Prevent human bankruptcy in Sri Lanka, immediately

By Dr Ajith Amarasinghe

Dr Ajith Amarasinghe- M.B.B.S, M.D., D.C.H (Col), MRCP, MRCPCH (U.K),DAA (CMC-Vellore),MBA-Health care (Manipal) is a medical consultant and the Chairman of the United Republic Front.

On the eve of Sinhala and Tamil New Year, 12^th April 2022 Sri Lankan government declared that our country is bankrupt. This bankruptcy led to a social unrest, which was followed by a political upheaval. Whilst an outward calm prevails in the country, rumblings of the social volcano which erupted in 2022 named as “Aragalaya” still looms. Political parties and politicians are vociferously accusing each other for economic bankruptcy. Economists and intelligentsia are busy analyzing, what and who pushed our county to this precipice.  Few of them are attempting to find solutions to the current political, economic and social crisis. Many such attempts are focused on macroeconomic policy decisions but any if at all are on microeconomic front. Unknown to all of them the current economic crisis in our country is gliding it in to a black hole which is “Human Bankruptcy”.

Human development index and Sri Lanka

“Human bankruptcy” is a novel term and a phenomenon which is probably for the first time discussed in a country which has declared itself officially bankrupt, financially. To analyze of human bankruptcy one has to understand the concept of Human Development Index (HDI).

Conventionally, development of a country is measured by indices such as national   income,per capita income, GDP and the rate of economic growth. As these measures do not reflect the level of development of individual citizens of a country, a scientific criterion on which the level of development of individual citizens of a country was introduced. Now widely accepted by international agencies, this statistical tool which is known as “Human Development Index” (HDI) was developed by   Pakistani economist Mahbub ul Haq in 1990. Calculation of the human development index combines four major indicators: life expectancy for health, expected years of schooling and mean of years of schooling for education and Gross National Income per capita for standard of living.

Based on the value of HDI the countries are classified into four levels i.e. 1 to 0 [(i) Very High Human Development (0.800 and above); (ii) High Human Development (0.700 to 0.799); (iii) Medium Human Development (0.550 to 0.699) and Low Human Development (less than 0.550). According to the United Nations Development Program (UNDP) Human Development Report of 2022, Sri Lanka belongs to “High Human Development” category, with a Human Development Index value of 0.787 and was ranked 73 out of 191 countries. Maldives, with a HDI value 0.747 and a rank of 90 is the only other country in the SAARC region, classified under “High Human Development.”  It is interesting to note that Sri Lanka is ranked above fast developing and powerful countries such as China (rank 79, value 0.748) and India (rank 132, value 0.633) in terms of human development. In Asia Singapore, Japan, South Korea, Thailand and Malaysia are the only countries, with a HDI above that of Sri Lanka.

The positive impact economic development would have on human development of a country is a widely accepted fact. However, economic development of a particular country does not necessarily mean that human development of that particular country too is progressing accordingly. For example many oil exporting countries, such as Saudi Arabia, Kuwait, and Qatar, also have a large discrepancy between its HDI and GDP per capita.

Attributes of high HDI in Sri Lanka

The impressive status of human development in Sri Lanka despite having a low GDP and per capita income can be attributed to free education and health services that have been available to its citizens for more than six decades. In the report named “Reaching Every Sri Lankan: Human Development Achievements and Challenges” by United Nations Development Program (UNDP) on September 10, 2021 identifies expansion of general education, free health care and increase in GDP after end of war as main reasons to have a high HDI in Sri Lanka. UNDP report states that steady expansion of free general education across Sri Lanka enabling even underprivileged groups in rural and urban areas to send their children to school. Expansion of secondary and tertiary school enrolments since the 1970s, increased the employment opportunities in the expanding public and private sectors for educated youth. This contributed heavily to Sri Lanka to have a progressively high HDI. This report also identifies Sri Lanka’s unique healthcare system as a main contributory factor  to its high human development.

Therefore, contrary to empty rhetoric of certain political parties that Sri Lanka has achieved nothing since 1947 it is evident that despite corruption, nepotism, cronyism, inefficiencies and wastage in successive governments Sri Lanka has steadily progressed in the arena of human development during past few decades. (Table 1)

Source: Human Development Report 2020

It has also been identified that after the war came to end in 2009, economic growth recorded a higher rate moving the country to a high level of human development. This economic growth was due to large scale post-war infrastructure development projects (though they yielded very return on investment to the country), gradual progress in the tourism industry and increasing remittances sent by Sri Lanka workers contributed to this. Despite these achievements wrong management of the economy and massive corruption led Sri Lanka to declare itself as a bankrupt country in 2022. The impact of economic downfall and bankruptcy has threatened the HDI of Sri Lanka to very low levels. 

The impact of economic crisis on Gross National Income of Sri Lankans 

Although an outward development prevails latest economic statistics reveals that economic contraction would continue into 2024. This has led Sri Lanka to have a gradually declining GNI per capita since the year 2019 which is one of the main attributes of HDI. GNI per capita of Sri Lanka  for 2019 was US$4,220, a 3.21% decline from 2018 and the it is forecast to amount to US$3110 in 2024 which is 26.4% decline from the year 2019. Table 2

Source – World Bank national accounts data and OCED national accounts data

GNI has a strong correlation with Gross Domestic Product (GDP). The real GDP contraction was 7.8 percent in 2022 and it declined by 7.9 percent in the first half of 2023 compared to first half of 2022. Industrial activity declined by 18.3 percent in in the same way in 2023. Comparison of different sectors between the years is shown in the table 3.

Real GDP growth in 1H2023- Source department of census and statistics

Decline of GNI per capita within a short span of four years is felt badly by the people of this country. Sri Lanka Development Update published in October 2022 by the World Bank has declared that the ongoing economic crisis has doubled the poverty rate in the country from 13.1 to 25.6 percent between 2021 and 2022. The estimated number of recently impoverished people is counted to be 2.7 million. Sri Lanka Development Update published in October 2023 by the World Bank states that “Poverty is estimated to have increased in the first half of 2023, albeit at a slower rate”. High inflation, declining remittances, and contracted wage employment in services and industry are the main factors contributing to this. All these negative findings would contribute to reduction in one of the key indicators of HDI, which is Gross National Income (GNI) per capita. 

The impact of this economic downfall on individual citizens of Sri Lanka is hardly   discussed. World Food Program Sri Lanka Situation Report in 6 July 2022 states that 3 in 10 households (6.26 million people) are food insecure, of which 65,600 are severely food insecure. Of these majority of assessed households (61 percent) are regularly employing food-based coping strategies such as eating less preferred and less nutritious food, reducing the amount of food they eat and two in five households are not consuming adequate diets. This food insecurity found in the year 2022 may have contributed to increase levels of malnutrition in the year 2023. 

Data show that 16.2 percent of children under five years of age are underweight by June 2023, up from 14 percent in June 2022. The share of pregnant women with anemia increased from 13.3 percent to 16.2 percent during the same period. In analyzing these figures anyone will be able to grasp the humanitarian catastrophe which is happening in the countryside. 

A Policy Report of the UNDP’s Based on the National Citizen Survey 2022-2023 found that approximately 55.7 percent of the population of Sri Lanka are multidimensionally vulnerable, especially in the domains of Employment and Livelihoods, Household Expenditure and Consumption Patterns, Education and Healthcare Access and Coping Mechanisms. Of the 12.34 million vulnerable individuals, 82 percent (10.13 million) reside in rural areas.

Many indicators continue to show that weak economic activity is continuing and even multiplied in the year 2023. Total cement consumption declined by 32.5 percent (y-o-y) January–July 2023, reflecting the deep recession in the construction sector. Electricity sales to industries declined by 5.9 percent (y-o-y) in January to July 2023 due to reduction in industrial output.

Impact of economic crisis on education

The recent economic crisis has directly and indirectly affected the education sector. The survey done by department of statistics examined how children within the school-going age range were affected by economic crisis on their education and analyzed the various strategies these children have adopted to overcome these adverse impacts. It showed that overall 54.9 percent were affected by the economic crisis and the rate for the Urban, Rural and Estate sectors are 54.2, 55.1 and 55.1 percent respectively.

According to the data presented in the study primary strategy adopted by the majority of individuals affected by the economic crisis (53.2%) was to either reduce their expenditure on new stationery or completely not purchasing it. This study shows 44.0% of individuals have decided to cut down on buying new uniforms or stopped purchasing them altogether as the second most prevalent strategy. Additionally, reducing the frequency of attending tuition classes or shifting to online classes were the third and fourth most commonly adopted strategies, with 40.6% and 28.1% shifting to these measures.

Although national level data are not available it is widely known that school attendance has declined due to economic hardships. Increasing traveling costs, increasing coats of stationery and uniforms and even lack of food is said to be main reasons for school absenteeism. These effects cannot be countered simply by infusing money into the government education system or creating more universities. The need of the hour is to ensure that school age children are attending schools and receiving education.

The impact of the economic crisis would have on total years of schooling is yet to be observed. If the crisis deepens or prolongs children may leave schools to support their families financially en mass, as it happens in impoverished countries. As expected years of schooling and mean years of schooling for education are two main factors contributing to HDI unless a conscious attempt is made to improve school attendance and years of schooling Sri Lanka would be fall back in the arena of education too. 

Impact on health care

Although Sri Lanka had a health care system lauded internationally as one of the most cost effective health care systems of the world, private spending on health care has always been higher than government spending. (Figure i).

Source S. Amarasinghe et al. Sri Lanka National Health Accounts- Institute for Health Policy

Of this private spending more than 80% is out of pocket expenditure borne by individuals in buying medications from pharmacies, investigations from private labs and “channeling” doctors. Insurance schemes, employer provided expenditure, NGO expenditure contribute only to less than 20% of private expenditure. With the dwindling value of the income and more percentage of the income spent on consuming food, the expenditure on health especially on medication would have been impacted drastically. Adding fuel to fire the cost of medications have gone up due to depreciation of rupee. Although no research has been published on the impact economic downturn on health care it is widely known that people are consuming less medication due to lack of money to buy  medicines.

The affected patients turning to government sector for some consolation, had to face the nasty experience of mismanagement, corruption and wastage in the hierarchy of the government health sector. Headed by a Minister who had no sympathy about the improvised people, health ministry of Sri Lanka experienced worst scandals in its history, exposing its administration from top to bottom. Despite obtaining a higher allocation of Rs 432 billion in the years 2023 in comparison to Rs 223 billion in the year 2022, severe shortages of drugs and equipment happened. Importation of substandard medications bypassing the normal registration procedures were a norm in the year 2023.

In addition, an exodus of health care personal from the country happened due to current economic crisis. This triple jeopardy in the health sector namely accessibility to medication, substandard medications and shortage of manpower is causing a massive crisis in it. What is not recognized is the impact it would have on chronic illnesses namely diabetes, hypertension and ischemic heart disease which are major causes of death in Sri Lanka. All these factors would contribute to reduction of life expectancy at birth in Sri Lanka, which is another parameter in HDI.     

The need of the hour

It is very clear that due to all these factors, Sri Lanka would experience a rapid decline in human development, culminating in a humanitarian catastrophe in the coming years. Identifying and acknowledging that economic bankruptcy would lead to human bankruptcy is the first step in solving this problem. Then it has to be understood that adjustments made at the macroeconomic level would take a long time to reach households, and this catastrophe has to be addressed immediately at the grass-roots level. When a country goes into bankruptcy, urgent economic steps are taken to keep that country afloat. Similarly, when there is bankruptcy at the level of the citizenry, it is important that urgent measures that would affect the people of the country are taken to prevent the people from going down the hellhole of human suffering.

Social protection schemes

The government's response to the rapid increase in poverty has been direct transfers of money to the poor to overcome some of the negative impacts of the crisis. Despite the common notion that Sri Lanka spends a colossal sum of money on social protection schemes, UNDP is of the opinion that the 0.6% of the GDP on social assistance schemes in Sri Lanka is very low in comparison to other countries. Other than that, international agencies are of the view that Sri Lanka has very weak institutions and malfunctioning and incorrect social registries to respond to this crisis in an effective and efficient manner. What is not known to them is the fact that there are significant political interferences in preparing these registers.

It is estimated that in 2019, the main social protection scheme covered just over 20 percent of the total population, reaching only 38 percent of the poorest consumption quintile. Surprisingly, 16 percent of beneficiaries were from the top two richest quintiles. Therefore, depolization of these social benefit schemes to ensure that only the poorest receive the benefits is one of the essential factors in combating human suffering.

Education

It is hilarious to observe that, at a time of economic bankruptcy, establishing new universities would address the crisis in education, as it has been proposed in the recent budget. What is more important is to ensure that the current student population is attending school regularly and that they will remain a healthy generation to serve the country in the future.

Under the current circumstances, providing a nutritious midday meal to schoolchildren would have multiple benefits. This would curtail the rise in malnutrition, improve school attendance, and infuse money into the local economy. This scheme could be implemented in stages, with a budget of about Rs 50 billion per year. One has to compare it with the defense budget of Sri Lanka in the year 2023, which was Rs 539 billion. The government could also approach international donors to contribute to this scheme, which could be implemented until the economic crisis is over.

Health

Making sure that quality-assured all essential drugs are available in government hospitals and that the prices of these drugs are kept low and, if possible, subsidised is utmost important. With the economic downfall affecting more patients, they would turn to the government sector seeking solace. Therefore, strengthening the state health sector to cater to patients moving from the private sector due to economic hardships is important.

Our country has achieved excellent health parameters through an efficient primary health care service. This primary health service should receive adequate attention and funds to sustain maternity, child health, and immunization. Nutrition programmes targeted at pregnant mothers and preschool children have to be implemented more vigorously.

Conclusion

With the current economic bankruptcy affecting the people of Sri Lanka, it is definite that the human development parameters it has achieved during the past few decades will decline within a few years. Unless thoughtful, direct action is taken to prevent individual citizens in Sri Lanka from drifting down in the spheres of health, education, and individual income, it is inevitable that this economic crisis will lead to human bankruptcy and a social calamity.