Key macroeconomic indicators are signalling a turnaround in the economy. Yet, poverty and deprivation of food and other basic needs have increased. Despite macroeconomic improvements, the economic hardships of the poor persist and have perhaps worsened. The economy has reversed its declining trend to a growth trajectory, inflation has decelerated, the balance of payments surplus [...]

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Poverty and malnutrition despite economic improvements

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Key macroeconomic indicators are signalling a turnaround in the economy. Yet, poverty and deprivation of food and other basic needs have increased. Despite macroeconomic improvements, the economic hardships of the poor persist and have perhaps worsened.

The economy has reversed its declining trend to a growth trajectory, inflation has decelerated, the balance of payments surplus has increased, and external reserves have risen.

Despite these improvements, poverty and hunger persist and may have worsened. Consequently, the economic improvements have gone unnoticed and drawn little interest perhaps owing to the country’s preoccupation with elections.

Prices

Although macroeconomic indicators have improved this year, the living conditions of the poor have worsened. Inadequate low incomes of an increasing number and high prices of essentials have increased poverty, malnutrition, and hunger.

Paradox

Despite these improvements in the first nine months of the year, poverty has aggravated, prices have risen, and hunger and malnutrition have enhanced. How is this paradox possible? First, what are the macroeconomic improvements?

Macroeconomic indicators

The economy has grown in the first half of the year; the inflationary trend has been reversed. Prices fell in September though increased in October. The balance of payments surplus has increased to US$ 4.8 billion and gross foreign reserves to US$ 6 billion by the end of September.

The balance of payments surplus increased due to increased worker remittances and tourist earnings. By the end of September, worker remittances increased to US$ 4.8 billion, and earnings from tourism increased to US$ 2.35 billion. Consequently, foreign reserves increased to US$ 6 billion.

Risks

These favourable developments may result in increased employment and incomes in the near future. However, there are downside risks owing to the widening wars.

Inflation

The decelerating trend in inflation had turned deflationary at the end of September, when the rate of inflation turned negative. However, this decrease in prices is not likely to persist. High prices of essentials are likely to cause economic hardship owing to several reasons.

Prices

The last two months have seen wide fluctuations in the prices of food items. Vegetable prices that skyrocketed fell sharply, perhaps due to a steep decrease in demand, and rose again.

Coconut prices

At the time of writing, coconut prices have skyrocketed. This is due to a drastic reduction in coconut output. This year’s coconut crop is expected to be half that of last year’s. There is a proposal to import coconut for industrial purposes and household consumption and ease prices of coconuts.

The increase in import duties of potatoes, onions, and eggs to encourage local producers too would have increased prices of these, as well as of near substitutes.

Growth and employment

The negative growth of 2023 has been reversed in the third quarter of this year. This is no doubt a favourable indicator of economic performance. However, the impact of this growth has not improved the employment situation. This is probably due to the prevailing underemployment and as construction and small and medium industries are not reviving. A time lag is therefore inevitable for a turnaround in increased employment.

Inflation

Although the rate of inflation has been decreasing and prices even decelerated in September, the prices of essential foods and other basic necessities are high and ill-affordable to the poor. It is only with increased employment and incomes that the plight of the poor will be eased.

Remittances and tourist earnings

As has been in the past, the main contributors to the balance of payments were remittances from abroad and earnings from tourism.

Caution

Both of these sources of foreign exchange earnings are susceptible to reversals. The two wars that are escalating could result in remittances and tourism being affected adversely. In the case of tourism, the recent security alert could set back tourist arrivals during the peak winter tourist season.

Reserves

Foreign reserves have increased to US$ 6 billion owing to these favourable developments. Yet they are prone to risks and uncertainties beyond the country’s control. Furthermore, the export growth could be affected by the wars and transport costs. On the other hand, import expenditure could increase sharply if the wars disrupt supply chains, transport, and oil prices.

Summary and concluding reflection

The economy is showing signs of growth. At the end of the year, there may be a slight increase in GDP. The economy is projected to grow at about 2 to 3 percent next year. This growth momentum has to be accelerated to make significant gains in reducing poverty.

Despite the macroeconomic indicators improving, the increase in poverty and malnutrition is concerning. The increasing or high prices of essentials while there is widespread unemployment and low incomes pose a severe threat to the country.

The improvements in the external finances too are fragile and could be adversely affected by external shocks. The achievement of a high rate of economic growth and equity remains a challenge.

Although the external finances of the country have improved owing to increased exports, higher remittances, and earnings from tourism, the external finances are fragile. External shocks could destabilise the economy and the external finances. The bottom line is that growth that increases employment and incomes is the way by which equity and growth can ensure the living conditions of the poor.

 

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