Transition to a middle income economy brings many challenges to Sri Lanka: DEW

Friday, 18 October 2013 00:00 -     - {{hitsCtrl.values.hits}}

Following is the speech delivered by Senior Minister for Human Resources D.E.W. Gunasekara at the launch of the IPS State of the Economy 2013 report on 15 October at the IPS Auditorium Members of the head table, IPS Chairman Prof. W.D. Lakshman, IPS Executive Director Dr. Saman Kelegama, IPS Board Member Dr. Anura Ekanayake, IPS Deputy Director Dr. Dushni Weerakoon, distinguished participants, it is with great delight that I participate in the third Annual Conference of the IPS where the Institute’s flagship publication titled ‘Sri Lanka – State of the Economy 2013’ is launched. I recall participating in the first Annual Conference in 2011. Sri Lanka’s economy is in a critical juncture and it is now in a stage of transition to a middle income economy. IPS has selected this theme for this year’s State of the Economy report and this is very timely. Transition to a middle income economy The transition to a middle income economy brings in many challenges to Sri Lanka. Addressing these challenges and sustaining higher economic growth efforts would require many policies and Government interventions in several areas. Developing a skilled labour force that could attract high quality jobs, improving access to quality education at all levels (primary, secondary and tertiary) and increasing equal access to quality and effective health infrastructure are, among many others, important in sustaining economic growth. The ‘Mahinda Chinthana,’ the Sri Lanka Government’s prime policy directive, also places special attention towards achieving sustainable and inclusive economic growth. Equal access to quality employments, education and health services are key to building a strong human resource base that is required for achieving sustainable and inclusive economic growth. In the post-conflict period, Sri Lanka has made significant progress in a number of areas like reducing unemployment and poverty levels and narrowing the regional disparities. The unemployment rate of the country has fallen from 5.8% in 2009 to 4% in 2012 while poverty level has nearly halved between 2006/07 and 2009/10. The traditional ‘lagging regions’ are catching up, with Western Province GDP dominance falling from 50.8% in 2005 to 44.4% in 2011, and provinces like Southern, Northern, North Central, and Uva showing steady increases in its contribution to national output. All of these contribute to a changing scenario of social mobility in the country. Private Consumption Expenditure (PCE) has risen steadily in recent years, growing by 70% between 2008 and 2012. A rising middle class With higher growth and fall in poverty comes the potential for a rising middle class. Moreover, with middle-income status come the changes in aspirations on the type of employment sought by young people. Today many manufacturing enterprises are facing difficulties in finding workers for the ‘factory floor’. With a shifting of preferences away from blue-collar work, the pressure on the education system to deliver the required training and skills is immense. These changes seem to be influencing youth participation in the labour force. For instance, youth labour force participation rates in the estate sector saw the biggest decline between 2006 and 2010, falling by almost 12% (compared to 7% nationally). This could be a reflection of the changing aspirations of young people, away from the opportunities available in the estate sector, towards jobs elsewhere. With aspirations towards urban jobs (especially in the services sector, like retail) on the rise, and the consequent tighter competition for these jobs, urban unemployment among youth has shown an increase from 12 to 14% between 2006 and 2010 – the only sector to see a rise in youth unemployment during this period. Education The successive governments of Sri Lanka invested heavily in education and health in the post-independence period. Benefits of these investments are visible in both sectors. However, transition to middle income brings about more challenges related to human resource that could have implications on both the education and health sectors. Public expenditure in education has fallen from an average 2.3% of GDP during the 2000 to 2010 period, to 1.8% of GDP in 2012. The average upper middle-income country spends 5% of GDP, and the average lower middle-income country spends 4% of GDP on education. Meanwhile, over 100,000 A/L graduates each year are not able to pursue higher education as state universities are unable to accommodate them, and the alternative of private higher education is affordable mainly to more affluent households. In 2012, 40,000 more were left out, than in 2011. This dropout from both from A/L and O/L is a serious issue. Lack of carrier guidance programs in schools has constrained students to gather necessary information to decide their future after completing school education. School leavers are mostly without carrier guidance and ended up in lower quality jobs or falling in to the trap of acquiring skills and knowledge in what the majority does, without evaluating what is best for them. This at the end will lead them an unnecessary competition for employment or acquiring educational and skills training in something that the industry does not demands. One way to address this issue is to look at the possibilities of bringing in vocational education to the main education system and to develop necessary infrastructure support to accommodate the demand. The Government of Sri Lanka has taken several measures in this regard. The Ministry of Education has been successful in bringing in the vocational education to the national education stream while vocational education system has been strengthened by the Ministry of Youth Affairs and Skills Development by developing capacity of the University of Vocational Technology, vocational training authority and by establishing university colleges. Health Challenges in the health sector are also emerging, with changes appearing in the demographic and socio-economic character of the country, associated with the transition to middle-income. This is particularly true of Non-Communicable Diseases (NCDs) and malnutrition. Along with lifestyle changes that accompany higher living standards, the epidemiological profile of the population will change, and it has already begun. Deaths due to NCDs, such as ischaemic heart disease, stroke, and cancer, are high and rising in Sri Lanka. Evidence suggests that nearly 90% of the country’s disease burden can be attributed to NCDs. An ageing population will bring additional health care burdens too, as health demands of the old are generally higher than for other groups. Meanwhile, gaps in nutrition are surfacing, and seem to be affecting the country’s youth the most. The highest proportion of malnourished women is seen in the youngest age groups of 15-19 years (40%) and 20-29 years (22%). This ‘adolescence nutritional deficiency’ breeds a lifecycle of malnutrition, and would affect the country’s productive potential. The ability of the State to provide improved health facilities to tackle these emerging challenges is compromised by low investment in the heath sector. Total expenditure on health has remained below 5% of GDP between 1995 and 2008, and is low compared to the middle-income country average of around 8%. This lower public investment has been accompanied by a rise in private expenditure on health, as aspirations towards advanced and conveniently accessible healthcare services emerge among the country’s middle class. Expenditure on private hospitals and nursing homes has risen lately, mainly driven by this income group. The proportion of out-of-pocket expenditure (i.e., the individual cost borne by the patient) out of private health expenditure has grown over time. My Ministry put out the National Human Resources and Employment Policy for Sri Lanka report last year. Some of the IPS senior researchers assisted my Ministry in preparing this report. Some of the issues that I highlighted are also mentioned in this report and I am certain that our Ministry will find some of the in-depth analysis that the IPS has done in the State of the Economy Report 2013 useful. I very much look forward to reading this report and look forward to the contribution of the IPS to the national economic policy dialogue in the coming years. I thank you.