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Over nine million people, or more than 40% of Sri Lanka’s million population, have slipped into the official poverty bracket due to the country’s unending economic crisis, a recent survey conducted by a reputed university has found.
The steepest rise in poverty levels took place after January this year, said professor Wasantha Athukorala from the Department of Economics and Statistics at the University of Peradeniya, who oversaw the island-wide survey.
“This is a very serious situation in the country,” professor Athukorala told this writer in an email interview. “Poorer households are the hardest hit owing to food inflation, job losses, limited fertiliser supply and drop in remittances.”
According to him, the latest changes in the tax structure – increased direct and indirect taxes – have only exacerbated the situation, affecting innumerable middle-income families and sparking murmurs of more mass discontent in Sri Lanka.
Although the country’s economic indicators had been slipping visibly since 2021, massive street protests shook the nation from March this year, leading to the abrupt resignation of Prime Minister Mahinda Rajapaksa in May and the dramatic escape of President Gotabaya Rajapaksa in July.
The Rajapaksas are widely blamed for the economic mess, caused by irrational tax cuts, curbs on imported fertiliser, huge spending on projects now dubbed as ‘white elephants’, external borrowings and widespread corruption.
Normally, the Department of Census Statistics (DCS) estimates poverty in Sri Lanka using the Household Income and Expenditure (HIE) Survey every three years. But no findings were released this year.
Meanwhile, the World Bank argued that Sri Lanka’s ongoing financial crisis may increase poverty from 13.1% in 2021 to 25.6% in 2022, which is equivalent to over 2.5 million people falling into poverty during the period. This would bring poverty back to close to the 2009 levels, the year the Tamil separatist campaign ended.
With no scientific evidence about the poverty situation now, a research team of the University of Peradeniya, including professor Muditha Karurathna, professor Tilak Bandara, Dr. Shyamantha Subasinha and Lakshika Wiragoda conducted the study under the leadership of professor Athukorala.
Using official data and adjusting them to the real gross domestic income range, the study concluded that the number below the poverty line has now swelled to over nine million – a whopping 40% of Sri Lanka’s over 21 million people.
“Our estimates considered only the lower bound of the income groups,” professor Athukorala said. “Therefore, this represents the lower limit of poverty in the country.” Analysis related to sector-wise distribution (urban, rural) and provincial-wise analysis is being done at the moment, he added.
This is Sri Lanka’s worst economic crisis since independence in 1948. Sri Lankan economic growth was unexpectedly lower in the past few years.
The country’s real gross domestic product (GDP) was reported to be -3.6% and 3.7% in 2020 and 2021, respectively. The GDP growth for the first half of 2022 was -4.8%. According to the South Asia Economic Focus, real GDP is expected to fall by 9.2% in 2022 and a further 4.2% in 2023.
The study showed that the average household monthly income fell to Rs 72,720 in July 2022 from Rs 76,390 in 2021. In the meantime, inflation shot up 52% between January and July 2022. During the same period, food inflation zoomed by 60% while non-food inflation soared by 45%.
During the same period, the official poverty line (OPL) increased by 66%. “All this provides the evidence that the steepest rise in poverty levels took place after January 2022,” professor Athukorala said.
According to him, it is obvious that most people from the lower income group have reduced their number of meals, shifted to low quality and low-priced commodities, and cut their children’s health and education expenditure.
“We are conducting a school survey at the moment. Preliminary findings support that school attendance is relatively less and student behaviour has changed drastically (more violence, not concentrating, not doing homework),” he said. Most reports say that children and pregnant mothers from the poor sections are at a high risk of nutritional deficiencies.
But while rural households try to find various things from their own home gardens for survival, this facility is not available to most urban families. “Therefore, households in the urban areas are severely affected by the food crisis,” he added.
The study showed that all marginalised groups across the country were severely affected during the given period. For example, more than three million people in fisheries, more than one million in the plantation sector and some 300,000 daily wage earners were the direct victims. Twenty percent of those hit hardest live in slums.
The professor lamented that the recent tax revisions have most seriously affected the micro, small and medium enterprises (MSME), which account for more than 75% of all businesses, provide 45% of all jobs, and contribute 52% of the GDP in Sri Lanka. The MSME sector provides livelihood to nearly 2.23 million people, which is more than 75% of the total private sector employment in the non-agricultural sector. This is expected to cause more problems in Sri Lanka.
He also felt that the interim budget presented by finance minister and Prime Minister Ranil Wickremesinghe has given some attention to the badly needed direct cash transfer to the poor households. These include providing immediate relief to around 3.2 million people. Among other steps, the allowance paid to the elderly, differently abled and kidney patients was increased to an amount ranging between Rs 5,000 and Rs 7,500.
The allocation of Rs 40 billion for the import of urea for paddy cultivation in the 2022-23 season, and fertiliser procurement could help paddy farmers to get a good harvest in the coming season, he added.
But the monthly inflation rate (year-on-year) jumped from 3% in January 2021 to a stunning 70% in August 2022 as an outcome of the exchange rate revision, causing an unprecedented increase in the prices of food, medicines and other household necessities. While the earlier serpentine queues at the fuel stations are gone, essential medicines are still in short supply across Sri Lanka.
“Sri Lanka must address its long-standing economic weaknesses with a sound macroeconomic policy framework which is yet to be developed,” he said. “The country’s political crisis has remained an impediment to the ongoing process. Certain essential measures such as improved governance and eliminating corruption are still not given proper attention.”