Sri Lanka’s record of poverty reduction encouraging: WB

• Excluding Northern and Eastern Provinces, poverty headcount rate fell from 22.7% in 2002 to 6.1% in 2012/13
• Living standards remain low and pockets of severe poverty persist
• Social assistance programs need attention and important knowledge gaps remain

Sri Lanka’s overall record of poverty reduction has been encouraging but living standards remain low and pockets of severe poverty persist, according to a recently-released World Bank report on the analysis of poverty reduction programs and their progress.

According to the authors of the report, ‘Sri Lanka Poverty and Welfare: Recent Progress and Remaining Challenges,’ analysis of Sri Lanka’s recent progress in reducing poverty and inequality is directly relevant to the new Government’s development agenda.

The report, which draws on data between 2002 and 2012, notes that trends in poverty have shifted, and better wages have transformed lives. Post-war domestic economic growth and fluctuations in global markets have reduced poverty and driven substantial changes in Sri Lanka’s economic environment.

Sri Lanka’s poverty is low by international standards and extreme poverty rate, which is defined as the percentage with income of $ 1.25 per person per day, at 2.8% in 2012/13 is low relative to comparable countries.

“We’ve seen major progress since 2002. In this new era, we wanted to see how the economy and welfare of Sri Lankan citizens was being affected and improved,” David Newhouse, a Senior Economist with the World Bank and one of the authors of the report says.

“Sri Lanka’s gradual transition out of agriculture, and the increase in urbanisation and agglomeration around the Colombo-Kandy-Galle corridor have brought workers greater access to more profitable opportunities. These parallel processes are a sustainable source of better livelihoods,” the report explains.

“We find that increase in labour earnings and higher returns to work is what drove the poverty reduction,” says Newhouse.

The wages increased as the demand for labour rose across a broad range of sectors, the report says highlighting how sizeable increases in minimum agricultural wages led to higher earnings for agricultural workers.

According to the study, excluding the war-affected Northern and Eastern Provinces, the poverty headcount rate fell from about 22.7% in 2002 to 6.1% in 2012/13.

However, the authors say challenges still remain as despite the fall in poverty, living standards generally remain low and pockets of severe poverty persist.

“However, pockets of severe poverty remain,” cautions Newhouse. “What’s striking is that there are such regional disparities, even among areas that are geographically close to each other.”

Across the board, poverty rates are disproportionately high for vulnerable groups such as youth and ethnic minorities; and unemployment is high for youth and women.

The report identifies high levels of poverty in key districts in the north and east of the country, including Mullaitivu (28.8%), Mannar (20.1%) and Batticaloa District (19.4%). At 20.8%, the data from Moneragala District in Uva Province also offers cause for concern. Within Batticaloa, estimated poverty rates run as high as 45% in Manmunai West and 38% in Karalai Pattu South.

In conclusion, the World Bank report suggests Sri Lanka can provide additional support to poor households to ensure continued improvement of living standards and shared prosperity.

“Devoting more generous resources to social assistance, while developing a broader social protection strategy to confront an aging population, will help poor households invest in the next generation,” it says.

The report concludes that further progress also depends on accelerating the structural transformation by connecting poor workers to more productive employment opportunities.

Although 95% of the population can now access electricity, more cost-effective power generation will be required to support further productivity growth. Also, several remaining knowledge gaps make it difficult to identify the best approach to speed up the structural transformation in the Sri Lankan context.