The focus this week is on Poverty and from the Executive Summary of a Report released by the World Bank last week. This column features on issues relevant to society and country every week.
Poverty, growth, and inequality trends in Sri Lanka
The growing urban-rural gap is largely due to concentrated economic growth in Western Province. GDP grew by an average of 6.2 percent annually during 1997-2003 in Western Province, and by only 2.3 percent in the remaining provinces'. Western Province's share in national GDP increased from 40 percent in 1990 to 48 percent in 2002, while that of Uva and Sabaragamuwa fell down from 16 to 11 percent. As a result, in 2002 the incident of poverty fell to 11 percent for Western Province compared with 35 percent for Sabaragamuwa and Uva.
Poverty in the poorest districts of Badulla and Monaragala was more than six times that in Colombo in 2002.
Poverty and vulnerability (the risk of falling into or deeper into poverty) are closely linked, since the poor and those just above the poverty line are more susceptible to shocks.
Current targeted welfare programmes perform well below potential. Despite a long history of publicly funded welfare programmes the evidence suggests that current programmes perform well below potential in protecting the consumption of the vulnerable and the poor.
Shocks affect those near the poverty line the most. The Tsunami that struck Sri Lanka on December 26, 2004 is likely to have worsened poverty outcomes. Although poverty numbers are not available for districts in the East hardest hit by the Tsunami on December 26, 2004, the average monthly per capita income before the Tsunami in the east was close to that of the poorest provinces of Uva and Sabaragamuwa, so the impact of the Tsunami is likely to have worsened poverty outcomes.
Inequality is increasing. In addition to disparities in growth between the Western Province and the rest of the country, the slow pace of poverty reduction in Sri Lanka is also linked to rising inequality among income groups.
Rising inequality hinders poverty reduction. Had consumption distribution remained unchanged from 1990-91, the 30 percent growth in average consumption by 2002 would have reduced poverty by more than 15 percentage points nationally instead of the observed 3 percentage points.
Household and individual
Larger households, especially those with children, are more likely to be poor. Households with a member working abroad, however, have a significantly lower likelihood of being poor.
Low education attainment is strongly associated with poverty. In 2002, well over 30 percent of households with heads with schooling up to and including grade 5 fell under the poverty line, compared with less than 10 percent for heads who completed at least grade 9. Regression analysis shows that a household is significantly less likely to be poor when the head has an education at the A level and above.
The low quality of education acts as an additional handicap for the poor in remote areas. Nationally, students display a low skill level in first languages, English, and mathematics, and these indicators are even lower for non-urban children. Absenteeism of teachers (about 20 percent nationally) is also higher in non-urban schools.
Poverty is concentrated in areas where connectivity to towns and markets, access to electricity and average educational attainment are relatively low, and agricultural labor is an important source of employment.
The impact of internal migration - a consequence of rising regional inequality
Migration offers upward economic modality to those in economically marginal areas. Migration can affect cross-regional inequality by shrinking wage gaps between regions as people move in response to wage differences, and promote development in lagging regions through remittances sent back to the migrants' place of origin. However, migration can also perpetuate regional imbalances, for example when the more educated gravitate toward fast growing cities.
Poverty incidence in the origin district is strongly associated with recent migration to Colombo. Census (2001) indicates that a large number of migrant workers come from poorer districts and districts in the North and East. Thus, poverty seems to act as a "push" factor inducing households from economically disadvantaged areas to migrate. However, migration is more likely to be undertaken by the better-educated. Figure 7 shows that average education among migrants is much higher than those in their districts of origin. This indicates that the better availability of jobs in Colombo acts as a "pull" factor for educated or skilled workers from lagging regions.
Migrants are also likely to be better-educated than long-term residents of Colombo. Migrants to Colombo City are almost twice more likely to have tertiary-level education than non-migrants already living in Colombo city. Similarly, the proportion of migrants working in elementary occupations is much smaller than that of non-migrants.
Poverty in selected sectors and regions
Poverty is more prevalent in the estate and rural sectors and is likely to be a serious problem in the conflict-affected North and East. The unique circumstances in conflict-affected areas deserve special attention, especially as more empirical data for this region becomes available, although geographical coverage of household surveys remains incomplete. Poverty in the estate sector remains endemic and is related to issues that are specific to the sector, and thus worthy of special attention. The rural sector is home to most of the poor (88 percent), which implies that significant poverty reduction can only occur when key factors restricting incomes in this sector are addressed.
A. Social and economic conditions in the conflict-affected North and East
Over two decades of conflict in the North and East have had far-reaching economic and social repercussions for the country. Over 65,000 people have died, nearly a million citizens have been displaced, private and public properties and economic infrastructure have been destroyed, local economics and community networks have been disrupted, and health and educational outcomes have deteriorated. The macro-economic impact of the conflict is estimated at 2-3 percent of GDP growth annually.
The conflict-affected regions lag behind the rest of the country in availability of economic infrastructure, access to financial services, and key human development outcomes. Only 40 percent of the population in North and East have access to safe drinking water, compared with 62 percent for the rest of the country, and less than one-half of households have access to water seal toilets (Table 2). In the North and East 26 percent of children had low birthweights compared with 18 percent for the rest of the country and 46 percent of children aged 3-59 months were underweights compared with 29 percent for the rest of the country. The literacy rate in Eastern Province is the lowest for the country. Per capita incomes for Northern and Eastern provinces, however, appear similar to those for other provinces with the exception of Western Province, probably because significant inflow of remittances has safeguarded incomes to a certain degree (Table 2). These figure are, however, based on data that do not cover the entire North, including some of the likely poorest areas, and do not take into account spatial price differences that affect comparisons of incomes between provinces.
The Ceasefire Agreement signed in February 2002 and subsequent cessation of hostilities spurred economic recovery in the North and East. Real GDP growth in Northern Province increased four-fold to about 13 percent while that of the Eastern Province doubled to 10 percent from pre-ceasefire (1997-2001) to post-ceasefire (2002-03) years. Unemployment fell from 13 to 9 percent in the North and from 16 percent to 10 percent in the East from 2002 to 2004, while the national unemployment rate dropped only marginally from 8.8 to 8.3 percent.
Significant constraints to sustaining high growth in the North and East remain. These include (i) poor availability and access to financial services, (ii) poor access and quality of economic infrastructure (roads, telecommunications, and water), (iii) time restrictions on the use of the A9 highway, (iv) fishing restrictions, (v) limits on mobility in certain areas such as Jaffna, and (vi) out=migration of the better-educated to the rest of the country or abroad.
B.Poverty in the estates
Higher poverty among estate households is associated with the remoteness or lack of suitable year-round roads linking the estate to the nearest town. Nearly 42 percent of estate households cannot use the road to the nearest town at all times of year. Another social factor that emerged from the Estate Survey was alcoholism. About 80 percent of estate respondents mentioned alcoholism as a problem, and 75 percent of community informants reported no improvement over the last 15 years.
A majority of households interviewed in the Estate Survey reported an improvement in their household conditions in the last 15 year, despite the overall deterioration in the conditions of the estate. This difference in perceptions is partly explained by the increasing role of non-estate employment among estate residents, which may partly de-link the condition of the estate from that of the household.
Nearly 30 percent of the population in the estate sector is poor but only 13 percent of the households interviewed reported receiving cash transfers from government welfare programs. The actual coverage rate in the estates contrasts sharply with the Samurdhi coverage rate for the rest of the country (40 percent).
Qualitative analysis indicates that a real cause of persistence of poverty in the estates is the unique organization structure of estates. Historically, the estates have employed resident workers who originally came from a foreign country and even today, much of the labor is provided by a resident workforce. The relatively unchanged estate organization structure is found to contribute to a sense of marginalization, leads isolation, and adversely affects economic decisions of households. The long-term future of the sector appears to be in moving away from resident labor structure and toward a standard employer-employee relationship.
C. The challenge of rural poverty
Poverty reduction in the rural sector income to 80 percent of the population and about 3.5 million of the country's poor-has been stymied by stagnation in the agricultural sector. Nearly 58 percent of the rural population depends on agricultural, at least partially, for their livelihood. Agriculture GDP growth slowed from 2.8 percent during the 1980s to 1.6 percent during the 1990s and to 0.9 percent during 2002-04, while national GDP has been growing annually by 5 percent since the 1990s.
The country as a whole has four macro-challenges. These include the impact of the ongoing conflict, the failure of the Tsunami recovery highlighted in the 2nd Year Report which shows a half-done job literally, the challenges thrown up by poverty as shown in the text and the need for the country to progress and show growth in real terms. These are compelling challenges which are not insurmountable.