Comment: Impact of increasing inequality

Colombo folks should consider themselves lucky, as they are more privileged than the rest of their fellow citizens in the country. This testimony of their destiny was revealed at a recent report published by the World Bank. (WB)

The report titled "Sri Lanka Poverty Assessment" launched last week has proved what we already know, the urban rural disparity or the east-west differences in the country relating to economic growth, income distribution and poverty with shocking numerical evidence.

The two poverty assessments done by the WB and the Department of Census and Statistics, during the period 90-91 and 2002 poverty has reduced only in three districts in the Western Province while more remote and rural districts experienced no reduction or experienced an increase in poverty. Five of the seven poorest districts in 1990-91 have experienced an increase or no reduction in poverty by 2002.

The Western Province accounted for a third of the population and only 16% of the poor while Uva and Sabaragamuwa were home to 18% of the population and 29% of the poor.

During the period 1997-2003 the GDP in the Western province grew by 6.2% annually while in the rest of the country the annual growth was only 2.3%.

According to the report inequality between the West and the rest of the country is rising. The mean per-capita real consumption has increased by 29% while inequality in income distribution measured by the gini index shows a 24% increase.

Mean consumption for the top quintile has increased by 50% while it was a mere 2% for the bottom quintile. Similarly between 1996-2004, the income growth of the top quintile was 25-29% while it was less than 4% for the bottom quintile.

The poverty rates in Colombo and the Gampaha districts were 10% and 11% but 37% in Badulla and Moneragala. Another shocking revelation of the report is the increasing poverty in the estate sector.

The estate sector is the poorest of the economy and policy makers have known this for many decades. Representatives of the estate people have been holding senior ministerial positions under every government since 1977. According to the report there is a 50% increase in estate poverty.

The report highlights the impact of the increasing inequality in poverty and said that if there were no change in distribution the present economic growth would have reduced poverty by 15% instead of the 3% observed.

If the gini grows at an average rate of increase seen from 1990-91 to 2002, Sri Lanka's economy needs a 10% growth rate to achieve the Millennium Development Goals by 2015.

These statistics stress that growth as well as the income distribution are the main problems.

The causes for this economic crisis are clear.

All economic activities have been concentrating in and around Colombo. Attempts to change this situation were first made during President Ranasinghe Premadasa's tenure.

He provided the garment quota and other incentives for the apparel industries to be located in rural areas. However, those were the first victims that died after the MFA was phased out.

Similar programs are still under way and are being planned with high aspirations. Would these attempts succeed without proper connectivity with the markets?

Infrastructure and accessibility to markets are the only incentives the entrepreneurs need to go rural.

Senior Lecturer of the Economics Department, University of Peradeniya, Dileni Gunewardena explained the issues in the ongoing programs to address the problem. At the panel discussion at the launch of the report, she said that at macro level the Mahinda Chinthana is attempting to address this issue. However, at micro level the problem is not being addressed.

Under the Mahinda Chinthana road development projects are launched to link villages but linking remote villages is not a solution for this vast structural issue in our economy. The priority should be to link the centre with the periphery.

The World Bank is one of our development partners and has been the consultant of the economy for over fifty years. Today we have faced this situation after following their advocates. The problem is whether they have given the wrong instructions or whether we have done our homework well.

The WB has indicated all causes that led our economy to this crisis and anyone who wants remedies should look at the report seriously and act on it.

This truth is known by all of us, be it the policy makers or the people but what is not known is that there are several micro issues that have to be solved such as government support and development assistance not reaching the villages, concentration of value gains in the hands of selected people especially mudalalis and intermediaries, political instability, low trickle down effect of government spends and support packages, ineffectiveness and lack of commitment of government officials, the ineffective maintenance of government infrastructure and consequential deterioration of village level support services, inequalities and inefficiencies in the Samurdhi scheme, with benefits not reaching the targets and also not being directed at those most deserving, commodity prices and primary produce prices not keeping pace with cost inflation, lack of sustainable reliable access to water for irrigation and lack of adequate lands for irrigation.