MDGs cannot be achieved under current economic growth rates - Analyst

by Surekha Galagoda and Gamini Warushamana

Profile:

Highest qualification: MA, Econ

Trained in: Advanced Management, Harvard, USA ; Regional Development Planning, Israel; Small Industry Development, Japan .

Experience: Development/Land Officer, RVDB- 64 to 71:
Regional Manager-Southern Province, Director Planning-IDB-71 to 82
Director Policy and Planning-EDB-82-98; Trade Chamber Movement - 98 to 2000
Author: Two books, numerous reports on SME, export development, business
development and over 60 newspaper articles and Volunteer Work-SLEA, OPA etc.

Sri Lanka will not be able to achieve the Millennium Development Goals (MDGs) of the UN, especially reduction of poverty levels (at present around 23% of the population by half) by 2015, unless we immediately restore ethnic peace and good governance in the country, economic analyst Lloyd Yapa, told the 'Sunday Observer' .

He said the MDGs cannot be achieved under the current economic growth rate; poverty is still a worrisome issue in Sri Lanka as statistics do not show a positive trend in poverty reduction, especially in certain rural areas, estate sectors and the war ravaged areas of the North and East.

There was a significant reduction in urban poverty between 1990-91 and 2002. The 1990-91 poverty head count ratio in urban Sri Lanka was reported at 16.3% and by 2002 it was at 7.9%. This means urban poverty levels had declined by more than half.

However, in rural areas there was only a marginal decrease. In 1990-91 the poverty head count ratio was 29.4%; in 1995-96 it increased to 30.9% and by 2002 it declined to 24.7%.

In the estate sector the poverty head count ratio was 20.5% in 1990-91. By 1995-96 it increased to 38.4% and by 2002 it declined to 30%. If we consider the entire country, the poverty head count ratio in 1990-91 was 26% and by 2002 it had declined marginally to 22.7%.

Alarming features

One of the alarming features of poverty in Sri Lanka is declining nutritional standards. We are proud of our health and education services but we cannot be so euphoric with regard to the nutritional levels of the people because the number of malnourished women and children is reported to be very high (30%).

The infant mortality rate is increasing. Infant mortality at national level stood at 16% in 1997. In developed countries it was 8%. The estate sector infant mortality rate was as high as 24%.

In Sri Lanka due to cultural reasons girl-children and mothers get lower nutrition and this situation could cause grave ill health among future generations.

The shocking feature is that malnutrition is not going down. Changes in the consumption patterns seem to have worsened it. Milk powder consumption is widespread, however it is not the best source of nutrition. In the rural sector dairy farming and fresh milk consumption are on the decline. Traditional foods with more nutrition values and fibre are being replaced by fast foods of no nutritional value.

Literacy rate

Many indicators show that urbanisation decreases poverty as developed infrastructure and accessibility to essential services improve the living standards of the people.

For example the literacy rate in urban areas was 94% compared to those in rural and estate areas 92% and 77% in 1997; availability of electricity in urban areas was 88%, rural 56% and estate 12%. The stunting rate among children aged three to five months in urban areas was 9.8%, rural 32.8% and estates 33.8%.

Safe drinking water is available only for about 74% of the households mainly in the urban areas of the country. This situation causes serious health issues such as kidney diseases in the Anuradhapura and Polonnaruwa districts. The recent outbreak of hepatitis in Gampola and its usual outbreak after the Nuwara Eliya holiday season in downstream areas are the result of contamination, especially with faecal matter.

Only about 68% of households have sanitation facilities.

The regional disparity in economic growth is growing. The Western Province contributes more than 50% of the GDP of the country. According to consumption/income poverty, the Moneragala District is the worst in the country and in the case of human poverty (inadequate or lack of access to services such as health and education and social exclusion/discrimination) the worst area is Nuwara Eliya.

Persistent poverty

Yapa said that there are two main reasons for the persistent poverty in the country. One is the slow economic growth rate and the second is the neglect of development of infrastructure facilities and services in rural areas leading to a severe disparity in income distribution.

Before 1977, the average annual economic growth rate was about 3% and after 1977 it increased to around 5%. To achieve a higher rate of growth more investment on a sustained basis is required. Unfortunately our national savings rate is at a low level - 23.4% of GDP-compared to the very high rates of around 40% prevailing in East and South East Asia.

Public investment has not been sufficient during the past few years; it was around 5% compared to over 10% in the 1980s. Today we tend to reduce public investment to keep the budget deficit lower while retaining unproductive welfare programs and subsidies to loss making State owned enterprises, wages to an obese public service, high defence expenditure and to service the enormous public debt.

The government's welfare programs are poorly targeted due to politicisation; some people who deserve such payments do not receive them, while those who are not entitled to receive them are somehow favoured.

The low level of political stability, infrastructure development, law and order in the country does not encourage higher investment including FDI.

Without increasing investment on physical infrastructure and services such as health and education it is difficult to increase employment generating opportunities in rural areas.

Certain South East Asian and Far Eastern countries have been maintaining over 8% annual growth rates over long periods of time due to investment being around 40% of GDP (compared to around 25% in Sri Lanka). In 2003 East Asia had attracted FDI worth $53 billion while South Asia received only $ 5.3 billion of which India accounted for $4.3 billion. FDI is essential as it brings in scarce capital, technology, skills and knowledge of markets.

The extent of disparity in the distribution of income is clearly indicated in the poverty statistics, the Gini coefficient being 0.5. (It is better when closer to zero).

Extreme poverty is prevalent in the estate and certain rural areas such as Uva and Sabaragamuwa while the people in the Colombo, Gampaha and Kalutara districts are better off.

Corruption

Another reason for rural poverty is corruption. A study carried out by the Sri Lanka Economic Association has found that corruption clips around 2% or more of the country's GDP; it reveals that annually at least 20% of the capital expenditure of the central and local government bodies is lost due to bribery and corruption; there are some projects that are not implemented at all although the contractors are fully paid.

Yapa said that the increase in corruption is mainly due to the politicisation of the public administration. This is a result of a flaw in the 1972 and 1977 constitutions. The malaise can be cured mainly by the separation of the powers of the executive, legislature and the judiciary; a constitutional revision is needed for the purpose.

If the Executive, more specifically the Public Administration and the Judiciary are independent of the Legislature, though being accountable, they will have the space and sufficient freedom (without outside interference) to maintain managerial standards at a high level.

Another reason for rural poverty is inconsistency in policy objectives. At macro level the objective of policy is to increase incomes (and to improve its distribution). But at sector level, especially in the case of paddy cultivation, the policy is self-sufficiency and not increasing incomes.

Farmers are not allowed the freedom (over 80% of land being owned by the government) to select high value crops and are required by policy makers to cultivate paddy which is not profitable on a small scale (in fragmented lots).

Land market

Liberalisation of the land market and give ownership of the land to the farmers will therefore have a significant impact on rural poverty. The farmers of the unprofitable plots could sell their land so that the size of holdings and their profitability could increase.

However, there is a fear of immediate selling off the land by impoverished farmers, thereby enlarging the class of landless peasants.

This can be kept under control by the formation of joint stock companies (e.g. covering each irrigation system of about 1,000 acres), where the farmers could be shareholders.

Under this method, the scale of production would be higher and therefore the unit costs could be kept low; being recognised corporate bodies, the companies would be able to command all the resources for acquisition of inputs such as high yielding planting material, fertiliser, technology, skills, machinery, processing-storage-transport-marketing facilities etc just like other well established medium to large business ventures. The lot of the farmers could be improved by empowering them in this manner.

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