“In 1948 where were we and where was Japan? We were a leading nation in 1948 and Japan which had far more potential was destroyed but they knew how to rebuild their nation. While Japan emerged from the rubble, we lagged behind. How much has really gone to our people? The rich became richer. We need to move out of the South Asian mentality and look at South East Asian models now. If we are to modernize our rural economy we need to give our farmers the capital and not subsidies,” observed Prime Minister, Ranil Wickremesinghe at the launch of the reports, Sri Lanka Ending Poverty and Promoting Shared Prosperity: A Systematic Country Diagnostic (SCD) and Sri Lanka Poverty Assessment (SLPA) by the World Bank Group.
The Premier made his observation in the keynote address at the event held at Ape Gama of Jana Kala Kendraya, Battaramulla last Tuesday. The reports which were launched provide an insight into Sri Lanka’s development prospects and challenges and the studies are to become key instruments leading to a formation of the World Bank Group’s country engagement strategy. The reports were officially presented to the Premier by Francoise Clottes, Country Director, World Bank Sri Lanka and the Maldives.
Revisiting the tax framework
Reiterating the urgent need for the country to revisit its tax framework where ‘those who own least amount of capital pay most of the taxes’, Prime Minister went on to note that “South Asian wise, we have done what ought to have done” and time has dawned to move forward. His remarks on the close link between poverty and lack of educational opportunities are endorsed by research findings on country’s poverty levels. World Bank Group’s publication, Sri Lanka Poverty and Welfare in Sri Lanka: Recent Progress and Remaining Challenges notes that consumption and income inequality is associated with unequal access to health and education services. (Pg 52). It further states that ‘lack of accessibility to school may hinder secondary school completion for poor students.’ Inequality is also apparent in access to basic housing infrastructure as well as health and nutrition outcomes it says.
Social support for the elderly
David Newhouse, Senior Economist, World Bank in his presentation of findings related to country’s poverty assessment encapsulated the serious challenges which need to be countered in achieving poverty eradication, elaborating on the need for enhanced social support for country’s rapidly accelerating ageing population. Discussant to the session, Prof. Dileni Gunewardena, Professor of Economics from the University of Peradeniya drew an interesting equation between a ‘five curry lunch’ and the poverty assessment. Unlike a maalu paan which is instant, preparation of a five-curry lunch is a time consuming task, she said applauding the researchers of the poverty assessment study who had been conscious of ‘an inclusive process, comprehensive content, extensive coverage’ and presenting a ‘deceptively succinct’ report.
Poverty in the estate sector
Commending the World Bank for collaborating with the Department of Census and Statistics, Prof. Gunewardena urged policy makers to bring the welfare of the estate communities under the spotlight. “Although the poverty is less than what it was in the estate sector of the Central Province, Sabaragamuwa and Uva, it is still very much below the national level,” she observed, adding that with the end of the war North and East regions are also now open to be focused on in poverty eradication. The findings of the reports related to poverty in the estate sector are significant. They reflect that asset ownership rates in the estate sector remain well below the national average and more than 60% of the estate population falls in the bottom 40% of the national per capita consumption distribution, making a large portion of this sector vulnerable to poverty.
Despite the many challenges which remain before us to be graduated to ‘face new demands typical of a middle income country’ as the Sri Lanka Ending Poverty and Promoting Shared Prosperity: A Systematic Country Diagnostic publication notes, there are success stories for the country to be proud of as well. The national poverty headcount rate has declined from 22.7 to 6.7% between 2002 and 2012/13, while consumption per capita of the bottom 40% grew at 3.3.% a year, compared to 2.8% for the total population. Other human development indicators are also impressive by regional and lower middle-income country standards. Increases in labour incomes also account for most of the reduction in poverty over the last ten years.
The report adopts a framework that combines the Husman, Rodrik and Velasco (2005) growth diagnostic and the Bussolo and Lopez-Calva (2014) asset-based approach to identify a universe of 22 potential areas that may constrain or drive progress towards the twin goals. The report identifies several key priorities for sustaining progress in ending poverty and promoting shared responsibility which include addressing the country’s fiscal, competitiveness and inclusion challenges as well as cross-cutting governance and sustainability challenges.
Reflecting on the systematic country diagnostic, Charles Undeland, Senior Governance Specialist, World Bank drew special attention to country’s low and declining revenues which critically impact its fiscal position. Pointing out to the VAT exemptions on over 500 types of goods and 40 broad types of exemptions on corporate and personal income tax depending on the source of income and the type of taxpayer, Senior Governance Specialist said this situation makes administration complicated by lack of coordination among entities collecting revenue as well as the BOI which provides incentives. He urged the country to capitalize on its advantages that could contribute to its growth. “Sri Lanka’s enviable location in a fast growing region, regional trade agreements which are in place, the relatively educated workforce, record of globally competitive companies and the natural assets the country claims could contribute to inclusive growth.”
Leaving no stone unturned
Aligned with the findings of the report, Undeland also urged attention on the degree of outward orientation of the country which has wavered in the past decade and disappointing situation of the foreign direct investment despite numerous fiscal incentives. Attention was also drawn to country’s lack of vocational and technical skills that are increasingly in demand, the static nature of women’s participation in the labour market and rapidly increasing aging population. Warning that countries with past conflicts are more vulnerable to new conflicts, he urged for following up on LLRC recommendations to mitigate vulnerabilities in governance. In ending poverty in the country an approach of ‘leaving no stone unturned’ should be embraced, said the Specialist.
Discussant to the session, Dr. Saman Kelegama, Executive Director, Institute of Policy Studies endorsed the observations of the report findings elaborating on the ‘erosion of revenue’ at a time when there is a pressing need for expenditure. “This is a worrying situation,” said the scholar who asserted that country’s expenditure on health and education is below the recommendations of WHO and UNESCO respectively.
Quality of governance
The observations of the reports on the ‘locational concentration of poverty’ in the country are also significant. ‘The location of the poor broadly corresponds to the location of Sri Lanka’s population as a whole… Kurunegala in the center of the country, for instance, is home to 7.6% of the country’s poor people even though only 7% of its population lives under the official poverty line.’ It also makes a crucial observation related to governance which ought to keep ‘momentum towards reconciliation.’
Achieving a lasting settlement of conflict that ensures peace and security for Lankans in the sine qua non condition for progress it reflects. Commending the country for ending the 30-year debilitating conflict and championing a ‘remarkable democratic transition’ which has made ‘far-reaching constitutional reforms’ possible, the reports strongly endorse quality of governance which is ‘integral to addressing corruption concerns and sustaining public trust’. Needless to say that their reflections on quality of governance come at one of the most decisive junctures of country’s political trajectory.