka et al. 2006).Nevertheless, rising income was accompanied by rising inequality and the decline in the poverty rate between 1990and 2002 was modest (World Bank2007). In 2006–2007, 15% of Sri Lankanswere poor, compared with 23% in 2002.The significant reductions in povertyoccurred in urban areas and in localitiesclose to the metropolitan hub of Colombo(Department of Census and Statistics2008). Poverty reduction in Sri Lankaappears to be largely attributable to thetrickle-down effect.In 2006, the Sri Lankan economygrew 7.4%, the highest in the last threedecades (Table 1). This was followed by arespectable 6.8% growth in 2007. Vigorous private sector activity, strong exportgrowth, and a resurgent agriculture sector powered growth in gross domesticproduct. However, inflation acceleratedin 2008, spurred on by high food andenergy prices, and fiscal expansion. Realwages, particularly in the private sector,have eroded despite declining unemployment. Even though expanded earningson the services account and increasedremittances helped mitigate the inevitable widening of the current accountdeficit, rising oil prices and food importbills exerted relentless pressures on thetrade deficit. In recent years, increasedforeign direct investment, grants, andloans to government have helped balance the external payments, and somefiscal consolidation has been achieved.But overruns on recurrent expenditure—largely fuelled by increased defense expenditure, a higher wage bill, and energysubsidies—have been harder to rein in.The international economic crisiswill work against Sri Lanka achievingthe economic growth targets envisagedin the 10-year development frameworkin the next few years. Greater defenseexpenditure may also crowd out muchneeded public investment. However, ifsecurity in the conflict-affected areasimproves, enabling investment and development in those areas and elsewhere,Sri Lanka may be able to weather theimpact of global economic downturnmore easily.This report aims to summarize thecurrent state of poverty in Sri Lanka bytracing its causes and recommendingpolicies. Special attention will be paid tohuman development issues in the conflict-affected areas.
Table 1: Sri Lanka’s Macroeconomic IndicatorsPoverty and Human Development in Sri l OutputNominal GDP (Rs billion)1,2581,4071,5821,7612,0292,3662,802Real GDP (1996 100)8578438779309801,0391,116Real GDP growth (annual %change)6.0(1.5)4.06.05.46.07.4Agriculture (% change)1.8(3.4)2.51.6(0.3)1.94.7Industry (% change)7.5(2.1)1.05.55.28.37.2Services (% change)7.0(0.5)6.17.97.66.28.3Export value growth (1997 100)29.22.44.610.117.98.912.6Current account balance(% of GDP)(6.4)(1.4)(1.4)(0.4)(3.2)(2.8)(4.9)External SectorExchange rate (Rs– period average)FDI ( 7.98.88.18.17.26.5Prices, Wages, UnemploymentInflation (SLCPI, 1995–1997 100)Minimum real wage rate index(Wages boards trades)Unemployment rate 1.99.7Public expenditure (% of GDP)26.727.525.423.723.524.725.4Public investment (% of GDP)6.45.94.65.04.86.36.3Fiscal deficit (% of GDP)9.910.88.98.08.28.78.4FemalesGovernment Finance( ) negative value, FDI foreign direct investment, GDP gross domestic product, Rs rupee,SLPCI Sri Lanka Consumer Price Index, US dollars.Source: Annual Reports of the Central Bank of Sri Lanka, various years.
Poverty and Inequalityin Sri LankaThis section presents poverty statistics for 1990–2007. However,the analysis is limited to 1990–2002 and deals almost entirelywith poverty and inequality in the areasoutside the conflict-affected north andeast where data collection has not beenpossible. Nevertheless, whatever information is available is used to discuss human development issues in conflict-affected areas in section 5.Income Poverty and InequalitySlow progress in poverty reduction between 1990 and 2002. Sri Lanka is on trackto halve the proportion of people whoseincome is less than 1 per day between1990 and 2015 (United Nations EconomicSocial Commission for Asia and the Pacific[UNESCAP] et al. 2007) Neverthe
Sri Lanka is an early achiever in the Millennium Development Goals (MDGs) of univer- sal primary school enrolment, gender parity in school enrolment, under-five mortality, universal provision of reprod
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