“Mahinda Chintana (Vision for the Future)” reiterates that Sri Lanka aspires to become a “poverty-free” middle income country by 2016 with US$ 4,000 per capita income. What is the true picture of poverty, its depth and breadth? The intention of this brief article is to revisit selected government statistics on peoples’ income and assess how close we are to the goal of a poverty-free country.
According to the 2014, budget speech, Sri Lanka’s poverty level is 6.4 per cent — meaning, that 6.4 per cent of the total population of about 20 million live below the official poverty line (OPL). The figure was 15.2 per cent in 2006. This shows a commendable reduction of poverty. The Department of Census and Statistics (DCS) declares that the OPL is Rs. 3,781 per person per month — or Rs. 126 per day. The figure is derived using the absolute poverty line approach. In other words, this is the income that one person needs to meet the cost of basic needs which include the cost of food to provide 2030 kilo calories per person per month, clothing, housing, education, transport, and medicine. The cost of food takes about 44 per cent of the income.
Income and non-income poverty
There are at least two facets to poverty: income and non-income poverty. The OPL refers only to the income poverty. The non-income poverty is represented mainly by achievements in education and health. The Human Development Index (HDI) that is regularly estimated by the United Nations Development Programme (UNDP) measures the progress. It was 0.750 in 2013 – a notable improvement from 0.557 in 1980. The index ranks Sri Lanka 73 out of 187 countries and places the country in the high human development category. Given the improving non-income poverty levels, what is meant by “poverty free” is the alleviation of income poverty.
Of the 4.9 million total households (based on the DCS figures), 313,600 are in the poverty group. A family from this group with four members, which is the average family size in the country, lives at or below the monthly income level of Rs. 15,124 (Rs. 3,781 x 4). No doubt, such families are poor. By international standards they are in absolute poverty, earning only $0.96 per day per person, whereas $1.25 is the accepted international poverty line which meets basic needs. While the goal is to bring the poor families above the OPL and make them non-poor, what is the income status of the rest of the population in the country? By definition they should be non-poor. Using the Household Income and Expenditure Survey (HIES) of 2012/2013 of the DCS, the income situation of the non-poor is reviewed.
A home-grown vegetable garden.
The HIES estimates that the average household income of four members as Rs. 46,207 per month. The 4.9 million households in the country thus earn a total of Rs. 226,414 million in a month. For the purpose of this article let us divide these households into three groups, namely the rich accounting for 20 per cent, the middle-income group 73.6 per cent, and the poor the balance 6.4 per cent. According to DCS estimates, the rich 20 per cent had a share of 52 per cent of the total income in 2012/2013, meaning they pocketed Rs. 117,735 million leaving Rs. 108,679 million to share among the other two groups. Taking poor households’ total income of Rs. 4,743 million (i.e. Rs 15,124 times 313,600 households) out, 73.6 per cent of the middle income households get an average monthly income of Rs. 28,819 million (i.e. Rs 103,936 million shared among 3.6 million households) or Rs. 7,204 per capita monthly income which is Rs. 240 per person per day. The difference between the average income of the poor and the middle class households is just Rs. 114 per day (Rs. 240 – 126). The implicit indication of this is that, on average, a middle class person will have to push her/his living standards above the basic level, which is the poor person’s living standard, only with an additional income of Rs. 114 per day. On the other hand a middle class family can fall back to the poor group by missing Rs. 114 per day. The adequacy of this additional income to push a family above the poverty line and provide a decent living standard is highly questionable.
The average per capita daily income of Rs. 240 is $1.84, just above the international poverty line of $1.25 a day per person and this is for 74 per cent of the households of the country. To enjoy lower middle income country status, one person needs to start getting a daily income of at least $2.9 and reach to $11.3, according to the World Bank figures. On average one person among the 20 per cent rich people in the country is earning $ 7.7 per day. One can envision our national income distribution status and how far the large majority of the population should progress to get into a decent living standard which is on par with middle income status.
Regional poverty and its causes
The main economic engagement of the people determines their income and thus the poverty level. Therefore it is obvious that the Western Province has the lowest poverty level, which is two per cent. The Mullaitivu district has the highest poverty level, 29 per cent, followed by the Badulla district 12 per cent and Moneragala district 21 per cent. These districts have been lagging behind for the past decade or so. The highly unequal distribution of the Gross Domestic Product (GDP) among the provinces explains regional poverty and inequality. With the Western Province taking almost half of the national GDP, 44 per cent to be exact in 2012 and sharing with 23 per cent of the country’s population, the other eight provinces are left to share the balance.The primary reason for the low GDP is the type of employment. The earnings in terms of wages, according to the government labour force survey (2012), are the lowest in the agriculture sector, averaging Rs. 12,541 per earner per month whereas the figure in the industrial sector is Rs. 17,142 and the services sector is Rs. 21,886.
The same study reports that more than 50 per cent of the labour force in the lagging regions is engaged in agriculture. When more people are involved in a less viable sector, higher will be their poverty level. Agriculture is less viable and it will further lose its relative importance if the current status continues. Just to show the national status, there are 2.6 million employees and their families in the agriculture sector in 2012 which is 32 per cent of the workforce.
It is often argued that industrial, mainly garment exports, remittances of migrant un-skilled and semi-skilled labour and spillover effects of the massive infrastructure development work in the country have positive influence on poverty. Yes, partially. A more important question, however, is how much of that income gets infiltrated into the hands of the poor and what proportion of that income gets invested in viable and sustainable ventures. A large portion of such income ends up in supporting consumption rather than investment. It has been estimated that almost 80 per cent of the remittance income, which is nearly Rs. 780 billion a year, is consumed for housing, purchasing domestic goods and other items. Therefore it has limited impact in breaking the vicious cycle of poverty. It is highly doubtful that the debt-financed infrastructure will have a short or even long-run impact on poverty reduction unless and until income-generating avenues and a congenial investment climate with opportunities are available for the poor.
Achieving the goal and conclusion
It is needless to emphasise that the disparities in income should be managed and minimised if Sri Lanka is to be a poverty-free country with middle income status. It needs a well-planned, holistic, inclusive and widely spread development programme with adequate budgets. The agriculture, industrial and the services sectors should receive required investment with an emphasis on the lagging regions. While it is impossible to present an account of such a development plan, this article emphasises the strong potentials that exist in the agriculture sector to contribute to that development. This is especially because it is the mainstay in almost all the lagging regions, sole livelihood of a majority of the poor, and has vast potential to spur the growth of other two sectors. ‘Unstoppable Sri Lanka 2020’, the planning document of the government, refers to a number of strategies which foster inclusive development. Their effectiveness, however, depends on adequate budget allocations. For example, the current budgetary allocation of 1-2 per cent of GDP for agriculture is grossly inadequate for the required growth to minimise inequality. With the current level of widespread poverty, it is highly unlikely that the country will achieve its goal of poverty-free society by 2016. However, adequate budget allocation and providing a congenial environment for investment in rural areas will take the country to the goalpost slowly but steadily. For that the Government’s commitment is essential.