• Economists expect numbers to double or triple from last year 
• State safety net for poor is significantly politicised: Prof. Colombage
• More than a million at risk of falling into poverty: Prof. Senarath
• Calls for hike in direct taxes; WB urges reduction of fiscal deficit
• Increase in indirect taxes can render more people destitute

By Vinu Opanayake The prevailing economic crisis that is devaluing the Sri Lankan Rupee (LKR) with each passing day, making goods and services more and more unaffordable for the public, is expected to push a considerable percentage of people below the country’s poverty line this year.  Economists are of the view that this increase in the number of people living below the poverty line may double or triple compared to numbers recorded a year ago.  Two weeks ago, the World Bank (WB) in its Spring Update on the South Asian Region stated that around 11.7% of people in Sri Lanka earn less than $ 3.20 per day – the international poverty line for lower-middle-income countries – up from 9.2% in 2019.  Poor policymaking Advocata Institute Senior Visiting Fellow and Emeritus Professor Sirimevan Colombage told The Sunday Morning that the Government’s policy measures had often left the poor out, indicating that the impact on the poor from those decisions had not been considered.  He added that the Samurdhi Programme, a State programme intended to alleviate poverty and unemployment among the youth, was heavily politicised, noting that even to include the poor in implementing policy decisions, the Government did not have accurate poverty-related statistics. “Even the new Central Bank of Sri Lanka (CBSL) Governor said that the Government would have to provide a safety net for the poorer of the community, but it is not an easy task now. However, they keep appointing committees. The Cabinet has appointed another cost of living committee. These are useless,” Prof. Colombage charged.  Poverty rate University of Colombo Professor and Attorney-at-Law Dr. Shanuka Senarath told The Sunday Morning that the WB forecast was based on official macroeconomic indicator data such as the Gross Domestic Product (GDP) and inflation, noting that these figures were outdated in Sri Lanka.  Supporting his statement, Senarath noted that while Sri Lanka’s official inflation figures were still below 30%, Johns Hopkins University data as disclosed by Prof. Steve Hanke showed a startling 119%, making the country the top third country with soaring inflation rates in the world. Hence, Senarath stated that if the real situation and real macroeconomic indicators were considered, the actual poverty rate would be much higher than the World Bank estimates.  “Let’s say that if the World Bank predicts 300,000 people will go below the poverty line this year, as per the real data this estimate will be double that, because Sri Lanka does not consider the black market rates of goods and services when calculating inflation. These figures need to be updated,” Senarath noted.  He opined that at least one million more people would fall below the poverty line this year, due to current developments.  Taxing solutions Outlining solutions, Senarath stated that it was difficult to address the poverty issue as even with the Samurdhi programme, money had to be printed, which would create further inflation. However, he added that increasing direct taxes would be an ideal solution.  “Taxes on salaries and income should be increased, as the Minister of Finance recently stated. I sincerely hope that they do not increase indirect taxes because that will push more people below the poverty line,” he stated.  Meanwhile, Advocata Institute Chief Operating Officer (COO) Dhananath Fernando told The Sunday Morning that in his opinion, he expects a two- or threefold increase in the poverty rate compared to a year ago.   “Increasing the social safety net is the solution, but at the moment, the only social safety net we have is the Samurdhi scheme. The Minister said that they were going to increase the allowance, but what they should ideally do is cash transfers, which is better than providing groceries. Cash transfers will lessen corruption and give freedom to the people to decide what they want to do with it,” Fernando suggested.  World Bank view According to the World Bank, Sri Lanka needs to address the structural sources of its vulnerabilities. This will require reducing fiscal deficits, especially through strengthening domestic revenue mobilisation.  The increase in poverty rates is expected amid import compression and investor uncertainty, due to high debt levels, the World Bank stated.  Further, the World Bank added that the financial sector needed to be carefully monitored amid high exposure to the public sector and the impact of the recent currency depreciation on banks’ balance sheets. State stance Minister of Trade and Samurdhi Development Shehan Semasinghe stated that the Cabinet of Ministers had approved a special cash allowance for a period of three months to identify low-income families affected by the ongoing economic crisis. Accordingly, the Cabinet has approved the proposal to hand over a special cash allowance to identified families from May to July. More than three million family units will receive the allowance, at an estimated monthly cost of Rs. 4,455 million, the Minister said. Contingent Emergency Response Components in projects funded by the World Bank Group will provide the necessary funding for this programme. The Samurdhi (or Prosperity) programme was launched in 1995. Its main goal was to reduce poverty in Sri Lanka through development based on public participation. By the end of the 1990s, the programme was fully functioning in 21 out of the country’s 25 districts. As the programme’s main goal was to alleviate poverty, most of its resources were distributed to households as food stamps, testing for eligibility based on need. In 1998, the household eligibility threshold was set at approximately one-third of the national poverty line. According to the Asian Development Bank (ADB), in Sri Lanka, 4.1% of the population lived below the national poverty line as of 2016 and these numbers could have now been aggravated by the pandemic and the recent developments in the local economy.