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Tuesday, June 18, 2024

IMF & ‘Poverty alleviation’ in Sri Lanka: How come Rs. 13,777 per month becomes poverty line?

BY Kusal Perera.

“The IMF is very secretive about its loan agreements and negotiations. It is difficult to obtain detailed information on the recipients of IMF loans, the conditions imposed on loan recipients, and the number and aggregate amount of loans in default. This secrecy makes it very difficult to determine how IMF actions and policy affect stated goals.” Report authored by visiting fellow Bryan Johnson for “The Heritage Foundation” titled “The International Monetary Fund: Outdated, Ineffective and Unnecessary”

Recent discussions on the $ 3 billion IMF “support package” have not been focused on the two sectors that I believe are the two most important sectors; employment in formal and informal sectors including upcountry plantations and the rural agri sector, including fisheries and livestock. These two comparatively broad sectors together would hold nearly half or more of the population of the country and also increasing numbers in poverty due to the present economic bankruptcy.

IMF advised the “single labour law” in draft form since 2019 if adopted will allow “hire and fire” of workers, swelling unemployed numbers.

The poorest 40%

What is being discussed at present is rescheduling of Rupee Debts, selling off SOEs spoken of as “restructuring or reorganising”, bolstering revenue with tax reforms and axing “labour rights” by rewriting labour laws into one “single law”. None of those discussions are known to focus on the wider impact they will have on the poorest 40% (first and second quintiles) of the population that carries a majority of both sectors referred to above. Those who in 2019 earned less than Rs. 26,931 per month being the poorest 40%.

“Restructuring or reorganising State owned enterprises” will be impacting drastically on present employment in both formal and informal sectors with nearly or more than 50% expected to be retrenched during the year ahead. The “single labour law” in draft form since 2019 if adopted will allow “hire and fire” of workers, swelling unemployed numbers. “Cost reflective pricing”, an extremely short sighted condition in the IMF package have already devastated lives of the poor in urban, rural and estate sectors, with enormous increases in costs of all needs. “Cost reflective pricing” of energy sources has also increased production cost of exports with major apparel producers deflecting new orders to their South Indian manufacturing zones and suppliers probably looking for cheaper production costs elsewhere.

Better targeted to the poor ?

Perhaps all that delivers a heavy burden on social security too. Swelling unemployed numbers plus those having a few thousand rupees extra dragged down into poverty will keep social security funds stretched to their maximum. Social security expenditure is also expected to be clipped at every turn, when the IMF Managing Director’s statement says, “… the momentum of ongoing progressive tax reforms should be maintained, and social safety nets should be strengthened and better targeted to the poor.” With Wickremesinghe led government understanding what exactly the IMF diktats mean, “strengthened and better targeted to the poor” does not necessarily mean an adequate buffer for the poor, when everything else is being cut to pocket size.

To be honest, in Sri Lanka whoever who decides the qualifying income for poverty certainly lacks an acceptable IQ. Census & Statistics Dept. declared the poverty line at Rs. 13,777 per month in December . But World Bank (WB) had calculated poverty at $ 3.65 (Rs. 1,130 at an average) per day per person at around Rs. 34,000 per month which is far more than double the poverty line decided by the Census & Statistics Dept. There is also no rationale in deciding poverty to be below Rs. 13,777 per person per month when Household Expenditure & Income Survey (HE&IS) by the Census & Statistics Dept. itself calculates the average national household expenditure as Rs. 63,130 per month in the same year 2019.

IMF and next few years

Social fracturing in Sri Lanka is obviously expected to get worse during the next few years with the implementation of “reforms” the IMF has imposed. WB’s April 2023 “Poverty & Equity Brief” on Sri Lanka says, “It (poverty) continued to increase in 2021, and it then doubled between 2021 and 2022, from 13.1 to 25.0 percent ($3.65 per capita per day, 2017 PPP). This increase has added an additional 2.5 million people into poverty in 2022……. Poverty is projected to remain above 25 percent in the next few years due to the multiple risks to households’ livelihoods. The negative economic outlook for 2023 and 2024 and adverse effects of revenue-mobilizing reforms could worsen poverty projections (emphasis added). Mitigating these negative effects on the poor and vulnerable will remain critical during the adjustment”.

This is a clear indication, the IMF “bailout” is not for the fast increasing poor and the vulnerable in this country. It may allow the urban middleclass to hang around with market benefits at a cost, but this is definitely for the corrupt and profiteering rich backed by equally corrupt mainstream political leaderships, whatever the IMF says on “suppressing corruption”. IMF itself is alleged to be extremely secretive about its dealings as quoted at the beginning of this short essay and in 1997 the report said, i) The Fund duplicates the duties and functions of other major international organisations, in addition to engaging in activities that are unnecessary. ii) Originally, the IMF was intended to be more of an advisory institution than one that lends money; that activity was left to the World Bank.

A colossal failure

In his report to “The Heritage”, Johnson says in conclusion, “It also is clear that the IMF’s approach to economic development has been a colossal failure. Most countries that have received IMF loans since 1965 are no better off economically than they were before these loans. In fact, most are poorer today. Much of what the IMF has done over the past several decades has been unnecessary at best and destructive at worst.”

In our local context neglect and irresponsibility in exclusively mandated authorities for poverty alleviation makes everything far more delirious. They have overwhelmingly irrational and outdated information and data, which cannot be of any assistance in “mitigating negative effects on the poor and the vulnerable”. As shown above, level of “poverty” has an unbelievably incompatible difference in “income calculations” between the poverty line calculations within the Census & Statistics Dept itself. Worst is the fact that for 07 consecutive years, Dept. of Samurdhi Development has no statistics and annual reports published in their official website since 2015 .

Nor does the Samurdhi Commissioner General’s official website have any information after 2013. That’s one whole decade without any information or data. Neglect in maintaining regularly updated information and data published in public domain has allowed for heavy misuse of Samurdhi benefits. WB has estimated that to be 30%.

Coming to 2023, the painful reality in society is despite numbers in official reports, people are now struggling to live with bare necessities also axed to the floor. There is therefore a serious need to identify the poor and the vulnerable on new criteria with an income above Rs. 63,130 per month in 2019 calculated as the national expenditure of a family in meeting basic needs. It cannot be Rs. 13,777 income that’s insane as the poverty line. Even with such starving incomes set when Samurdhi recipients should reduce significantly, they have instead increased from 1.4 million in 2013 to 1.72 million this year with 30% estimated as misusing benefits. This beneficiary number has to be sifted clean. But, beyond cleaning Samurdhi which is an impossibility, what is more important is to accept Samurdhi is a completely failed project. It has to be replaced with a fundamentally different program to effectively reduce real life poverty, alleviating the poor into productive means of living.

Conceptualising a new poverty alleviation program is not one, corrupt political leaderships and wasted State agencies would intellectually manage on their own in this inherently corrupt free market economy nurturing majoritarian ethnic dominance. They keep all aspects of social disparity galloping high, erasing all space necessary for poverty alleviation. No serious development program could be implemented in an ethno-racially demarcated society, with one social segment left continuously deprived of their dignity, cultural identity and democratic life. No democratic solutions are possible for 70% of a population, while suppressing the lives of the minority 30%.

That above all demands the necessity to open a social dialogue in conceptualising poverty alleviation proper and then deciding on criteria. All such social debate and dialogue will not only provide an important platform for change of social attitudes, challenge ethno-racial dominance in accepting the moral responsibility of establishing a viable social security fund but would also establish greater space for a functional democracy with direct people’s participation. Its social dialogue with people’s participation using IT and direct dialogue through professional organisations, trade unions, civil society associations at district and local levels bringing in community organisations of women, youth, micro-credit schemes and also environmental groups into active dialogue. They could also create people’s forums to question the feasibility of the IMF program for Sri Lanka to climb out of the present rut we are in.

It is all those socio-democratic positives necessary what compels a democratic social dialogue. Social dialogues are not “public consultations” which are politically organised meetings. Public consultations as often organised, are mere post-boxes that collect suggestions and proposals, used as authorities sees fit. Social dialogue is not a politically manipulated, restricted process. It is open multi-stakeholder discussions in both Sinhala and Tamil, leading to two or three drafts, made public for further discussions that decide the final draft. It is that open social dialogue we need in deciding poverty alleviation.

Courtesy of Daily FT.


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