More than 9 million people have fallen into poverty in Sri Lanka

More than nine million people, that is, more than 40% of the million inhabitants of Sri Lanka, have fallen into official poverty due to the endless economic crisis in the country, according to a recent study carried out by a reputable university.

The steepest rise in poverty levels occurred after January this year, said Professor Wasantha Athukorala from the Department of Economics and Statistics at the University of Peradeniya, who oversaw the island-wide survey.

“It is a very serious situation in the country,” Professor Athukorala told this writer in an email interview. “The poorest households are the hardest hit due to food inflation, job losses, limited fertilizer supplies and falling remittances.”

According to him, the latest changes in the tax structure – increased direct and indirect taxes – have only aggravated the situation, affecting countless middle-income families and sparking murmurs of more mass discontent in Sri Lanka.

Although economic indicators of the country had been declining visibly since 2021, the massive protests street protests rocked the nation beginning in March of this year, which led to the abrupt resignation of Prime Minister Mahinda Rajapaksa in May and to the dramatic flight of the president Gotabaya Rajapaksa in July.

The Rajapaksa are largely to blame for the economic mess, caused by unreasonable tax cuts, restrictions on imported fertilizers, huge spending on projects now dubbed “white elephants”foreign loans and widespread corruption.

Normally, the Department of Census Statistics (DCS) calculates poverty in Sri Lanka using the Household Income and Expenditure Survey (HIE) every three years. But this year no results have been published.

Meanwhile, the World Bank plot that the current financial crisis in Sri Lanka may increase poverty from 13.1% in 2021 to 25.6% in 2022, which is equivalent to more than 2.5 million people falling into poverty during that period. This would bring poverty back close to the levels of 2009, the year the Tamil separatist campaign ended.

In the absence of scientific data on the state of poverty today, a research team from the University of Peradeniya, consisting of Professor Muditha Karurathna, Professor Tilak Bandara, Dr. Shyamantha Subasinha, and Lakshika Wiragoda, conducted the study under the direction of Professor Athukorala.

Using official data and adjusting it for the range of real gross domestic income, the study concluded that the number of people below the poverty line has risen to more than nine million, a whopping 40% of those over 21 million Sri Lankans.

“Our estimates considered only the lower bound of the income groups,” said Professor Athukorala. “So this represents the lower limit of poverty in the country.” Analyzes related to sectoral (urban, rural) and provincial distribution are currently underway, he added.

This is Sri Lanka’s worst economic crisis since its independence in 1948. Sri Lanka’s economic growth has been unexpectedly lower in recent years.

The country’s real gross domestic product (GDP) stood in the -3.6% and 3.7% in 2020 and 2021, respectively. GDP growth in the first half of 2022 was -4.8%. According to him South Asia Economic Focusreal GDP is expected to fall by 9.2% in 2022 and another 4.2% in 2023.

the World Bank argued that Sri Lanka’s current financial crisis may increase poverty from 13.1% in 2021 to 25.6% in 2022

The study showed that the median monthly household income fell to Rs 72,720 in July 2022, from Rs 76,390 in 2021. Meanwhile, the inflation it soared 52% between January and July 2022. During the same period, food inflation soared 60%, while non-food inflation soared 45%.

During the same period, the official poverty line (OLP) increased by 66%. “All of this shows that the steepest increase in poverty levels took place after January 2022,” said Professor Athukorala.

According to him, it is clear that the majority of people in the lower income group have reduced the number of meals, have switched to consuming basic products of low quality and price, and have cut spending on their children’s health and education.

“Right now we are conducting a school survey. Preliminary results support that school attendance is relatively lower and students’ behavior has changed drastically (more violence, not concentrating, not doing homework),’ he said. Most reports say that children and expectant mothers from poor backgrounds are at high risk of nutritional deficiencies.

But while rural households try to find various things from their own home gardens to survive, this facility is not available to most urban families. “Hence, households in urban areas are severely affected by the food crisis,” he added.

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The study showed that all marginalized groups in the country were severely affected during the indicated period. For example, more than three million people from the fisheries, more than a million from the plantation sector and some 300,000 day laborers were the direct victims. 20% of those most affected live in slums.

The professor lamented that recent tax revisions have hit micro, small and medium-sized enterprises (MSMEs), which represent more than 75% of all businesses, provide 45% of all jobs and contribute 52% of Sri Lanka’s GDP. The MSME sector provides a livelihood for nearly 2.23 million people, accounting for more than 75% of total private sector employment in the non-agricultural sector. This is expected to cause more problems in Sri Lanka.

He also felt that the interim budget presented by Finance Minister and Prime Minister Ranil Wickremesinghe has paid some attention to much-needed direct money transfers to poor households. It is about providing immediate help to about 3.2 million people. Among other measures, the subsidy paid to the elderly, disabled and kidney patients has been increased to between Rs 5,000 and Rs 7,500.

The allocation of Rs 40,000 crore for the import of urea for rice cultivation in the 2022-23 season and the purchase of fertilizers could help rice farmers get a good harvest in the coming season, he added.

But the monthly (year-on-year) inflation rate jumped from 3% in January 2021 to a staggering 70% in August 2022 as a result of the exchange rate revision, causing an unprecedented increase in the prices of food, medicine and other household needs. While the former meandering lines at gas stations have disappeared, essential medicines remain in short supply across Sri Lanka.

“Sri Lanka must address its longstanding economic weaknesses with a strong macroeconomic policy framework that has yet to be developed,” he said. “The political crisis in the country continues to be an impediment to the ongoing process. Some essential measures, such as improving governance and eliminating corruption, continue to receive inadequate attention.”

The study showed that median monthly household income fell to Rs72,720 in July 2022, from Rs76,390 in 2021. Meanwhile, inflation soared 52% between January and July 2022. During the same period, food inflation soared 60%, while non-food inflation soared 45%.

more than three million people from the fisheries, more than a million from the plantation sector and some 300,000 day laborers were the direct victims

During the same period, the official poverty line (OLP) increased by 66%. “All of this shows that the steepest increase in poverty levels took place after January 2022,” said Professor Athukorala.

According to him, it is clear that the majority of people in the lower income group have reduced the number of meals, have switched to consuming basic products of low quality and price, and have cut spending on their children’s health and education.

Article republished from The Wire as part of an agreement between both parties to share content. Link to original article:https://thewire.in/south-asia/over-9-million-sri-lankans-have-slipped-into-poverty-since-january-finds-study