The COVID-19 pandemic, which had Sri Lanka in its grip for most of 2020, affected every class of people. But, undeniably, the worst hit were the poor and the lower middle class. To mitigate their suffering, the government had taken many steps, including one-time payment of Rs.5000 (US$ 27) per family. But a UN study recommends that the amount should be at least Rs.8630 (US$ 46.6) to enable poor families to survive the pandemic and resume normal life.
The study also recommends that Sri Lanka go in for social security payments on a permanent basis following the example of advanced countries which see such payments as necessary for sustained overall economic development.
The UN Social Protection Working Group paper entitled: Tackling the COVID-19 economic crisis in Sri Lanka: Providing universal, lifecycle social protection transfers to protect lives and bolster economic recovery begins its presentation by pointing out that even prior to the pandemic, which hit the island in March 2020, Sri Lanka as a whole was facing formidable economic challenges affecting the lives of the poor.
In 2019, the annual growth rate was only 2.3%. That was largely due to the Easter Sunday bombings by Islamic fanatics. Government revenues accounted for only 12.4% of the GDP, while government expenditure constituted 18.6% of the GDP. The government’s gross debt was equivalent to 83% of the GDP and annual debt repayments comprised almost 5% of GDP or around 40% government revenues.
Coming to the situation in 2020, GDP estimates by the Department of Census and Statistics for the second quarter of 2020 showed an unprecedented fall of 16.3% in real GDP, the steepest drop ever recorded in Sri Lankan history. There was contraction in all the three major economic sectors, namely, Agriculture, Industry, and the Services, by 5.9%, 23.1% and 12.9% respectively.
A telephone survey undertaken by UNICEF and UNDP at the beginning of May 2020 exposed the severity of the crisis. Overall, 39.4% of respondents reported that they had lost all income while a further 31.6% had lost partially. A survey conducted in April 2020 by World Vision Sri Lanka found that 93% had been affected by the crisis, with 78% either fully or severely affected. In addition, 44% respondents had lost their jobs, with average salaries falling from Rs.24,400 (US$130) to Rs. 6,800 (US$ 36.7) per month.
Among daily wage earners, 65% had lost their entire incomes while 31% had experienced reduced incomes. Among those paid monthly, 19% no longer had any income while 30% were living on reduced incomes. A recent UNICEF survey found that 74% of the families were surviving on less than Rs. 613 per day.
Therefore, the vast majority of families were not in a condition to withstand an economic shock on the scale of COVID-19. Children, persons with disabilities, and older persons were particularly at risk.
The Government of Sri Lanka quickly recognized the need to protect families during the crisis and provide the economy with a fiscal stimulus. It designed a program that, in April, delivered almost 5.4 million cash transfers of Rs.5,000 (US$ 27) to each household across the country. This was repeated for a second time in May, expanding the number to around 5.7 million transfers following appeals from households who had been excluded in the first round.
The total cost of this financial support system had been around Rs. 55 billion (US$ 297.3 million), or 0.33 per cent of GDP. The response was impressive given the fact that it was announced a few days after the imposition of the curfew and reached an estimated 66% of Lankan households.
However, 31% of respondents in the UNICEF-UNDP survey had not received the support. Nearly a third of the children and those over-70s, and around half of all single parents/caregivers, might have been left out.
There were also significant variations across the labor force: only 51% of daily wage workers were able to access the support. Among those receiving monthly wages the proportion was 83 per cent, suggesting that those working in the informal economy, namely, the vast majority of the labor force on daily wages, were excluded.
Though armed with greater executive power as a result of the enactment of the 20 th., constitutional Amendment, President Gotabaya Rajapaksa was only marginally able to achieve success in reviving the economy in the third quarter of 2020 when the GDP growth rate had risen to 1.5% .
To revive the economy, the Central Bank of Sri Lanka had reduced policy rates and the Statutory Reserve Ratio (SRR) to inject liquidity into the market and lower borrowing costs significantly. Concessional credit schemes were introduced alongside debt moratoria. By August-September, the private sector showed a significant improvement, the CBSL reported.
However, Sri Lanka has a long way to go to keep the people reasonably healthy and fit to face the coronavirus pandemic and future crises of the same kind.
Social Protection Transfers
The UN report suggested “social protection transfers” to tackle such crises. “This unprecedented crisis requires unprecedented measures. Governments need to inject cash into their economies through social protection transfers to their populations so that people continue to spend and keep markets functioning, an approach endorsed at global level by the United Nations, World Bank and IMF,” the report said.
It pointed out that “Group of Seven” advanced economies were spending an average of 5.9% of their GDP on social protection schemes. “These countries understand that the fiscal stimulus will result in stronger economies,” the report said.
The UN study suggests that Sri Lanka establish a system of “emergency, lifecycle universal transfers for children, older people and people with disabilities” for at least 6 months. Families should receive Rs. 3,000 (US$ 16.2) per child per month (provided to the female caregiver where present) while older people and people with disabilities should be given Rs.7,000 (US$ 37.8) per month. The study estimated the cost to be around Rs. 233 billion (US$ 1.25 billion) which will be 1.5% of GDP over 6 months.
“The average value of the transfer received by households would be LKR 8,630 per month, or 73% than the Rs.5,000 (US$27) currently provided. It would represent around 20% of the average household’s pre-COVID-19 expenditures.”
“Importantly, the transfers would adapt to the size of households so that larger households and those with more children, older people and people with disabilities would receive higher overall transfers,” the report said.
In urban areas, the lifecycle schemes would replace an average of 42% of the income lost due to the crisis and 65% in the rural areas, it estimated.
Due to the cash transfer scheme nutrition of the most vulnerable members of society – in particular children, older people, people with disabilities and the sick – can be better protected. Households will be less likely to draw down on their assets or take loans. And a number of studies have indicated that women may be less likely to be subjected to domestic violence if they are recipients of a cash benefit, the report said.
If the Lankan government continues to invest around 1.5% of the GDP per year in universal lifecycle transfers, the economy could, by next year, recover to where it would have been if the COVID-19 crisis had not struck. And by 2030, the Sri Lankan economy could be 3.9% larger.
*P. K. Balachandran is a senior Indian journalist working in Sri Lanka for local and international media and has been writing on South Asian issues for the past 21 years.