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Thursday, May 23, 2024

Sri Lanka: Poverty has doubled & in the estate areas 52% living in poverty

Due to the economic contraction, half a million jobs were lost in industry and services and back-up lower-paying agricultural jobs could not compensate for income losses.

Combined with increases in the cost of living, this economic contraction led national and urban poverty to double (to 25 percent) and triple (to 15 percent), respectively.

The crisis left 52 percent of the population in estate areas living in poverty, exacerbating spatial disparities, and led to an increase in overall inequality.

In the last five years, growth and poverty reduction significantly decelerated due to several shocks, including COVID-19. A restrictive trade regime, weak investment climate, episodes of loose monetary policy, and an administered exchange rate contributed to external imbalances.

The updated outlook by the World Bank:

OUTLOOK

The fluid political situation and heightened fiscal, external, and financial sector imbalances pose significant uncertainty for the outlook. Growth prospects depend on debt restructuring and growth enhancing structural reforms. At the same time, fiscal consolidation will likely dampen these prospects, with the fiscal deficit expected to gradually fall over the medium-term. Inflation is projected to come down from a high base as monetization of fiscal deficits is reined in. The current account deficit is expected to decline thanks to import compression, despite decelerating exports due to weak global demand. Additional resources will be needed in 2023 and beyond to close the external financing gap.

Key downside risks include a slow debt restructuring process, limited external financing support, a sharper global slowdown, and a prolonged recovery from the scarring effects of the current crisis. A lower-level external trade equilibrium could have contagion effects on domestic trade, economic activity, jobs, and incomes. This and adverse effects from revenue-mobilization efforts could worsen poverty projections. The financial sector needs to be managed carefully, given rising non-preforming loans and large public sector exposures.

The necessary macroeconomic adjustments may initially adversely affect growth and poverty but will correct overall imbalances, help regain access to international financial markets, and build the foundation for sustainable growth. Mitigating the impacts on the poor and vulnerable remains critical during the adjustment. Reducing poverty requires better-targeted social assistance, an expansion of employment in industry and services, and a recovery in the real value of incomes. On the upside, the government’s reform program, supported by financing from international partners, could boost confidence and attract fresh capital inflows key to restart the labor market and restore livelihoods.

( Excerpts for the update of WB)

Last Updated: Apr 04, 2023

 

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