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A war-ravaged economy

Print edition : Aug 15, 2003 T+T-

Recent studies suggest that Sri Lanka, which has lived through two decades of armed ethnic conflict, is faced with the even larger problem of growing poverty.

in Colombo

WITH the armed conflict between the government and the Liberation Tigers of Tamil Eelam (LTTE) somewhat frozen, Sri Lanka sees before it a larger war - against poverty. Twenty years of fighting has shattered the economy, raised debt levels and turned the nation, which once had a proud human development record, into one that will now have to wage a prolonged struggle to reduce poverty.

The World Bank, in its recent Country Assistance Strategy, emphasised the need to reduce conflict-related poverty. At a broader level, it also made the point that though the poor in Sri Lanka "are relatively well-protected due to free and universal access to health and education, large income transfer programmes and substantial subsidy schemes", there were "weaknesses". The two main limitations identified by the World Bank are the poor quality of and inadequate access to these programmes. Prescriptions, on predictable lines, were made at the macro-level. These would need a lot of political and popular support to implement.

The World Bank's "Sri Lanka: Poverty Assessment Report", finalised last year, places an estimated 25 per cent of the population below the national poverty line. This section compared with the 1985-86 figure of 31 per cent of the population, may not appear to be a cause for concern. However, a closer look at the figures and recent developments suggests that apprehensions, if any, are justified.

First, the estimate of 25 per cent is largely based on figures from the mid-1990s and therefore does not fully reflect the economic movements during the late 1990s. Secondly, the figures for the northern and eastern provinces were gathered largely from "small-scale surveys" and "local government studies". Thirdly, a government document, "Regaining Sri Lanka", suggests that according to a preliminary report of the Household Income and Expenditure Survey of 2002, "around 28 per cent of the population is experiencing consumption poverty. This figure, even though it is tentative, suggests that there has been no significant change in the poverty level in the latter half of the 1990s."

Economists also point out that the 1.3 per cent fall in gross national product (GNP) in 2001 would mean greater hardship. "In real terms this amounted to a decline in per capita income from $881 to $823 or nearly 7 per cent. For every man, woman and child, national income fell by $61 or more than Rs(SL).100 per week," says the "Regaining Sri Lanka" document, which was released last December. (One Sri Lankan rupee is 0.48 Indian rupee or roughly $0.23.) Painting a more dismal picture, it adds: "In effect, this is like erasing all of the gains in national income per person realised in the last five years."

The cost of the conflict has also slowed growth considerably. Dr. D.H.C. Harsha Aturupane, senior World Bank economist, told Frontline that while the national economy grew at 6 per cent overall in the 1990s, the war-torn north registered a negative growth of 6 per cent. The Ministry of Planning estimates that the "size of the overall economy of the Northern Province shrank from $350 million to $250 million between 1990 and 1995, corresponding to a negative annual gross domestic product (GDP) growth of 6.2 per cent". The Central Bank of Sri Lanka, in its latest report, identifies three major factors for the island's inability "to realise the full benefits of the market friendly economic framework" - continuation of the civil disturbances, a relatively unfavourable macroeconomic environment, and slow progress in economic liberalisation and other structural reforms. The Central Bank noted that the conflict since 1983, "entailed severe political, social and economic costs. It disturbed smooth functioning of the economy, wasted scarce economic resources, prevented full utilisation of resources and weakened investor confidence."

The World Bank's "Poverty Assessment Report" defines the direct costs of the war, including "military expenditures borne by the government (and the LTTE) and costs associated with the destruction of or damage to physical and social infrastructure". The government's military expenditure rose from 1.3 per cent of the GDP in 1982 to approximately 5 to 6 per cent of the GDP in 2000. A study by the Institute of Policy Studies, Colombo, in 2000 estimated the economic cost of the government's expenditures at about 41 per cent of Sri Lanka's 1996 GDP (Rs.768 billion) and those of the LTTE at 4 per cent.

The extent of damage the Northern Province has suffered is evident from the recent compilation of the provincial gross domestic product (PGDP). The Northern Province, which bore the brunt of the war and parts of which are controlled by the LTTE, registered an annual average growth rate of 2.5 per cent between 1996 and 2001.

Healthcare facilities, if at all present, are minimal in the north. Skeletal remains of shelled hospitals stand testimony to the continued deprivation of basic healthcare, particularly in LTTE-held areas.

The maternal mortality rate (MMR), a key indicator, starkly tells the tale of severe differences that persist between Colombo, Sri Lanka's capital, and Kilinochchi, where the LTTE's political headquarters is located.

According to the Department of Health Services' 2001 Annual Health Bulletin, the national MMR was 2.3 per 10,000 live births, with Colombo topping the list of districts with an MMR of 0.2. Compared with the pre-conflict situation, the MMR has deteriorated in all northern and eastern districts.

Rebel-held Kilinochchi registered an MMR of 14.3, the highest for any district. (Separate figures for Kilinochchi district are not available for 1981.)

In Jaffna, where the MMR was 0.3 in 1981 (against the national figure of 0.6), the rate is now 2.8. In the other northern districts, the rate worsened - from 2.7 to 9.7 in Mannar and from 0.5 to 3.0 in Vavuniya. In the eastern districts, the situation is no different. In Batticaloa the MMR deteriorated from 1.0 to 5.1, in Amparai from 0.6 to 9.7 and in Trincomalee from 0.4 to 4.1.

Similarly, the availability of health personnel per one lakh persons is considerably lower in the northern and eastern districts, with Kilinochchi district at the bottom of the table. The national average is 44.8 medical officers per one lakh persons while the Kilinochchi rate is 3.6 per one lakh persons. "There are more doctors from Sri Lanka in one street in London, than there are in Jaffna," Dr. Jani De Silva, consultant at the Centre for Poverty Analysis, quipped.

In addition, livelihoods have been severely affected in the northeast. In the case of the north, particularly LTTE-held areas, even guesstimates are hard to come by for this category, which determines poverty levels. "There is no employment, except government services and a few shops," a government officer said.

Government officials point out that the difficulties faced by the residents in the north have eased considerably since last year's ceasefire, particularly after the reopening of the Kandy-Jaffna A9 highway. During the conflict, large price differences were evident between the south and the north. For instance, potatoes were sold in the north at Rs.200 a kg last January. Now the prices are in the same range as they are in the south, according to officials.

By and large, "the southern prices are prevailing in the north, maybe the prices are marginally higher for a few electronic goods," Dr. K.S. Kunasingham, senior adviser to the government's Relief, Rehabilitation and Reconstruction (Triple R) office, said.

While the reopening of the A9 highway has made a huge difference to the civilians, it has also come as a windfall to the LTTE, which levies a range of "taxes" on goods and persons travelling to areas held by it.

"The prices in the north are less than what they were before A9 was opened, but they remain higher than in those places under government control, entirely because of the LTTE's taxes," a defence analyst said. Members of Parliament point out that "on A9 alone, anything between Rs.3 million and Rs.5 million is collected as taxes every day by the LTTE". Conservative guesstimates suggest that, on the whole, the LTTE collects revenues of up to Rs.5 million a day from all the areas under its control. "Everything, including a haircut, is taxed, so they make a lot of money,'' the MPs said.

In addition to these issues, improving the conditions of the internally displaced persons (IDPs) is another tall challenge. According to the World Bank, total government expenditure on schemes for IDPs was Rs.3.7 billion in 1999.

For the northeast, the government's Triple R programme has marked $100 million for three projects - the North East Community Restoration and Development Project (NECORD), the North East Irrigated Agriculture Project (NEIAP) and the North East Emergency Rehabilitation Project (NEERP).

Sri Lanka's battle with poverty, evidently, is not northeast-centric. Outside the conflict-scarred zone, a range of complex and distressing problems confronts policy-makers. Inequities are prevalent between districts. According to Dr. Jani De Silva, high drop out rates, rural indebtedness, subsistence wage levels and a heavy dependence on the remittance economy, though to a lesser degree than in the Northern Province, are grim realities outside the conflict zone. According to the 1995-96 Household Income and Expenditure Survey, which did not include regions in the north and the east, food and drink account for 53.6 per cent of Sri Lankans' average monthly household expenditure. Housing (12.2 per cent), transport and communication (6.2 per cent) and personal care and health (4.7 per cent) were the other main expenditure categories.

Pointing out that "about 80 per cent of Sri Lanka's population and 90 per cent of the country's poor live in rural areas", the World Bank recommends that high priority be given to rural development. The Household Income and Expenditure Survey clearly brings out the rural-urban divide. The average monthly urban household income (Rs.10,067) was much higher than the national average (Rs.6,464) and also significantly higher than the average rural monthly household income (Rs.5,982). The income level was even lower for the estate sector (Rs.4,005). The national average monthly household expenditure was Rs.6,385, while the urban average was Rs.10,202 and the rural average Rs.5,862.

The key policies suggested by the World Bank to aid rural development are liberalisation of the trade regime for agricultural outputs, a gradual reduction of State involvement in agricultural marketing and improvements to rural infrastructure. Clearly, this strategy, particularly the first two elements, is likely to affect the poor in the intermediate term. The effectiveness of the proposal will depend to a large extent on the ability of the government to convince its important constituents on the need for such a strategy.

The extreme poverty prevailing among Indian-origin Tamils should be of particular concern to policy-makers. "With the exception of Indian Tamils, the majority of whom are poor, the incidence of poverty varies little across ethnic groups," the World Bank notes. This adds a very important, and oft-ignored, dimension to Sri Lankan poverty. "Aggregate consumption is lowest among Tamils living on estates, where inequality is low, indicating that the majority of the households are homogenously poor," the World Bank says. The poor living conditions in the estate sector is reflected in the Household Income and Expenditure Survey. Estate Tamils spend 65.4 per cent (Rs.3,056) of their monthly average expenditure (Rs.4,676) on food and drink. Liquor and tobacco (6.6 per cent), clothing and textile (6.3 per cent) and fuel and light (5 per cent) were the other main expenditure categories for the estate Tamils.

Commenting on the extreme poverty faced by the Indian-origin Tamils, the World Bank states: "Estate households, although accounting for only 4 per cent of all poor households, are among the poorest in Sri Lanka. In addition to the conflict and remote locations of estates, which restrict the geographic mobility of the workers, language barriers, discrimination, and, for some, lack of citizenship cards further curtail their integration into the larger economy and society."

At a broader level, the World Bank prescribes what has now become its predictable remedy - privatisation. It suggests that the significant number of state-owned enterprises (SOEs) in commercial activities, including utilities, transport, banking, petroleum and wholesale of basic commodities has been a drag on the economy and on the budget". Changes are also recommended in the power sector - the unbundling of generation, transmission and distribution; the break-up of the Ceylon Electricity Board; and the establishment of an independent regulatory body, which will be responsible for implementing an "economically sound tariff policy".

The success of Sri Lanka's poverty reduction strategy will depend largely on the ability of the island's economic and political decision-makers to convince themselves and their constituents on the efficacy of these proposals. The island's war against poverty is seemingly set for several battles before even a minimal dent can be made.