Poverty reduction inadequate and uneven

By the Economist

The World Bank has just released its latest report: Sri Lanka Poverty Assessment Engendering Growth with Equity: Opportunities and Challenges. It has both good news and bad. The gist of the findings is that overall poverty has declined in the last decade but inadequately. Rural poverty reduction was small, while estate poverty increased significantly. The noteworthy reduction in poverty was in the urban areas that showed an improvement in the previous decade as well. The comparisons are between 1990/91 and 2002, a little over a decade.

Poor housing facilities: An indication of the poverty of the estate workers.

Readers should be made aware that these statistics are not those collected by the World Bank, but those collected by the Department of Census and Statistics for the most part. The detailed analysis of the condition on the estate sector to which the report devotes specific focus is based on research and analysis done by the Colombo-based Centre for Poverty Analysis (CEPA).

According to the World Bank Report poverty in Sri Lanka has declined by three per cent. The most conspicuous decline in poverty has been in urban areas, where over the twelve-year period it has been halved from 16 per cent in 1990/91 to 8 per cent in 2002. According to the World Bank, poverty in urban areas has decreased owing to the benefits of economic reforms. These they contend have lowered poverty in the Western Province, where it had declined from 19 per cent to 11 per cent. By the same reckoning the reforms have left the larger rural population and the Estate sector untouched.

The World Bank report states that poverty in rural areas has declined much less by 5 percentage points from 29 per cent in 1990/91 to 25 per cent in 2002. In contrast poverty has increased substantially in the estate sector from 21 per cent in 1990 to 30 per cent in 2002.This level of acute poverty is indeed a severe problem. Therefore poverty remains a challenge for the country.

Sri Lanka's economic growth over the past decade has been inadequate to make a serious dent on poverty in the Island as a whole. Between 2000 and 2005 the economy grew by only 4.5 per cent. The economic reforms to which the World Bank attributes the reduction have failed to make any significant contribution in the rural areas. And in the estates it has worsened. The Report focuses specifically on the estate sector that has been probably hurt by the reforms.

The World Bank Report underscores the need for an economy to not merely grow, but to ensure that the pattern of growth benefits the community more evenly. This has been one of the most difficult objectives to achieve particularly in South Asia. East Asia and South East Asia provides a different scenario where growth was more rapid and the benefits of growth were distributed more evenly. Consequently poverty reduction was significant. Yet one must not lose sight of the fact that their higher rates of economic growth were the key to their poverty reduction. These higher growth rates were achieved with policies that also benefited rural communities especially by providing employment opportunities in industries and services that grew at much higher rates. It is left to be seen whether the recent rapid growth in India and China would achieve a significant reduction in poverty. In the past decade the economic growth of India did not have a significant impact on reducing rural poverty. China has also witnessed deterioration in income distribution and poverty.

The World Bank conducted similar assessments, as in Sri Lanka, in 25 countries. The pattern of achievement is similar. Only 11 of the 25 countries had reductions in poverty between the mid-1990s and the early 2000s, while the other 14 continued to have the same levels of poverty and some of them worse rates over that term. The global assessment said that "Achievement of sustained increases in per capita income, essential for poverty reduction, continues to elude a considerable number of countries." An important reason adduced for the persistence of rural poverty was the particularly ineffective programmes aimed at the rural poor. It contended that approximately one half of such rural development efforts from 2001 to 2005 "did not lead to satisfactory results."

The study of 25 countries emphasised that economic growth by itself does not resolve the problem of poverty. It emphasised that the manner in which the gains are distributed is just as important. In China, Romania, Sri Lanka and many Latin American countries, swiftly expanding economies have improved incomes for many, but the benefits have been limited by a simultaneous increase in economic inequality, putting the benefits into the hands of the rich and not enough into poor households. The global study gave examples of countries where the Bank has helped foster growth by its lending, but has created few jobs and consequently the impact of growth on poverty has been negligible. On the other hand, the study found, that in Brazil that had limited growth, there was significant improvement in poverty because wealth has been distributed more evenly. The overall assessment of Vinod Thomas, who headed the global evaluation, is worth stating. He said that “For a sustained reduction in poverty over a period of time, it really pays to worry about both growth and distribution," and added that, "It has been a mistaken notion that you can grow first and worry about the distribution later."

This global diagnosis perhaps has a particular relevance for Sri Lanka. There has been an admission that in the past the rural focus of economic policies has been inadequate. The Mahinda Chintana, as well as the budget proposals, gave an express emphasis on rural development and rural infrastructure development. The rhetoric is in the correct direction. Yet there is much scepticism that the ground realities are making much progress. The inability of the government to solve the problem of paddy procurement and ensure a reasonable price to paddy farmers for their crop is indicative of the gap between announced polices and their implementation.

Poverty remains an intractable problem in the developing world. According to the World Bank, between 1990 and 2002 the percentage of the world's people who subsisted on less than one dollar per day declined from 28 percent to 19 per cent. By the Bank's estimate 1.1 billion people were subsisting at that level in 2001.

A large proportion of them, about a third, are in South Asia. Nearly a quarter of Sri Lanka’s population (23 per cent) falls into this category. That means that 4.6 million people are in acute poverty. The situation is much worse if we consider US $2 as the cut-off point for poverty. Then we have more than a third of the population in poverty and the regional and sector differences imply a far worse off situation in rural and estate households. The current macro-economic situation, where the economic fundamentals are being eroded and the horrendous state of governance and the on-going war evokes despair rather than any hope for the country’s poor.