With the nearly threefold increase in Sri Lanka’s official poverty line within the span of a decade, the expanding vulnerable population appears to be at odds with the country’s purported recovery.
According to recent data released by the Department of Census and Statistics, Sri Lanka’s official poverty line, defined as the minimum expenditure per person per month to fulfil basic needs, has risen from Rs. 5,223 in 2012/’13 to Rs. 17,014 by January this year. However, as of May, the poverty line has declined to Rs. 16,326.
The poverty line, which increased from Rs. 6,117 in 2016 to Rs. 6,966 in 2019, skyrocketed to Rs. 15,970 in January 2023.
For 2024, the Colombo District claimed the top spot among districts, with the poverty line of Rs. 18,350 in January dropping to Rs. 17,608 in May.
A stronger, more resilient economy
Lifting people out of poverty required economic growth, University of Colombo (UoC) Department of Economics Head and Centre for Poverty Analysis (CEPA) Consultant Prof. Sirimal Abeyratne told The Sunday Morning.
“In comparison to the pre-crisis poverty levels of 2019, we had very high inflation in the couple of years that followed. As a result, the minimum requirement for basic needs by households has risen.
“Accordingly, when the poverty line is adjusted for those inflationary pressures, it has increased. This now means that the minimum expenditure required by a person to maintain their calorie level and basic needs is around Rs. 17,000 per month.
“Such changes driven by high inflation cannot be reversed. Improving the income levels of households is the only way of catching up to what was lost. This means economic growth is required, and only then can income and employment generation improve. Along with that, people can be lifted out of poverty, putting them above the poverty line.”
Addressing the growing poverty line in the backdrop of a scenario of economic recovery, Prof. Abeyratne said: “Recovery is primarily about macroeconomic stability, along with debt sustainability. That is the immediate policy response to the crisis and the result of the policy reforms that the country has adopted during the last two years.
“Economic growth is only starting now – only during the last three or four quarters have we seen positive growth. However, this is not enough – growth needs to take place over the next couple of years to cause a shift in poverty levels and reduce it to pre-crisis levels.”
He noted that two types of programmes were required to address the situation, with one already being done with the support of the International Monetary Fund (IMF) for stability, which was necessary but insufficient on its own.
“Along with that, we need medium- to long-term reforms aimed at achieving higher growth, which are necessary in the coming years. We have many areas which require reforms to unlock the country’s growth potential and to sustain it in the long run. That is where we have to focus now, without which even stability and sustainability would be challenged.”
Prof. Abeyratne therefore stressed that the poverty levels and these development needs depended on achieving higher growth within the next couple of years.
He noted that the future developments regarding the poverty line would depend on various factors, with the upcoming election and potential change in Government having negative impacts on economic progress. “The poverty level will decline in the future only if we undertake reforms to accelerate economic growth.”
SL’s current landscape
The Covid pandemic followed by the foreign debt crisis, leading the country to declare the suspension of debt obligations in 2022, resulted in an unprecedented setback for Sri Lanka’s poverty alleviation drive, reversing gains in poverty reduction made over the previous decades.
Following the external debt service suspension, the economy contracted by 7.3%, and a large share of households faced declining incomes, food insecurity and malnutrition increased, poverty doubled, and inequality widened. According to the World Bank (WB), after having been almost eradicated in the decade following the conflict, extreme poverty quadrupled since 2019.
The WB notes that the economy is expected to stabilise in 2024 and beyond, with growth expected to turn positive and remain moderately positive over the medium term, albeit limited by the effects of the crisis, lower real incomes and higher taxes, and higher migration of skilled workers. Further, the modest economic recovery will reportedly be insufficient to reverse welfare losses experienced during the crisis and poverty is estimated to remain above 22% until 2026.
Despite early signs of economic recovery, the WB stresses that poverty, inequality, and vulnerability remain elevated, with poverty having increased for four consecutive years. It reached 25.9% in 2023 (at the $ 3.65 per capita per day level, 2017 PPP), compared to pre-Covid levels of 11.3% in 2019, due to the economic crisis.
Moreover, as per a United Nations Development Programme (UNDP) policy report titled ‘Understanding Multidimensional Vulnerabilities: Impact on People of Sri Lanka,’ national poverty is projected to have doubled to 5% and urban poverty is estimated to have tripled to 15% in 2022, adding an additional 2.5 million poor people.
With half a million jobs lost in industry and manufacturing, concentrated in subsectors predominantly based in urban areas, the ‘new poor’ created by the pandemic and the economic crisis are more likely to live in urban areas than households that were poor before 2020, the report notes.
According to the UNDP report, non-poor households living close to the poverty line are highly vulnerable to falling into poverty in the event of a negative shock. Vulnerable population groups are likely to be disproportionately affected by these trends.
Explaining the nature of poverty revealed by these statistics, Prof. Abeyratne shared that there were three levels of poverty – 1) the people who have fallen below the poverty line, 2) those who were well above the poverty line but have now been pushed closer to the poverty line, making them vulnerable to any external shocks in the economy, and 3) the hidden poor, who are not captured by official poverty statistics.
As such, the hidden poor, while appearing to be somewhat better off, are no different from those who are officially poor, Prof. Abeyratne noted.
“This group comprises fixed income earners in the middle class category. They have maintained their lifestyles and expenditure patterns according to their income levels. But suddenly, with taxes, inflation, and price adjustments affecting this group negatively, it reduced their basic consumption levels. Therefore, just like the poor, they have adopted coping strategies to face this situation.”
State work ongoing
Meanwhile, acknowledging that poverty levels were high, State Minister of Social Empowerment Anupa Pasqual told The Sunday Morning that work still had to be done to strengthen the economy.
The State Minister noted that things were on a gradual path of stabilisation following the economic crisis, especially collapsed sectors such as tourism, although it would take years for the full resumption of normalcy.
“The most important thing here is to strengthen the economy. This work is ongoing,” he said, stressing that the only solution to alleviating poverty was to build an export economy.
He further added that it was not only the increase in poverty but the previously existing level of poverty itself that must be addressed and that the task was not the sole responsibility of the Government, instead requiring a collaborative effort from society.