Fighting poverty

Today is the International Day for the Eradication of Poverty. Sri Lanka over the decades has made significant strides to reduce poverty but there are ongoing challenges in understanding the nature of poverty and how it can be tackled. 

Recently, the Government took steps to expand Samurdhi by 600,000 people. Samurdhi is the largest social welfare program in the country, which was allocated Rs. 43 billion in 2017 and already has about 1.4 million families on its roster. Key presidential candidates have also gone on record with their plans to eradicate poverty but there is an absence of clarity about how the Samurdhi program should be developed. 

Many analysts, and even politicians themselves, have admitted that the selection process for the program has been less than ideal, with many families that are not below the poverty line competing to receive Samurdhi funds. Budget 2019 will attempt to adjust this but given that Sri Lanka has a high percentage of families nearing poverty, inclusion remains attractive. 

The politicisation of Samurdhi is also helped by the fact that poorer families also find it difficult to access loans from conventional banks. Since their financial inclusion is poor, Samurdhi recipients are more likely to turn to the Samurdhi Bank, which will provide them with capital at moderate interest rates, an easy and better alternative to loan sharks. 

On paper, this plan does not seem to be as bad as some of the other ideas the Government has had over the years. However, the problem with increasing Samurdhi recipients is that unless allocations are also raised proportionately, the impact of the funds is reduced. In addition, the leakage of funds could also increase, straining an already difficult public finance situation.  

The World Bank, in a 2016 benchmarking exercise, found that Samurdhi has had a minor and decreasing impact on poverty reduction. Samurdhi transfers are too small to make a large impact on poor households’ budgets, as they contributed only 1.7% to household consumption of the poorest 20% of the population in 2012/13. In other words, subtracting the Samurdhi benefit from household consumption would increase the national poverty rate by 2.1% points in 2020. But by 2012/13, the comparable figure had declined to merely 0.6% points.  

On the basis of this data, it could be argued the time has come for the Government to decide whether Samurdhi is a poverty alleviation program or an entrepreneurship drive. If it is the former, then Samurdhi should be reformed so only genuinely poor families are identified and are given a higher amount of funds that can have a tangible impact. The Government should also regularly gather data on these families to track how many of them emerge from poverty and link Samurdhi to healthcare, education, housing and other projects to ensure the most vulnerable are properly assisted. Sri Lanka currently has two million Samurdhi recipients.  

If on the other hand, the Government decides Samurdhi is an entrepreneurship program, then it should reform the Samurdhi Bank and link it to other complementary programs such as Enterprise Sri Lanka. Failing to have clear policies with well-defined targets has been the fault of successive governments. Politicians should not misdirect and waste public funds under the guise of poverty alleviation without having transparent, efficient and achievable policies in place first.