Poverty and Human Development in Sri Lanka

ISBN 978-92-9092-202-5 Publication Stock No. RPT102857

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Asian Development Bank. Poverty and human development in Sri Lanka. Mandaluyong City, Philippines: Asian Development Bank, 2009.

1. Poverty 2. Human development 3. Sri Lanka I. Asian Development Bank. Poverty and Human Development in Sri Lanka in Development and Human Poverty

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ii Contents

Executive Summary vii

Introduction 1

Poverty and Inequality in Sri Lanka 3 Income Poverty and Inequality 3 Non-Income Millennium Development Goal Indicators 6

Correlates of Poverty 11 Location-Specific Factors 11 Sector-Specific Factors 12 Attributes of Individuals and Households 15

Government Policies and Initiatives 17 The History of Pro-Poor Policy Initiatives 17 Current Approach: Mahinda Chintana 18 Institutional Constraints 22

Human Development in Conflict-Affected Areas 24 Introduction 24 Human Development Issues 25 Food, nutrition, and social protection 25 Education and health 26 Loss of identification documentation 27 Prospects for Resettlement 27 Prospects for Regeneration of Livelihoods 28 Institutional Arrangements for Relief, Rehabilitation, and Development 29

Conclusions 31

References 33

iii List of Tables Table 1: Sri Lanka’s Macroeconomic Indicators 2 Table 2: Poverty and Inequality in Sri Lanka 3 Table 3: Poverty Indices and Access to Infrastructure, by Province 4 Table 4: Progress Toward Millennium Development Goals 7 Table 5: Selected Human Development Indicators, by Sector and Province 10 Table 6: Poverty Rates by Industry, Education, and Occupation of Household Head, 2002 13 Poverty and Human Development in Sri Lanka in Development and Human Poverty

iv Abbreviations WFP UN UAS SMEs PMTF MDG LTTE IDP GDP CCHA ADB – – – – – – – – – – – World Food Programme United Nations Unified AssistanceScheme small andmedium-sizedenterprises proxy meanstestformula Millennium DevelopmentGoal Liberation TigersofTamil Eelam internally displacedperson gross domesticproduct Consultative CommitteeonHumanitarianAssistance Asian DevelopmentBank

Acknowledgment Map Showing Sri Lanka’s Provinces

80 o 00'E 81o 30'E

t i a Kankasanturai r t S k l Kodikamam a P Jaffna SRI LANKA

Kilinochchi National Capital P a l k B a y Chief Provincial Town Mullaittivu City/Town Tanniyuttu National Road Mankulam Provincial Road Talaimannar 9 o 00'N NORTHERN Railway 9 o 00'N Puliyankulam Mannar River Provincial Boundary Vavuniya Boundaries are not necessarily authoritative. Gulf of Mannar

Poverty and Human Development in Sri Lanka in Development and Human Poverty Trincomalee Horowupotana

Anuradhapura

NORTH C E N T R A L B a y o f B e n g a l Tambuttegama Kekirawa Puttalam Welikanda Polonnaruwa Valaichchenai Dambulla EASTERN Batticaloa

NORTH Chilaw WESTERN

Kurunegala Matale Madampe CENTRAL Polgahawela Kandy Mawanella Ampara Negombo Warakapola Minuwangoda Kegalle Gampola

Gampaha o Nuwara Eliya Badulla o 7 00'N Talawakele 7 00'N Colombo Avissawella Welimada U V A SRI JAYAWARDENEPURA KOTTE Hatton Monaragala Moratuwa WESTERN Bandarawela Ratnapura Wellawaya

Pelmadulla Balangoda Kalutara SABARAGAMUWA

Alutgama

Elpitiya Ambalangoda Hikkaduwa SOUTHERN Akuressa Hambantota N Galle Matara Tangalle 0 10 20 30 40 50

Kilometers

I N D I A N O C E A N

80 o 00'E 81o 30'E

09 SRIbase HR Executive Summary

his report aims to summarize the current state of poverty in Sri Lanka by tracing its causes and recommending policies. Special attention is paid to human development issues in the conflict-affected areas. The ongoing conflict in the T north and east remains both the principal cause for poverty and the most binding constraint to human development in Sri Lanka.

Poverty Profile and Millennium Development Goals in Sri Lanka

Sri Lanka is an early achiever in the Millennium Development Goals (MDGs) of universal primary school enrolment, gender parity in school enrolment, under-five mortality, universal provision of reproductive health services, tuberculosis prevalence and death rates, and sanitation. Sri Lanka is on track to halve extreme poverty between 1990 and 2015. Nevertheless, 15% of all Sri Lankans remained poor in 2006 and differences by region and sector are large. Poverty was significantly reduced in the urban and rural sectors between 1990 and 2006. However, poverty in the estates increased by over 50%.1 In the estates, there is widespread child malnutrition and maternal mortality rates are exceptionally high. Western Province has performed much better than other regions. It accounts for half of national gross domestic product (GDP) while other provinces contribute 10% or less each. Poverty reduction in recent years was entirely due to income growth as income inequality rose in all three sectors. The rise in inequality was driven by uneven access to infrastructure and education, and by occupational differences. Demographic factors such as gender composition of household labor and ethnicity contributed little to total inequality. Sri Lanka did not achieve the kind of structural transformation that could have provided greater employment opportunities for the poor in the nonfarm sector. Since 1985, the share of manufacturing in total GDP has hardly changed. Low rates of job creation in the formal sector, plus high wages there because of collective bargaining, and periodic statutory directives lead to the rationing of formal jobs on the basis of class and connections, which the majority of the poor lack. This problem is compounded by the lack of labor mobility as labor markets are highly segmented with spatial, skills-related, and institutional barriers to the movement of labor within and between regions. Many are pushed into informal employment by greater distance from commercial centers; lack of access to roads, electricity, schooling, and health facilities; and by poverty which limits their investment opportunities. Geographic isolation is particularly acute for the estates sector. Poverty reduced much faster in Western Province than elsewhere because the province had geographical

1 Estates are tea plantations, mainly in southern and central Sri Lanka. The majority of the workers are ethnic Indian Tamils.

vii comparative advantages that enabled it to benefit from the macroeconomic liberalization of 1977. The factors that constrain investment and growth in poorer provinces appear even stronger at the district level. Holding other factors constant, the probability of a household being poor falls by almost 3% with a unit increase in the accessibility index of the district where the household is.2 Poor performance in agriculture is caused by the unintended fallout of government interventions to protect the rural sector. Agricultural research, carried out almost exclusively by public sector organizations, paid little attention to the profitability of rice production. Private sector investment in agricultural research has been hampered by the absence of intellectual property rights protection and restrictive seed and phytosanitary policies. Private sector research and development institutions face considerable hurdles for accessing funding schemes established by the government. The agriculture extension service was weakened by its devolution to the provincial councils and the reassignment of field agricultural extension workers as grama niladharis, or village administrative officials of the central government. Inadequate funding of operations and maintenance of irrigation systems led to the rapid deterioration of canal systems and poor quality of services. Agricultural tariffs have been subject to frequent change, driven by political imperatives to dampen the cost of living. This has increased Poverty and Human Development in Sri Lanka in Development and Human Poverty price risks for farmers, consumers, and local entrepreneurs. Poverty is also associated with low educational attainment. The education system has been based on rote learning, abstraction, and authority which have inculcated attitudes that avoid challenges. This has placed children from poor families at a disadvantage as they lack the means to obtain work-oriented skills from fee-levying institutions. Certain cultural factors such as male dominance, alcoholism, and high tolerance for domestic abuse make for poverty in some communities.

Policy Initiatives on Poverty and Growth

Government preoccupation with poverty, inequality, and welfare goes back to the 19th century when sectarian conflicts forced the colonial government to intervene in the health and education sectors. The grant of universal franchise in 1931 and the influence of Marxist politics since the 1930s have ensured that this preoccupation remains largely in place. The post-liberalization era saw continued social conflict and greater political instability related to unequal income distribution in spite of faster economic growth. A violent youth insurrection that reached its heights in 1989 triggered growth and balance of payments crises which necessitated a second wave of economic reform. The government increased expenditure on health and education and initiated other programs to increase consumption and self-employment among the poor. The old food stamps scheme was replaced by the Janasaviya (Self-Help) Programme, a targeted income transfer program. Credit facilities were provided through the World Bank–funded Janasaviya Trust. The government also sought to bridge the development gap between the urban and rural areas by providing incentives for industries to locate in rural areas. Following a change of government in 1995, the Janasaviya Pro- gramme was replaced by the Samurdhi (Prosperity) Programme, consisting of a small rural infrastructure component and a large income transfer component, and a series of pro-poor credit schemes including the Grameen-type Samurdhi Bank scheme.

2 The accessibility index is defined and constructed as the reciprocal of the road network travel time to nearby town. viii Recently, the government recognized that there are many correlates of poverty, which require an integrated development policy. The current policy framework is encapsulated in Mahinda Chintana (President Mahinda’s Vision), a 10-year development plan. Its mission is to develop regionally dispersed urban growth centers and small and medium-sized townships, and to integrate them with well-serviced rural hinterlands, as well as with domestic and international markets, through provincial and rural access roads, highways, railways, and ports. Under the Mahinda Chintana, industrial export zones, techno parks, and industrial estates will be established on a build–operate–transfer or build–operate–own basis. Executive Summary Executive Nevertheless, problems remain. Several Mahinda Chintana programs are vulnerable to political capture by local elites. The Samurdhi income transfer program needs to be reformed so that it can target more support for those who really need it. Proposed credit lines to help small and medium-sized enterprises (SMEs) may be unsustainable in the long run. A better way to help entrepreneurs who have no collateral is to further develop the Samurdhi Bank system and provide credit plus services to members who have proved their creditworthiness.

Human Development in Conflict-Affected Areas

Food and nutrition are serious issues in the conflict-affected areas. Restrictions on the transport of certain inputs that might be diverted to military use have depressed local production of essentials, thereby exacerbating shortages. Nevertheless, access to education for internally displaced persons (IDPs) has been relatively high. Also, coverage of basic health services such as immunization, antenatal care, and skilled attendance at childbirth in the IDP population was not much lower than elsewhere. A major problem with human development in the conflict-affected areas is caused by the loss of identity documentation such as birth certificates and national identity cards, which severely constrains the mobility and security of IDPs. Restoration of livelihoods for IDPs depends mainly on the prospects of resettlement, which may be more difficult for those who lost their identification documentation. Almost all young IDPs lack a working knowledge of Sinhala, which is essential for relocating to and working in southern Sri Lanka, where employment prospects are better and Sinhala is the lingua franca. The government has recently adopted a coordinated approach to deal with rehabilitation and development in conflict-affected areas. Lack of resources is the main constraint. While planning and coordination of activities for the development phase in Eastern Province are progressing apace, they are still being developed for Northern Province.

Future Outlook

The current global economic crisis is likely to curb future growth, making it hard to achieve a marked reduction in poverty. However, if the security situation in the conflict-affected areas improves, Sri Lanka may be able to weather the crisis better. For Sri Lanka as a whole and for conflict-affected regions in particular, urgent measures are needed to speed up rehabilitation of IDPs and further the peace process. Sri Lanka’s most pressing need is to generate a growth dynamic that would integrate markets and regions, engineer a more intensive structural transformation of

ix the economy and workforce, and see more rural poor move into better paying nonfarm employment. Investment in human capital will generate expected returns only if the nonfarm sector generates more jobs at higher wages. This requires a massive infrastructure push to improve connectivity to domestic and international markets. Otherwise, better education in conjunction with limited job opportunities is a recipe for insurrection and violence, as forcefully demonstrated by Sri Lanka’s experience over the last three decades. Sri Lanka has the highest electricity tariffs for businesses in the region due to delayed development of power projects. The energy sector also faces underinvestment and delayed investment, poor reliability and quality of electricity supply, high debt, and high price of petroleum products. It is strongly recommended that the Asian Development Bank (ADB) and other development agencies continue their programs of assistance to develop infrastructure in Sri Lanka, but with an eye to integrating markets and regions and enhancing productive capacity in strategic growth centers. This is one of the most effective and efficient ways to reduce poverty in Sri Lanka. Poverty and Human Development in Sri Lanka in Development and Human Poverty

Introduction

ri Lanka’s complementary mix on the services account and increased of growth-oriented and wel- remittances helped mitigate the inevi- fare policies over the last three table widening of the current account Sdecades have seen average in- deficit, rising oil prices and food import comes rising across the board and more bills exerted relentless pressures on the people in higher income ranges than trade deficit. In recent years, increased ever before (Gunatilaka et al. 2006). foreign direct investment, grants, and Nevertheless, rising income was accom- loans to government have helped bal- panied by rising inequality and the de- ance the external payments, and some cline in the poverty rate between 1990 fiscal consolidation has been achieved. and 2002 was modest (World Bank But overruns on recurrent expenditure— 2007). In 2006–2007, 15% of Sri Lankans largely fuelled by increased defense ex- were poor, compared with 23% in 2002. penditure, a higher wage bill, and energy The significant reductions in poverty subsidies—have been harder to rein in. occurred in urban areas and in localities The international economic crisis close to the metropolitan hub of Colombo will work against Sri Lanka achieving (Department of Census and Statistics the economic growth targets envisaged 2008). Poverty reduction in Sri Lanka in the 10-year development framework appears to be largely attributable to the in the next few years. Greater defense trickle-down effect. expenditure may also crowd out much- In 2006, the Sri Lankan economy needed public investment. However, if grew 7.4%, the highest in the last three security in the conflict-affected areas decades (Table 1). This was followed by a improves, enabling investment and de- respectable 6.8% growth in 2007. Vigor- velopment in those areas and elsewhere, ous private sector activity, strong export Sri Lanka may be able to weather the growth, and a resurgent agriculture sec- impact of global economic downturn tor powered growth in gross domestic more easily. product. However, inflation accelerated This report aims to summarize the in 2008, spurred on by high food and current state of poverty in Sri Lanka by energy prices, and fiscal expansion. Real tracing its causes and recommending wages, particularly in the private sector, policies. Special attention will be paid to have eroded despite declining unemploy- human development issues in the con- ment. Even though expanded earnings flict-affected areas.

Table 1: Sri Lanka’s Macroeconomic Indicators

Indicators 2000 2001 2002 2003 2004 2005 2006

National Output Nominal GDP (Rs billion) 1,258 1,407 1,582 1,761 2,029 2,366 2,802 Real GDP (1996 = 100) 857 843 877 930 980 1,039 1,116 Real GDP growth (annual % change) 6.0 (1.5) 4.0 6.0 5.4 6.0 7.4 Agriculture (% change) 1.8 (3.4) 2.5 1.6 (0.3) 1.9 4.7 Industry (% change) 7.5 (2.1) 1.0 5.5 5.2 8.3 7.2 Services (% change) 7.0 (0.5) 6.1 7.9 7.6 6.2 8.3 External Sector Export value growth (1997 = 100) 29.2 2.4 4.6 10.1 17.9 8.9 12.6 Current account balance (6.4) (1.4) (1.4) (0.4) (3.2) (2.8) (4.9) (% of GDP) Poverty and Human Development in Sri Lanka in Development and Human Poverty Exchange rate (Rs–$ period average) 76 89 96 97 101 101 104 FDI ($ million) 173 82 181 171 217 234 451 Prices, Wages, Unemployment Inflation (SLCPI, 1995–1997 = 100) 1.5 12.1 10.2 2.6 7.9 10.6 9.5 Minimum real wage rate index 94.0 86.6 84.9 85.4 81.3 78.5 70.7 (Wages boards trades) Unemployment rate (%) 7.6 7.9 8.8 8.1 8.1 7.2 6.5 Males 5.8 6.2 6.6 6.0 6.0 5.5 4.7 Females 11.1 11.5 12.9 13.2 12.8 11.9 9.7 Government Finance Public expenditure (% of GDP) 26.7 27.5 25.4 23.7 23.5 24.7 25.4 Public investment (% of GDP) 6.4 5.9 4.6 5.0 4.8 6.3 6.3 Fiscal deficit (% of GDP) 9.9 10.8 8.9 8.0 8.2 8.7 8.4

( )= negative value, FDI = foreign direct investment, GDP = gross domestic product, Rs = rupee, SLPCI = Sri Lanka Consumer Price Index, $ = US dollars. Source: Annual Reports of the Central Bank of Sri Lanka, various years.

Poverty and Inequality in Sri Lanka

his section presents poverty sta- Income Poverty and Inequality tistics for 1990–2007. However, the analysis is limited to 1990– Slow progress in poverty reduction be- T 2002 and deals almost entirely tween 1990 and 2002. Sri Lanka is on track with poverty and inequality in the areas to halve the proportion of people whose outside the conflict-affected north and income is less than $1 per day between east where data collection has not been 1990 and 2015 (United Nations Economic possible. Nevertheless, whatever infor- Social Commission for Asia and the Pacific mation is available is used to discuss hu- [UNESCAP] et al. 2007) Nevertheless, 15% man development issues in conflict-af- of all Sri Lankans remained poor in 2006– fected areas in section 5. 20073 and the declines in poverty rates

Table 2: Poverty and Inequality in Sri Lanka (% of total population)

Poverty Indicators 1990–1991 1995–1996 2002 2006–2007 Poverty incidence 26.1 28.8 22.7 15.2 Poverty gap 0.056 0.066 0.051 0.031 Poverty severity 0.018 0.022 0.016 0.009 Poverty incidence by sector Urban poverty 16.3 14 7.9 6.7 Rural poverty 29.4 30.9 24.7 15.7 Estate poverty 20.5 38.4 30.0 32.0 Poverty incidence by region Western 21 18 11 8 North Central 24 24 21 14 Central 28 37 25 22 Northwest 25 29 27 15 Southern 30 33 28 14 Sabaragamuwa 31 41 34 27 Uva 33 49 37 24 Inequality: Gini coefficient by per capita expenditure National 0.32 0.35 0.40 0.40 Urban 0.37 0.38 0.42 0.43 Rural 0.29 0.33 0.39 0.38 Estates 0.22 0.20 0.26 0.26 Note: Data excludes Northern and Eastern provinces. Sources: World Bank (2007) for 1990 to 2002; Department of Census and Statistics (2008) for 2006–2007

3 Excluding Northern and Eastern provinces since the data used for the estimations excluded the conflict zone. 70 47 62 70 75 78 70 (%) 2004 0.14 Enterprises Community with a Bank Located in a 7 8 24 18 15 23 15 with 0.2 2004 Landline or Mobile Phone (%) Enterprises (%) 79 80 68 61 61 62 76 2004 Using Electricity (0.32) Enterprises

b 73 2004 (min) Travel Travel 200 229 177 304 295 152 0.47 Time to Average Colombo Poverty and Human Development in Sri Lanka in Development and Human Poverty a 3.8 3.1 3.1 3.1 2.9 2.8 3.3 2004 Index Average (0.62) Accessibility 54.8 37.1 36.1 39.0 33.5 27.2 27.8 Services 2003–2004 9.2 35.9 19.1 24.1 32.5 15.6 27.4 Industry 2003–2004 (% of employed) 9.3 43.8 39.8 28.5 50.0 63.7 44.9 Forestry, Forestry, Employment by Industrial Sector 2003–2004 and Fishing Agriculture, Poverty Indices and Access to Infrastructure, by Province Poverty 9.4 9.7 3.9 4.3 6.9 2002 48.1 10.1 to GDP (%) Contribution Table 3: Table 11 25 28 27 21 37 35 2002 Poverty Poverty Ratio (%) Headcount ss domestic product, min = minutes, ( ) a negative value. Average travel time to Colombo City is estimated travel time to each town based on geographical information of road network. The numbers show the mean travel time for all points that fall into a given province. Accessibility index is calculated for every point as the sum of the population totals of surrounding cities and towns, inversely weighted by the road network travel time travel network road the by weighted inversely towns, and cities surrounding of totals population the of sum the as point every for calculated is index Accessibility to each town. The numbers show the mean of access values for all points that fall into a given province. Province Western Central Southern Northwest North Central Uva Sabaragamuwa Correlation with headcount

GDP = gro Notes: a b Bank (2007). Other indicators from World Sources: Central Bank of Sri Lanka (2007) for data on employment by industrial sector.

over time were modest (Table 2). Poverty 2006). While there was considerable rates fluctuated widely from one year to improvement in educational attainment the next, suggesting considerable periodic over the period, the lower- and middle- shocks. Progress in poverty reduction dif- income classes seem to have benefited fered across regions and sectors. Between the most. However, little changed in the 1990–1991 and 2006–2007, urban poverty composition of industry sectors from more than halved and rural poverty de- which households derived most income. clined by less than half. However, poverty For example, agriculture, mining, and incidence in the estates increased by over fishing accounted for the major share, 50%.4 While poverty in Western Province although the share decreased from 46% declined from 21% in 1990–1991 to 8% to 44% between 1985 and 2002. The in 2006–2007, its decline in other regions share of manufacturing hardly changed, was less pronounced. and that of trade, hotels, transport, finance, and real estate fell from 19% to Rising income inequality. While national 15%. Only the share of other services in- Sri Lanka in and Inequality Poverty mean per capita consumption increased creased, from 24% to 30%. Consequently, by 29% in real terms between 1990 and changes in sector composition exerted 2002, the top quintile claimed half this little impact on the distribution of in- consumption growth and the fourth come. This shows why better education quintile claimed a quarter. The second did not help the poorest classes increase quintile experienced 6% growth and the earnings: Sri Lanka did not achieve the first quintile only 2%. For the country as a kind of structural transformation in em- whole, excluding the north and east, the ployment that could have provided many Gini coefficient rose from 0.32 in 1990– earning opportunities in the nonfarm 1991 to 0.40 in 2006–2007 (Table 2). This sector for these groups. increase is mirrored in all three sectors, Interregional inequality grew much with inequality in rural areas growing faster than within-region inequality from much faster than in either the urban or 1990 to 2002 (World Bank 2007). Table estate sectors. Mean per capita income 3 sets out indicators of access to infra- grew by 26% between 1995 and 2002 structure by province along with poverty compared to 3% annual growth between ratios and the contribution of each prov- 1990 and 1995. However, inequality also ince to gross domestic product (GDP). grew faster and poverty reduction was It is a story of “the west and the rest”: due to income growth rather than redis- Western Province accounted for half of tribution (World Bank 2007). total output in the country while all other The rise in inequality was driven by provinces contributed 10% or less; Uva uneven access to infrastructure and edu- and North Central Province each contrib- cation, and by occupational differences. uted less than 5%. Also note that Western Demographic factors such as gender Province has the best access to business composition of household labor and eth- opportunities by any measure, whereas nicity contributed little to total inequality geographical isolation and high travel (Gunatilaka and Chotikapanich 2006). cost to Colombo seem to be most close- Semi-parametric analysis shows that ly correlated with poverty in other pro the rightward shift in the concentration vinces. The province also has the largest of people at higher income ranges that proportion of employed persons working occurred between 1985 and 2002 was in industry and services, notwithstanding mainly attributable to the change in ac- the sizeable contribution of the public cess to infrastructure (Gunatilaka et al. sector to total employment (not shown

4 Estates are tea plantations, mainly in southern and central Sri Lanka. The majority of the workers are ethnic Indian Tamils. in the table). In contrast, the overwhelm- tor, and regional variation in MDGs. ing majority of employed persons in Uva Table 5 sets out selected development and Sabaragamuwa work in agriculture, indicators by sex, sector, and province. forestry, or fishing. The factors that con- It can be seen that, while girls fare much strain investment and growth in poorer better across the country in primary provinces appear even stronger at the dis- completion rates and under-five mortal- trict level. Holding other factors constant, ity rates, malnutrition rates among boys the probability of a household being poor and mortality rates among male infants falls by almost 3% with a unit increase in are lower. Clearly, intra-household dis- the accessibility index of the district where crimination exists against girls in the the household is (World Bank 2007).5 access to nutrition and health services, despite eradication of apparent gender disparities in schooling. In terms of Non-Income Millennium sector, the urban sector is the best off Development Goal Indicators and the estate sector by far the worst off. Data on child nutrition (not shown Achievements. Sri Lanka has fared quite in the table) reveal that 37% of estate well in non-income Millenium Develop- children were stunted as against 8.3% Poverty and Human Development in Sri Lanka in Development and Human Poverty ment Goals (MDGs). The country is an in urban areas and 14% in rural areas. early achiever of several MDG indica- Likewise, 46% of estate children were tors such as universal primary school underweight compared with 18% in the enrolment, gender parity in primary and urban sector and 31% in the rural sec- secondary school enrolment, under-five tor (World Bank 2007). Maternal mortal- mortality, universal provision of repro- ity rates in estates are also exceptionally ductive health services, tuberculosis high. prevalence and death rates, and access Western Province performs the best to safe water and sanitation (Table 4). in all indicators except in infant mor- These achievements are comparable to tality. Northern and Eastern provinces those of Malaysia and Thailand. fare the worst in terms of primary edu- However, malnutrition remains prev- cation completion, obviously because alent especially among the poor, even of the disruptive impact of the conflict though it has declined significantly. In and displacement on schooling. But 2000, 13.5% of under-fives were stunt- the region fares well in terms of infant ed, 14% wasted, and 29% underweight mortality. Under-five mortality is worst (Department of Census and Statistics in North Central Province, but Uva and undated). These problems appear to be Sabaragamuwa are by far the worst off in caused by cultural practices such as not terms of all remaining indicators, except giving newborn infants colostrum, end- in access to electricity. Access to electric- ing exclusive breast feeding after a short ity in the north is limited mainly because time, introducing solid foods early, and of the destruction of transmission lines providing an insufficient and inadequate through Killinochchi to the Jaffna Penin- weaning diet (World Bank 2005). sula. Central Province performs poorly in access to safe drinking water and sanita- Regional variation in Millennium tion, probably because of the predomi- Development Goals. National figures nance of the poorly served estate sector mask considerable gender-related, sec- in that province.

5 The index is defined and constructed as the reciprocal of the road network travel time to nearby town.

Table 4: Progress Toward Millennium Development Goals

Earliest Available Latest Goals and Targets Estimate Estimate On track? Goal 1: Eradicate Extreme Poverty and Hunger Target 1: Halve, between 1990 and 2015, the proportion of people whose income is less than $1 a day. Indicator 1: Percentage of population below 26.1 (90/91) 15.2(2006/07) On track $1 a day (1993 PPP) Indicator 2: Poverty gap ratio 5.6 (90/91) 3.1 (2006/07) Indicator 3: Share of poorest quintile in 8.8 (90/91) 7.1 (2006/07) Regression national consumption

Target 2: Halve, between 1990 and 2015, the Sri Lanka in and Inequality Poverty proportion of people who suffer from hunger. Indicator 4: Prevalence of underweight 37.7 (1993) 21.6 (2006/07) On track children under 5 years Indicator 5: Proportion of undernourished 50.9 (1990/91) 50.7 (2006/07) Regressing population

Goal 2: Achieve Universal Primary Education Target 3: Ensure that, by 2015, children everywhere, boys and girls alike, will be able to complete a full course of primary schooling. Indicator 6: Primary education completion 78.53 (1998) 88.2 (2006/07) Early achiever Indicator 7: Net enrolment ratio in primary 88.0 (1991) 97.5 (2006/07) Early achiever education Indicator 8: Youth literacy rate 92.7 (1994) 95.8 (2006/07) On track

Goal 3: Promote Gender Equality and Empower Women Target 4: Eliminate gender disparity in primary and secondary education, preferably by 2005, and in all levels of education not later than 2015. Indicator 9: Ratio of girls to boys (%) a. In primary education — 99.0 (2006/07) Early achiever b. In secondary education — 105.7 (2006/07) Early achiever c. In tertiary education 187.0 (2006/07) Indicator 10: Ratio of literate females to males 100.9 (2001) 101.8 (2006/07) — (aged 15–24) (%) Indicator 11: Share of women in wage 30.8 (1993) 31.0 (2007) — employment in the nonagriculture sector Indicator 12: Number of seats held by women 4.8 (1989) 5.8 (2004–2007) — in national parliament

Goal 4: Reduce Child Mortality Target 5: Reduce by two-thirds, between 1990 and 2015, the under-five mortality rate. Indicator 13: Under-five mortality rate (per 22.2 (1991) 13.5 (2003) Early achiever 1,000 live births) Indicator 14: Infant mortality rate (per 1,000 17.7 (1991) 11.3 (2003) Early achiever live births) continued on next page

Table 4 continued

Earliest Available Latest Goals and Targets Estimate Estimate On track? Indicator 15: Proportion of 1 year-old children 95.5 (1993) 97.1 (2006/07) immunized against measles

Goal 5: Improve Maternal Health Target 6: Reduce by three-quarters, between 1990 and 2015, the maternal mortality ratio. Indicator 16: Maternal mortality ratio 42.3 (1991) 19.7 (2003) — Indicator 17: Proportion of births attended by 94.1 (1993) 98.5 (2006/07) — skilled health personnel

Goal 6: Combat HIV/AIDS, Malaria, and Other Diseases Target 7: Have halted by 2015, and begun to reverse, the spread of HIV/AIDS. Indicator 19: Condom use rate of the 5.3 (2000) 5.7 (2006/07) On track Poverty and Human Development in Sri Lanka in Development and Human Poverty contraceptive prevalence rate Target 8: Have halted by 2015, and begun to reverse, the incidence of malaria and other major diseases. Indicator 21: Death rate associated with 0.1 (1990) 0.0 (2006/07) — malaria (per 100,000 population) Indicator 23: Death rate associated with TB 2.4 (1990) 1.7 (05) Early achiever (per 100,000 population) Indicator 24: Proportion of TB cases detected 37.3 (2000) 83.3 (2006) Early achiever and cured under DOTS

Goal 7: Ensure Environmental Sustainability Target 9: Integrate the principles of sustainable development into country policies and programs and reverse the loss of environmental resources. Indicator 25: Proportion of land area covered 33.8 (1992) 32.2 (1999) Regressing by forest Indicator 26: Ratio of area protected to surface 11.1 (1990) 14.2 (2006) Early achiever area Indicator 27: Energy use (kg. oil equiv) per $1 0.21 (1990) 0.07 (2006) Regressing GDP (PPP)

Indicator 28: CO2 emissions and consumption — — — of ozone-depleting CFCs

a. CO2 emission per capita (metric tons per 0.2 (1990) 0.6 (2005) Regressing capita) from all sources b. Consumption of ozone depleting CFCs 220.1 (1990) 62.3 (2007) Early achiever (ODP tons) Target 10: Halve, by 2015, the proportion of people without sustainable access to safe drinking water and basic sanitation continued on next page

Table 4 continued

Earliest Available Latest Goals and Targets Estimate Estimate On track? Indicator 30: Proportion of households with 72.0 (1994) 84.7 (2006/07) Early achiever sustainable access to an improved water source Indicator 30: Proportion of population with — 84.6 (2006/07) On track access to an improved water source - rural Indicator 30: Proportion of population with — 95.4 (2006/07) Early achiever access to an improved water source - urban Indicator 30: Proportion of population with — 57.8 (2006/07) access to an improved water source - estates

Indicator 31: Proportion of households with 85.7 (1994) 93.9 (2006/07) Early achiever Sri Lanka in and Inequality Poverty sustainable access to an improved sanitation Indicator 31: Proportion of population with — 94.8 (2006/07) Early achiever access to an improved sanitation - rural Indicator 31: Proportion of population with — 91.5 (2006/07) Early achiever access to an improved sanitation - urban Indicator 31: Proportion of population with — 85.1 (2006/07) — access to an improved sanitation - estates Target 11: By 2020, achieve a significant improvement in the lives of at least 100 million informal settlers. Indicator 32: Proportion of households with — 95.2 (2006/07) — access to secure tenure

Goal 8: Develop a Global Partnership for Development Target 16: In cooperation with developing countries, develop and implement strategies for decent and productive work for youth Indicator 45: Unemployment rate of 15–24 34.9 (1993) 21.2 (2007) — year-olds Target 18: In cooperation with the private sector, make available the benefits of new technologies, especially Assistance Technical Preparatory Study/Project Feasibility Additional Value-for-Money: Assessing information and communications Indicator 47: Telephone lines per 100 — 7.9 (2006/07) — population Indicator 47: Cellular subscribers per 100 — 14.8 (2006/07) — Appendix 3 : Appendix population Indicator 48: Personal desktop computers in 0.4 (1996/97) 8.2 (2006/07) — use per 100 population

CFCs = chlorofluorocarbons, CO2 = carbon dioxide, DOTS = directly observed treatment–short course, ODP = ozone depletion potential, PPP = purchasing power parity, TB = tuberculosis. Source: Department of Census and Statistics 2009. MDG Indicators of Sri Lanka: A Mid-Term Review. Colombo: Department of Census and Statistics.

— — — 74.9 92.4 72.7 78.4 63.6 65.6 68.5 62.0 56.7 64.7 with 2003–04 Access to Electricity Households — — 67.5 77.8 67.5 43.2 77.6 56.6 72.3 69.6 49.7 50.9 66.1 2001 Sanitation Households with Access to Improved — — 82.0 95.9 81.2 61.0 91.5 78.3 80.5 87.9 80.5 67.9 63.8 2001 Water Households Safe Drinking with Access to 9.0 Poverty and Human Development in Sri Lanka in Development and Human Poverty 14.4 13.3 13.8 88.1 18.1 14.8 13.3 19.1 10.3 13.1 28.7 17.0 Rate 2002 Maternal Mortality 4.6 6.7 6.1 8.1 9.6 10.2 13.1 15.7 10.5 12.4 15.8 10.8 11.4 Females 2002 Rate Infant Mortality 5.2 9.3 7.6 12.9 16.9 16.4 14.0 16.1 10.6 10.8 18.6 14.4 12.7 Males 6.4 7.4 8.7 12.0 14.9 20.6 12.2 14.5 11.4 11.1 17.5 12.2 13.6 Females 2002 Rate Mortality Under-Five Under-Five 7.6 14.9 18.7 22.1 15.6 18.2 10.3 10.5 15.0 12.5 20.3 16.0 15.0 Males — — — 96.5 99.5 96.7 96.9 90.7 92.9 97.6 98.1 94.7 96.1 Females Rate 2002 Primary Education — — — Completion 94.7 98.7 95.2 94.4 88.6 90.3 95.1 96.2 92.8 95.3 Males Selected Human Development Indicators, by Sector and Province (%) — — — — — 30 23 38 33 33 33 38 22 Females 2000 Child Table 5: Table — — — — — 29 19 37 24 31 28 40 39 Malnutrition Males Child malnutrition rates from World Bank (2005); access to electricity from Central Bank of Sri Lanka (2007); other statistics from the Department of Census and Census of Department the from statistics other (2007); Lanka Sri of Bank Central from electricity to access (2005); Bank World from rates malnutrition Child Statistics (2005). Urban Rural Estate Western Central Southern Northern Eastern Northwest North Central Uva Sabaragamuwa Sri Lanka Sector Province Item Notes: Child malnutrition defined as percent of children who are moderately or severely underweight. Sources:

10 Correlates of Poverty

n what follows, we analyze causes Labor market segmentation. Spatial of poverty in terms of the following: segmentation of the labor market per- location-specific factors, sector-spe- petuates unemployment and poverty. Icific factors, and specific attributes Analysis of real wage trends of informal- of individuals and households. These sector workers suggest that regional la- categories are not mutually exclusive. bor markets are highly segmented, with possible spatial, skills-related, and institutional barriers to the movement of labor Location-Specific Factors within and between regions (Gunatilaka 2003). Many are pushed into informal Advantages of Western Province. Lo- employment by greater distance from cation-specific characteristics are funda- commercial centers; lack of access to mental in explaining the uneven pattern roads, electricity, schooling, and health of development and poverty reduction in facilities; and by poverty which limits Sri Lanka. Poverty reduced much faster their investment opportunities (includ- in Western Province than elsewhere being investment in schooling and health) cause the region had geographical com- (Arunatilake and Jayawardena 2005). parative advantages that enabled it to benefit from the macroeconomic liberal- Underserved locations. Lack of services ization of 1977. The region had superior correlate with high poverty rates. For ex- endowments of infrastructure facilities ample, the proportion of households with- such as a port and an international air- out access to electricity in 101 of the 119 port, the concentration of human capital poorest divisional secretary divisions was resources, electricity and telecommuni- much higher than the national average of cations services, and proximity to large, 36%, with at least 11 poor divisional sec- diversified markets of consumers and retary divisions reporting no-access rates firms. New industrial enterprises were of 75% or higher. Schools in such areas encouraged to locate to the metropoli- are small, ill equipped, with few teachers, tan hub, people followed jobs and jobs and most of the teachers are untrained followed people, thereby setting in train (Department of Census and Statistics a virtuous cycle. Increasing urban con- 2006). Divisional secretary divisions that centration raised rentals and wage rates are better connected to markets have a in the hub and nearby. However, high larger proportion of households with elec- transport costs between Western Prov- tricity, better educated household heads, ince and most other regions discouraged and lower unemployment rates, and are new industries from locating very far less engaged in farming. The higher the away from the growth center. Also, high accessibility index of a divisional secretary transport costs between the hub and pe- division, the lower its poverty incidence riphery and the high cost of housing in (World Bank 2007). the urban center constrained labor flow Geographic isolation is particu- from surplus peripheral areas to metro- larly acute for the estates sector. The politan areas. Thus, regional imbalances majority of the estates population has between Western Province and the rest minimal links with networks and the of Sri Lanka widened over the post-liber- outside world, implying lack of informa- alization period. tion, which is critical for migration or

11 employment opportunities. Households sector. Agricultural research, carried out in estates with passable roads to town almost exclusively by public sector or- all year tend to be better off (World Bank ganizations, paid little attention to the 2007). Estates located in poorer districts profitability of rice production. Private also had a higher incidence of poverty. sector investment in agricultural research Despite recent improvement in living has been hampered by the absence of standards because of government inter- intellectual property rights protection, vention, the estates still lag behind the and restrictive seed and phytosanitary rural sector on key indicators of health policies. Private sector research and de- and education (Table 5). velopment institutions face considerable Needless to say, regions subject to hurdles for accessing funding schemes armed conflict and natural disasters such established by the government. The agri- as landslides, drought, and tsunamis are cultural extension service was weakened the worst off in terms of geographical by its devolution to the provincial coun- comparative advantages, with the crises cils and the reassignment of agricultural destroying infrastructure, eroding hu- extension field workers as grama nilad- man capital, creating security crises, and haris, or village administrative officials plunging people into poverty. The human of the central government. Existing leg- Poverty and Human Development in Sri Lanka in Development and Human Poverty development situation in the conflict- islation which promoted equity in land affected areas will be dealt with in more ownership had the unforeseen effect of detail in section 5. fragmenting landholdings, particularly when urban industry failed to take off sufficiently to ease employment pressure Sector-Specific Factors on the land. The proportion of holdings of less than 1 acre (0.4 hectares) jumped Farming does not afford an adequate from 42% in 1982 to 63% in 2002 (World living. As Table 6 shows, leaving aside Bank 2007). Inadequate funding for op- those classified as miscellaneous laborer, eration and maintenance of irrigation the highest poverty incidence—40%—is systems led to the rapid deterioration among households where the head of canal systems and to poor quality of of the household works in agriculture services. At the same time, agricultural (World Bank 2005). While real wages for tariffs have been subject to frequent female agricultural workers employed change, driven by political imperatives in tea and coconut production rose be- to dampen the cost of living. This has tween 1980 and 1997, wages for labor- increased price risks for farmers, con- ers in the residual paddy sector remained sumers, and local entrepreneurs (World stagnant, with national trends masking Bank 2007). regional differences (Gunatilaka 2003; Gunatilaka and Hewarathna 2002). As Nonfarm income. Rural nonfarm enter- agriculture still employs around a third prise is associated with higher welfare. of the workforce, the slow rate of struc- The poverty rate for rural households in- tural transformation in the economy is a volved in nonfarm activities is 13%; the constraint to poverty reduction. poverty rate for rural households with- Agriculture suffers from low levels out additional nonfarm income is 23% of productivity, although the export- (World Bank 2007). The importance of oriented tree crops sector performs bet- nonfarm activities as a source of income ter. Poor performance in agriculture is and employment has grown. In 2002, caused not by a pronounced urban bias, more than half of rural household in- but by the unintended fallout of govern- come was derived from nonfarm sources. ment interventions to protect the rural However, the growth of nonfarm enter-

12 Table 6: Poverty Rates by Industry, Education, and Occupation of Household Head, 2002

Poverty Incidence Item (%)

Industry of employment of household head Agriculture, forestry, and fisheries 40 Manufacturing 21

Construction 27 Poverty of Correlates Wholesale and retail trade 16 Hotels and restaurants 20 Transport and communications 16 Financial intermediation and real estate 10 Public administration and defense 5 Education 2 Health and social work 7 Miscellaneous labor work 45 Not adequately defined 27 Education level of household head No schooling 45 Primary (grades 1–5) 34 Junior secondary (grades 6–9) 21 GCE Ordinary Levels 7 GCE Advanced Levels 2 Graduate 1 Occupation category of household head Senior officials and managers 1 Professionals 3 Associate professionals 5 Clerks 5 Sales and service workers 11 Agricultural, forestry, and fisheries workers 34 Craft and related workers 25 Plant and machine operators 16 Elementary occupations 38

GCE = General Certificate of Education. Source: World Bank (2005). prises is constrained by many factors: the 2005). Few rural firms appear to be in- poor quality or absence of transport and tegrated into well-coordinated supply lack of connectivity to urban hubs, poor chains, and they have limited access to access to and high cost of finance, lim- new technology, financing options, and ited access and unreliable supply of elec- wider markets. tricity, marketing difficulties, and poor coverage in telecommunications (World Constraints on job creation. The low Bank and Asian Development Bank [ADB] rate of job creation contributes to the

13 slow pace of poverty reduction. Many sential for higher education and the job of the infrastructure constraints ham- market (World Bank 2007). pering nonfarm sector growth also Curriculum reforms initiated in 1997 adversely affect the formal sector. For aimed at encouraging activity-based example, 40% of urban firms cited elec- learning using modern technology as tricity as a major constraint in terms well as more recent decentralization of access, high cost, and unreliability. and encouragement of schools-based Also, 20% held that transport was a management (both supported by ADB) severe constraint, citing traffic conges- have started to bring about change (ADB tion and absenteeism because of un- 2007a) availability of transport as key reasons However, it will still take time before for low productivity (World Bank and these reforms will be reflected in the en- ADB 2005). It is likely that restrictive job hanced human capital of new cohorts protection legislation hinders job cre- entering the labor market. ation. For example, the Termination of Employment of Workmen’s Act requires Reform of the Technical and Voca high compensation to laid-off work- tional Education sector has also be- ers in enterprises with more than 15 gun. The sector has long been dogged Poverty and Human Development in Sri Lanka in Development and Human Poverty workers. It is discretionary nature and by problems of outdated curriculum, lengthy procedures restrict the ability of inadequate facilities, irrelevant indus- employers to lay off workers (Heltberg trial training and insufficient practical and Vodopivec 2004; Rama 2003). In work. Analysis of labor market data for the early 2000s, Sri Lanka’s job creation the years 1992, 1997 and 2002 showed rate was 8% and job destruction rate the employability of people who had re- was 4%, markedly behind the average ceived technical and vocational training job creation rate of 14% and job de- to be generally low (World Bank 2005b). struction rate of 11% in a sample of 17 Efforts to reform the sector began about developed, transition, and developing four years ago and focused on establish- countries (World Bank 2006). Low rates ing a structure that permits an alterna- of job creation in the formal sector, tive career path to higher education and plus high wages there due to collec- curricula reform that aimed to provide tive bargaining and periodic statutory skills at craft, middle, and higher tech- directives (Rodrigo and Munasinghe nological levels and entrepreneurship undated), makes for the rationing of development. These reforms were also formal jobs according to class and con- supported by ADB.(ADB 2007b) nections, which the majority of poor people lack (Amarasuriya 2006). The energy sector must expand. Sri Lanka has the highest electricity tar- The education sector has performed iffs for businesses in the region because poorly. The education system has been of delayed development of power proj- based on rote learning, abstraction, and ects. This compelled the government authority which have inculcated atti- to purchase emergency power at high tudes that avoid challenges (Reinprecht cost from private power suppliers. Con- and Weeratunge 2006). This has placed tinued delays in bidding, financing, children from poor families at a disad- and contracting of the Kerawalapitiya vantage as they lack the means to obtain 300-megawatt power plant meant that work-oriented skills from fee-levying in- the generating system operated with a stitutions. As of 2003 nearly two-thirds shortage of 200 megawatts in 2007. Sri (63%) of school leavers had not mas- Lanka has never had such low levels of tered the mother tongue, 90% had not reserve margin before. The energy sector mastered English, and 62% had not mas- also faces underinvestment and delayed tered mathematics. These skills are es- investment, poor reliability and quality

14 of electricity supply, high debt, and ex- low levels of formal education and Eng- pensive petroleum products on which lish language skills, in particular, have less a large proportion of power generation chance of obtaining necessary formal and capacity is dependent (Department of technical education as they cannot meet National Planning 2006a). the qualifying criteria of most technical and vocational education courses (Aruna- tilake and Jayawardena 2006). Attributes of Individuals Poor households tend to have more Corporatization and Households children, with serious implications for their education. School drop out rates Poverty of Correlates Even if the conditions for pro-poor growth are highest among the poor as the op- were present, many Sri Lankans would re- portunity costs of education are high for main in poverty or fall into poverty for the their children. Further, intergenerational following reasons. schooling mobility is low in Sri Lanka, implying limited social and economic The poor do not have inherited assets progress across generations (World Bank and usually cannot save. In the absence 2006). Ranasinghe (2004) found that an of a social safety net, those who do additional year of parental education im- not have sufficient assets to cope with plies an increase of nearly 0.6 years of to Approach The Government’s shocks—such as the death of the prin- schooling for children. If the parents are cipal income earner, illness or disability, engaged in low-skilled occupations, they loss of employment, natural disasters, or have weaker social networks and poorer conflict—fall into poverty. In addition, prospects of placing their child in a good Sri Lankan society is rapidly ageing and job, even if the child finishes education. poverty is likely to be increasingly associ- This would lower the returns to the child’s ated with old age (World Bank 2006). education, thereby discouraging investment in education (Arunatilake 2005). Poverty is associated with disability. Employment rates among the disabled The poor lack powerful and widely dis- are much lower than in the rest of the persed social networks. Social networks population, varying from 7% for those and power relationships are key determi- with psychiatric disability to 26% for nants of access to food, shelter, finance, those with mobility disability. Of those education or training, employment, and employed, most live below the poverty status. While these relationships of reci- line. The poverty rate is 43% for the in- procity with influential and powerful tellectually disabled and 88% for those people provide some safety net and help with speech disability (Ministry of Social mitigate risk, they can also maintain the Assistance Technical Preparatory Study/Project Feasibility Additional Value-for-Money: Assessing Welfare 2003). Meanwhile, safety nets for poor in social structures that perpetuate the poor, the elderly, and the disabled are poverty (Weeratunge 2001). For example, both inadequately funded and inefficient- poor people can rarely hold corrupt local ly targeted (World Bank 2006). officials accountable for the services they are supposed to provide, as they (poor 3 : Appendix Poverty is also associated with low people) have no alternatives and are vul- educational attainment. Table 6 indi- nerable to reprisals and abuse of power. cates an inverse correlation between the education level of household head and Certain cultural factors such as male poverty. The poverty rate was 45% for dominance, alcoholism, and high tol- households in which the head of the erance for domestic abuse make for household was illiterate, whereas pov- poverty in some communities. Alcohol- erty for those with General Certificate of ism is a particular problem in the estates Education Advanced Level or degree was sector (World Bank 2007), where male only 2% or less. Poorer individuals with dominance and geographic isolation pre-

15 vent women from finding better paid jobs credit groups, and have contrived to im- or greater independence. In contrast, in prove their families’ earnings and living some rural areas where husbands settle standards (Gunatilaka 2000). In certain in their wives’ parental villages, women urban slums, an environment of violence, are more empowered and less vulner- alcoholism, and petty criminality traps able to male dominance and domestic families in poverty and prevents their abuse. They are active members of local emerging from their predicament. self-help organizations and savings and Poverty and Human Development in Sri Lanka in Development and Human Poverty

16 Government Policies and Initiatives

The History of Pro-Poor Policy in 1989 triggered growth and balance of Initiatives payments crises, which necessitated a second wave of economic reform. The cri- overnment preoccupation with sis catalyzed a significant turnaround in poverty, inequality, and welfare the government’s welfare policy. Recog- goes back to the 19th century, nizing that economic growth had failed G when sectarian conflicts forced to reach large sections of the population, the colonial government to intervene the government increased expenditure on in the health and education sectors (de health and education, and initiated other Silva 1981). The grant of universal fran- programs to increase consumption and chise in 1931 and the influence of Marx- self-employment among the poor. The ist politics since the 1930s have ensured old food stamps scheme was replaced by that this preoccupation remains largely the Janasaviya (Self-Help) Programme, a in place. However, for a brief interval im- targeted income transfer program aimed mediately after economic liberalization to provide consumption support. At in 1977, the government looked to eco- the same time credit facilities were pro- nomic growth to take care of the issue vided through the World Bank–funded of distribution while it cut back on wel- Janasaviya Trust Fund to help the poor fare services. However, the government’s start microenterprises. The government growth-oriented policy framework frus- also sought to bridge the development trated achieving greater equality. While gap between the urban and rural areas agglomeration forces and first-mover by providing incentives for industries to advantages, unleashed by trade liberal- locate in rural areas under the 200 Gar- ization, would have favored the urban ment Factory Programme (Dunham and sector in any case (Venables 2001), the Kelegama 1997). Following a change of government inadvertently reinforced government in 1995, the Janasaviya Pro- these tendencies.6 It encouraged indus- gramme was replaced by the Samurdhi trialization near the urban metropolis on (Prosperity) Programme, consisting of a the one hand, and invested in mega irri- large income transfer component, a series gation projects, land settlement schemes, of pro-poor credit schemes, including the and rural infrastructure programs in ru- Grameen-type Samurdhi Bank scheme ral areas on the other, without seeing based on group savings and group col- the need to integrate the urban and rural lateral, and a small rural infrastructure sectors through increased connectivity. component. As a result, the post-liberalization era By the mid-1990s, policy makers re- saw continued social conflict and greater alized that to achieve sustainable pover- political instability related to unequal dis- ty reduction it was necessary to increase tribution of wealth in spite of faster eco- investment, integrate markets, and de- nomic growth (Abeyratne 2004). A violent velop infrastructure and service systems youth insurrection that reached its heights on a regional basis. But this invariably

6 “Agglomeration forces” are the factors that cause the concentration of firms in certain locations when there is imperfect competition and input–output links between firms and high transport costs between that location and those peripheral to it. “First-mover advantage” means the advantages of being first to get going; urban sectors with good infrastructure, for example, will have an advantage over rural areas not as well endowed. 17 The Samurdhi Programme As an income transfer program, the Samurdhi Programme has serious weaknesses: inefficient targeting, minimal impact, and high administrative costs. As it lacks explicit selection criteria, the program is riddled with significant targeting errors that exclude about 40% of the poorest people while spending 44% of the budget on households in the top three quintiles (World Bank 2007). Targeting errors are largely due to the capture of the program by local politicians (Gunatilaka et al. 1997). The program covers almost 45% of the population, spreading the benefits too thinly to have much impact. The real value of the income transfer has also been eroded over the years.

The Samurdhi Programme has a community infrastructure development component. While it aimed to select projects through participatory approaches, the selection process was often captured by local elites. The projects were not selected to generate synergies or maximize returns. Execution of the projects were often technically weak, usually without consideration for maintenance once completed (Gunatilaka et al. 1997).

The Samurdhi Bank system, however, has fared better, even though it too remains vulnerable to political capture. The system appears to reach large numbers of the poor excluded by other programs. Poverty and Human Development in Sri Lanka in Development and Human Poverty If successfully insulated from capture, the system has the potential to be more sustainable than most other microfinance programs, as it is not donor dependent and is based entirely on members’ savings for capital (Gant et al. 2002; Gunatilaka and Salih 1999). However, there is little hard evidence to show that the Samurdhi Bank system, like many other donor-funded microfinance programs, has made any significant impact on promoting the poor to higher-income growth paths.

Source: Ramani Gunatilaka.

ran against constraints imposed by infra- with domestic and international mar- structure bottlenecks in power and road kets through provincial and rural access transport, as the military demands of the roads, highways, railways, and ports. secessionist conflict crowded out public The strength of the framework lies in its investment. Also, the conflict took its overriding emphasis on reducing poverty own toll on investor confidence. and inequality. In particular, it stresses Recently, the government recog- infrastructure development to reduce nized that there are correlates of poverty regional inequalities and enable lagging which can only be effectively addressed regions and localities to link up with the through an integrated development growth process. policy framework. The current policy In the next section, we assess the framework is encapsulated in Mahinda new policy framework in terms of its ca- Chintana (President Mahinda’s Vision), pacity to address the correlates of pov- a 10-year development plan consisting erty set out in section 3. of policies, programs, and projects for- mulated by the Department of National Planning with substantive contributions Current Approach: Mahinda from line ministries and various stake- Chintana holders (Department of National Planning 2006a). The vision of Mahinda Chintana Health care and education services. is to develop regionally dispersed urban A poor person’s only resource is his or growth centers and small and medium- her body. Thus, ill health and disability sized townships that are integrated with severely impair the income-earning ca- well-serviced rural hinterlands as well as pacity of not only the person affected,

18 but also that of family members who ects such as highways, the government have to look after him or her. Mahinda must provide matching funds to receive Chintana (President Mahinda’s Vision) donor assistance. Moreover, the amount proposes upgrading facilities in the base of funding for certain projects is depen- hospitals of several districts; providing dent on other supporting conditions. For residential facilities for doctors, particu- example, many of the proposed policies larly in rural areas; developing hospitals and programs in the energy sector are in the estate sector; and recruiting and contingent on the timely commissioning training necessary staff. It also proposes of certain power projects. If the power to extend nutrition programs for expect- projects do not materialize, proposed re- Sichuan of The Case ant mothers and strengthen the midday forms such as debt restructuring of the meal program targeted at malnourished Ceylon Electricity Board and tariff ratio- school children. nalization will not be feasible. Pro-poor education policies proposed in Mahinda Chintana include Agriculture. Agricultural projects may and Initiatives Policies Government achieving 100% participation by reduc- be affected by government financial ing the number of out-of-school chil- constraints. The Mahinda Chintana sets dren. It introduces special measures to out detailed plans to increase productiv- provide education to children from low- ity primarily through the introduction income neighborhoods, remote villages, of technology. However, the proposed plantations, and conflict-affected areas, fund allocation devotes more than half as well as to working children, street the budget to credit (22%) and fertil- children, and destitute and abandoned izer (33%) subsidies, with little left for children. The Ministry of Education also technology research (2%) or extension proposed to develop high-quality second- and education (4%). The Bim Saviya Pro- ary schools in the 100 poorest divisional gram to register land titles and establish secretary divisions, extending opportuni- a digital land information system—vital ties for science education especially in to the development of a land market— rural areas, and expanding opportunities may also face financial constraints as it for learning English at primary and sec- is to be funded from the Consolidated ondary levels in all schools. Fund (Department of National Plan- ning 2006b). Nevertheless, the Dry Zone Infrastructure. Sri Lanka has a huge Livelihood Support and Partnership Pro- backlog of infrastructure development, gramme may fare better as it is jointly and, as discussed in section 3, a massive funded by the International Fund for infrastructure push is necessary to en- Agricultural Development and the Gov- able regions outside Western Province ernment of Sri Lanka. This program aims Assistance Technical Preparatory Study/Project Feasibility Additional Value-for-Money: Assessing to share the growth benefits. This is par- to establish integrated rainfed upland ticularly true for areas affected by con- agricultural development systems, and flict, which have virtually fallen off the rehabilitate village tanks in the districts economic development map over the of Anuradhapura, Badulla, Kurunegala, last two decades. and Monaragala. 3 : Appendix

Military spending. Military spending Industry development. Industrial ex- may crowd out funding for infrastructure port zones, techno parks, and industrial development. The most recent phase of estates will be established on a build– hostilities that began in 2006 is likely operate–transfer or build–operate–own to erode development financing. While basis. Along with concessionary financ- donors (e.g., the Japan Bank for Interna- ing schemes of the World Bank and ADB, tional Cooperation) may shoulder much the government hopes to devote almost of the cost of large infrastructure proj- 50% of total investment in industry

19 development in the next 10 years to who have proved their creditworthiness. support small and medium-sized enter- The system was successful in generating prises (SMEs). Industry incubators and a vast volume of investible funds and mini industrial estates will be established providing members with secure savings through public–private partnerships to instruments and a reliable source of con- assist start-ups and SMEs, which account sumption and other small loans (Gant for 70% of all industrial establishments. et al. 2002; Gunatilaka and Salih 1999). To support business development services While membership of the Samurdhi Bank (managerial, accounting, and technical system was for many years confined to skills) and to coordinate SME activities of those who received the income transfer, provincial and central governments, Ma- changes were made to accommodate hinda Chintana aims to establish an apex those who did not receive the transfer, authority for SMEs. This is to be supple- as long as they progressed through the mented by the Small and Micro Indus- savings group system and proved their tries Leader and Entrepreneur Promotion creditworthiness. The changes were Project. partly motivated by the low absorption capacity of many poor for funding any- However, sustainability of credit lines thing more than survival strategies, and Poverty and Human Development in Sri Lanka in Development and Human Poverty to the SME sector entirely depends on partly in recognition of targeting errors donor or government support. Many in the income transfer component which years ago, financial institutions such as excluded many deserving poor. Thus, the the National Development Bank and the Samurdhi Bank system was gradually Development Finance Corporation of Cey- positioning itself to provide credit plus lon were set up to serve the SME sector. services for sustainable micro, small, and As concessionary financing dried up, these medium-sized enterprise development organizations were compelled to serve the among members. Moreover, the system higher end of the market and abandon the was moving toward financial sustainabil- clientele they were set up to serve. Cur- ity, with reduced dependence on govern- rently, the SME bank and the Lankaputhra ment finance. For example, at least half Bank, both supposed to serve SMEs, are of Samurdhi Bank branches were break- facing liquidity problems because of the ing even by 2003 and were able to meet lack of concessionary finance. They are the staff costs of the banking program also facing competition from private com- (verbal communication, S. Liyanwala, mercial banks and financial institutions Samurdhi Banking Division, 2003). which promote their own SME lending in- Nevertheless, since the large volume struments, often with donor support. For of savings generated under the Samurdhi example, Lanka Orix Leasing is providing Bank system was invested in govern- credit lines for the SME sector in partner- ment bonds, local politicians argued that ship with the United States Agency for savings generated in a certain locality International Development, which is pro- should be used for local development viding credit guarantees. Even Hongkong rather than being diverted to other ar- and Shanghai Banking Corporation is op- eas through fiscal operations. They also erating an SME credit arm as one of its criticized Samurdhi Bank officials’ loan corporate social responsibilities. approval procedures, alleging that they were discriminatory. As a consequence, Role of the Samurdhi Bank system. A the government looked for ways to link better way to help SME entrepreneurs loan disbursement rate with the amount who have no collateral is to further de- of savings generated in a locality. This velop the Samurdhi Bank system and approach misses the fundamental point provide credit plus services to members that loan disbursement rates have been

20 low in most rural areas because other the form of an enabling environment inputs necessary for enterprise devel- that integrates career guidance, training, opment (demand, infrastructure, etc.) and business support services (Weera- have been lacking, making few project tunge 2006). proposals viable. Rather than interfering with the loan disbursement process, it Several Mahinda Chintana programs would make more sense to allocate an are extremely vulnerable to political equivalent amount of funds generated in capture by local elites. In fact, certain a district to infrastructure development structures and procedures of Gama in that district, and be transparent about Neguma—the village reawakening pro- such expenditure. gram—encourage political capture. For The government urgently needs to example, proposals for development build on the Samurdhi Bank system’s projects under the program were to be proven strengths, dispel the doubt and submitted by elected members of the lo- policy uncertainty that currently relates cal governments, the Pradeshiya Sabhas, and Initiatives Policies Government to the future of the system, and make it belonging to the ruling party. While the autonomous to prevent political capture. Jana Sabha, or community-based orga- Failure to do so will jeopardize the sus- nizations, were proposed as a mecha- tainability of the system and discredit all nism to provide the poor with a voice such government-led poverty alleviation and ensure that benefits reach them, it efforts in the future. is unlikely to achieve this objective; poor people cannot afford to antagonize vil- Entrepreneurship training. The Small lage elites by questioning the latter’s de- Enterprise Development Division of the cision making or conduct. This is because Ministry of Youth Affairs and Sports and of the patron–client dependency struc- the Industrial Development Board pro- tures that provide the poor with infor- vides successful entrepreneurship train- mal safety nets in times of individual or ing programs. The division has wide community-wide shocks, but which tilt outreach to rural areas, long experience the balance of power in favor of patrons in implementation, well-trained train- the rest of the time. ers from within the same districts, and a well-established network of links with Reform of the Samurdhi income trans- banks and other technical service pro- fer program has been slow. The proxy viders. Many donors and nongovern- means test formula (PMTF) developed ment organizations also support entre- to improve eligibility proved impractical preneurship training, such as Start and to implement as the formula adopted Improve Your Business (supported by the a one-size-fits-all approach and did not International Labour Organization), and take into account variations in local con- Competency-based Economies for the ditions. For example, the formula consid- Formation of Entrepreneurs, supported ered the size of land owned rather than by the German Agency for Technical Co- productivity of the land as a criterion. operation. There are also microfinance Thus, the PMTF does not appear to be programs supported by Sarvodaya Eco- an appopriate methodology for hetero- nomic Enterprise and Development Ser- geneous communities, and high rates vices and Agromart, and Shell LiveWIRE. of economic growth like Sri Lanka has While enterprising attitudes must be in- been experiencing in recent years, can culcated in all school children, only those make it unreliabble. Given the limita- who are interested in and have an apti- tions of PMTF methodology,officials of tude for business need full-scale entre- the Samurdhi Commissioner General’s preneurship training. This needs to take Department in charge of implementing

21 the income transfer component are de- Institutional Constraints veloping more appropriate eligibility criteria based on family categorization and Endemic weaknesses in Sri Lanka’s pub- wealth ranking techniques developed lic administration system are likely to through community participation and impede the effective implementation screening methods of pro-poor development policies and programs. The public administration sys- The new methodology has the key tem is vast (employing 1.1 million workers) advantage of having a high degree and amorphous, characterized by a prolif- of community acceptance as the in- eration of institutions, uncertain lines of dicators are first developed by the command, confusion about responsibili- community and then used to decide ties, and lack of accountability. Thus, di- who is poor and who is not. But its verse institutions are involved in doing the success largely depends on the capa- same thing, leading to overlap and dupli- bilities of the facilitator who must be cation of effort, and lack of coordination. able to withstand pressures from com- Sri Lanka currently has 56 ministries with munity elites. Proper guidelines to sup- considerable overlaps in functions. port the process are also needed.An- Poverty and Human Development in Sri Lanka in Development and Human Poverty other disadvantage is that it has poor Adhoc reforms to make the system “inter-rater reliability.” Nevertheless,the more responsive and effective have methodology has proved difficult to generally failed. The pendulum of ‘re- implement outside the Eastern Prov- form’ has swung from de-concentration ince because of political economy fac- or departmentalization to decentraliza- tors such as (i) local politicians do not tion, to devolution, to centralization and want their key supporters to be eject- further devolution. Concerns over frag- ed from the program, (ii) Samurdhi mentation and lack of coordination have development officers feel that they may given rise to yet another bout of central- lose their jobs if numbers decrease, and ization. For example the Ministry of Nation (iii) Samurdhi Bank officers are resist- Building has recently been transformed ing change because the viability of the into a mega clearing house for all devel- banking system depends on the partici- opment projects. It has 29 development- pation of the nonpoor who have threat- related functions. These include initiating ened not to repay their loans if they and coordinating foreign aid projects, re- are removed from the income-transfer habilitating the north and east, providing program. social safety nets and microcredit (all mat- While the beneficiary selection pro- ters pertaining to rural revival through the cess for income-transfer programs for Gama Neguma and Maga Neguma rural the poor remains unsatisfactory, the size road development programs), and imple- of the grant cannot be increased in any menting regional development programs. meaningful way. In 2006, Samurdhi Pro- It has been allocated 65% of the total gramme cash grants were increased by government budget. In addition to one cab- 50% (Central Bank of Sri Lanka 2007). inet minister, the ministry also has six non- Nevertheless, this one-off increase is cabinet ministers and a deputy minister. hardly sufficient when inflation increased While coordination may improve by 142% (Colombo Consumers’ Price In- such a high degree of centralization, it dex) over the preceding decade. Mean- is likely to run counter to more partici- while, other vulnerable groups, such as patory decision making, and could also the disabled and the elderly, are inade- weaken motivation especially at provin- quately covered (World Bank 2006). cial and local levels of Government.

22 Inability to insulate administrative de- revenge that subverts many projects and cision making from political capture programs at grassroots level is a cause works against the equitable provision of concern. Examples abound. Party af- of key services. For example, many rural filiation was a key factor in the selection schools lack teachers because teachers of beneficiaries for the Samurdhi income who are posted to such areas use politi- transfer program and is an important fac- cal influence to change the appointment tor causing targeting errors. In the 1980s to a posting in a less difficult area. At the and early 1990s, many villages remained same time, teachers remain vulnerable islands of darkness while their neighbors to punishment transfers if they do not were supplied with electricity because comply with the demands of influential they supported the rival political party Overseas from Lessons politicians. The culture of patronage and (Gunatilaka et al. 1997). Government Policies and Initiatives Policies Government Assessing Value-for-Money: Additional Feasibility Study/Project Preparatory Technical Assistance Assistance Technical Preparatory Study/Project Feasibility Additional Value-for-Money: Assessing Appendix 3 : Appendix

23 Human Development in Conflict-Affected Areas

Introduction By the end of 2007, some degree of security was established in Eastern he ongoing conflict remains both Province following military operations. the principal cause for poverty Roughly 200,000 people displaced by the and the most binding constraint operations have largely been resettled. to poverty reduction and econom- Prospects for bringing about a restora- T tion of livelihoods and development in ic development in the north and the east. In these areas, the development process this area appear promising, even though has to contend with exhausting and de- it will take time to establish enduring bilitating cycles of conflict. Each cycle peace. Incidents of violence between includes displacement; loss of economic the armed combatants of the breakaway assets, human capital, and infrastruc- Tamil Makkal Viduthalai Pulikal faction of ture; and disruption of livelihoods and the LTTE and infiltrating LTTE cadres still market links, followed by resettlement, take place. Nevertheless, there can be no restoring livelihoods, rebuilding assets, suing for peace without rehabilitation and then, perhaps con-flict again. (For a and development, and there may now more elaborate discussion on the causes be a window of opportunity to bring this of the conflict, see ADB 2007c.) about. The government has contrived to The ceasefire of 2001–2006 provid- provide a stable and secure environment ed some respite from hostilities which for the holding of provincial council began in 1983. It enabled a resurgence and local government elections in East- of economic activity in the north and ern Province. A democratically elected east, and facilitated the resettlement of civilian administration is in place to over- significant numbers of conflict-displaced see and implement the massive donor- persons. Nevertheless, there was little assisted development push currently change in factors that contributed to under way. the outbreak of conflict, such as uneven Ongoing military operations are patterns of development and institu- focused on clearing out the LTTE from tional weaknesses of state structures Northern Province and restoring nor- (Goodhand and Klem 2005). The Libera- malcy as in the east. As of 21–28 tion Tigers of Tamil Eelam (LTTE) pulled August 2008, the total number of in- out of the peace negotiations in April ternally displaced persons (IDPs) living 2003 on a spurious excuse but made use in welfare centers or with host fami- of the ceasefire to rearm and regroup. lies in Northern and Eastern provinces Consequently, in spite of the ceasefire, was 238,805.7 Roughly 10% of them it was able to launch deadly attacks are in Eastern Province, the rest in the against the armed forces, culminating five districts of Northern Province. IDPs in the botched assassination attempt of can be classified into four major groups the Sri Lankan Army commander in April according to duration of displacement 2006. Thus began the current phase of and prospects for return: (i) IDPs liv- the conflict. ing in camps for more than 3 months,

7 United Nations Office for the Coordination of Humanitarian Affairs. 2008. Sri Lanka Situation Reports. 21–28 August. www.ochaonline.un.org/srilanka/SituationReports/tabid/2583/language/en-US/Default.aspx 24 (ii) IDPs living with family or friends out- (WFP), all other humanitarian assistance side camps, (iii) IDPs to be relocated to organizations including the United Na- new locations, and (iv) IDPs who can re- tions’ (UN) organizations have moved to turn to origins. IDPs are also often classi- government-held areas as requested by fied as old IDPs (those displaced during the government. the 1980s and 1990s), tsunami-affected Even so, the government has con- IDPs, and newly displaced families suf- tinued to send convoys of food and fering from the most recent outbreak of other essential commodities to civilians intensive fighting in the north and east. trapped in areas controlled by the LTTE. Although exact figures are not known, Distribution is handled by the govern- Sichuan of The Case the overwhelming majority of displaced ment administrative machinery headed persons are Tamil, with sizeable num- by the district secretaries. Supplies were bers of Muslims in Eastern Province. In maintained even when WFP officials re- 2002, nearly two-thirds of IDPs were fused to accompany the convoys which less than 30 years of age (Hingst et al. had to take a new route to avoid being 2002). caught in crossfire.9 The government In terms of population, around has also had to contend with problems 1.14 million Sri Lankans lived in Northern caused by the LTTE’s attempt to smuggle

Province and 1.5 million in Eastern Prov- military equipment in some of the sup- Areas in Conflict-Affected Development Human ince in 2005.8 Ethnic cleansing by LTTE ply trucks destined for civilians caught has ensured that almost all residents in up in the conflict. At the end of February Northern Province are Tamils. The popu- 2009, an estimated 70,000 civilians re- lation of Eastern Province is equally di- mained trapped in 80 square kilometers vided among the three ethnic groups, in Mulaitivu District, the area yet to be Sinhala, Tamil, and Muslim. liberated from the LTTE. This forced the The government has maintained the government to send shipments of essen- administrative apparatus in the conflict tial food and medicine to these civilians areas since the conflict began, operat- by sea. The government has also assisted ing and financing services such as dis- the International Committee of the Red trict and division administration, educa- Cross to evacuate civilians needing medi- tion, and health. The government also cal attention from this area by sea and to provides humanitarian assistance and transport them to government hospitals maintains the supply of essential food elsewhere. and other commodities via the admin- Once military operations cease in the istrative apparatus throughout the north, the next steps of rehabilitation, conflict-affected region. This task has resettlement, and restoring livelihoods turned out to be much more fraught and infrastructure will require substan- in the northern theater of military op- tial resources. erations in recent times than in Eastern Province. This is because of the terrain of the area, as well as the practice of Human Development Issues the LTTE deploying civilians as human shields, and preventing them from mov- Food, nutrition, and social protection. ing to welfare centers in government- Food and nutrition are serious issues in held areas. In addition, other than one the conflict-affected areas. Restrictions on or two international agencies such as the transport of certain inputs that might the International Committee of the Red be diverted to military use have also de- Cross and the World Food Programme pressed local production of essentials,

8 Humanitarian Information Centres and Partners. 15 May 2007. www.humanitarianinfo.org/srilanka/ catalogue/Files/MapCentre/Thematic/Maps/Demographic/Maps/LK00880_SL_Demography_15May07. pdf 9 Sri Lanka. Ministry of Defence. 16 October 2008. www.defence.lk/new.asp?fname=20081016_02 25 thereby exacerbating shortages. During the fear of being abducted and recruited November 2007, prices in Jaffna were as child soldiers. In September 2005, the roughly 70% higher than those prevailing United Nations Children’s Fund reported in Colombo (down from 400% in Febru- that the number of children recruited ary) and depressed levels of economic ac- as LTTE soldiers was 5,198 (World Bank tivity in the Jaffna Peninsula have eroded 2006). Frequent displacement also dis- people’s purchasing power (RADA et al. rupts schooling and leads to dropping 2007). Depressed levels of economic ac- out. With the influx of displaced people, tivity translate to low wages and employ- many schools have been used as welfare ment opportunities. While the poor in the centers. At the same time, the displace- districts of Ampara, Batticaloa, Jaffna, ment of teachers has created severe Trincomalee, and Vavuniya receive the teacher shortages in the conflict-affected Samurdhi income transfer (the program areas. is not operational in Killinochchi, Mannar, Nevertheless, access to education and Mulaitivu), at less than Rs500 per for IDPs has been relatively high and month the amount is inadequate for comparable with non-IDP neighbors in most families. Anuradhapura, Mannar, Polonnaruwa, The WFP provides food for short- Trincomalee, and Vavuniya districts in Poverty and Human Development in Sri Lanka in Development and Human Poverty term IDPs while the government usually 2006 (Health Policy Research Associates concentrates on longer-term IDPs. Both (Pvt) Ltd 2006). In some respects access distribute food through the district sec- was even better for IDPs than non-IDPs. retaries to cleared and uncleared areas Primary school enrolment rates were uni- through the multipurpose cooperative formly high and similar to national levels societies. Nevertheless, at the height of but literacy rates among young adults the IDP influx in Batticaloa District in Feb- was lower than the national average, ruary 2007, food security was a serious indicative of disrupted schooling due to issue as emergency services came under conflict. Several schools were also up- severe strain. Of 52 welfare centers sur- graded after the 2004 tsunami and oth- veyed, all received food assistance in the ers upgraded following the North East 2 weeks prior to assessment, but in 60% Community Restoration Development of the sites the food supply was insuf- Housing II Project. ficient (United Nations Office of Project The health care system has responded Services [UNOPS] et al. 2007). well in the conflict situation. For exam- IDPs appear to fare the worst in ple, during the emergency situation of terms of non-income MDGs too. A sur- the Batticaloa District, the health services vey of IDPs in Anuradhapura, Mannar, were able to respond particularly well be- Polonnaruwa, Trincomalee, and Vavuniya cause the central government’s Ministry in 2006 found that, based on nutritional of Health sent in personnel and supplies and anthropometric indicators, non-IDP funded by the World Health Organiza- households were modestly worse off tion. Upgrading of services and capacity than the national average but IDP chil- enhancement following the tsunami has dren do even worse, with higher levels of been fundamental in Eastern Province. stunting and wasting (Health Policy Re- To date there have been no outbreaks of search Associates (Pvt) Ltd 2006). disease in welfare centers. A 2006 survey of IDPs in Anuradhapura, Education and health. In conflict areas, Mannar, Polonnaruwa, Trincomalee, and children do not have a secure environ- Vavuniya found that coverage of basic ment in which to attend school. Regular health services such as immunization in school attendance is curbed because of the IDP population was as high as 80%,

26 but still 10%–15% lower than in the non- Prospects for Resettlement IDP population surveyed. Access to antenatal care and skilled attendance at child- Whether IDPs can return to their place birth was also high, but slightly worse of origin depends primarily on the secu- than for non-IDP mothers (Health Policy rity situation, i.e., the easing of conflict- Research Associates (Pvt) Ltd 2006). How- related hazard conditions and the ever, while the curative and preventive establishment of law and order. If secu- aspects of health care are largely looked rity can be assured, return is contingent after, desperately needed psychosocial on whether the property IDPs used to care and counseling services are under- own is available and whether ownership Sichuan of The Case provided. can be established, because many IDPs have lost documentation relating to land Loss of identification documentation. ownership and personal identification Loss of identity documentation such as papers. In some areas the land needs to birth certificates and national identity be de-mined before IDPs can resettle. cards severely constrains the mobility In other areas the property may be oc- and security of IDPs. This prevents them cupied by other groups. If the property from moving out of welfare centers. is in a High Security Zone (as in parts of

Without identity documents, they are Jaffna, Mutur, and Sampur), IDPs may Areas in Conflict-Affected Development Human unable to resettle or relocate through not be able to reclaim it at all. In such their own initiatives such as establishing cases, they would need to be provided proof of ownership of property, renting with alternative land with amenities or houses, or buying land, or from getting with compensation so that they can find employment in surrounding areas or accommodation. IDPs who were origi- districts further away. It is also a prob- nally landless and want to return would lem for the government as it needs to have to be provided with places to settle distinguish between genuine IDPs and and assistance to build. Where owner- LTTE cadres. ship of property can be established but Since October 2006, the Presidential the houses are damaged, assistance to Data Centre has set up four identity reg- rebuild needs to be provided. istration centers in Batticaloa to register Alternatively, IDPs may choose to all IDPs in welfare centers electronically. relocate to where they are displaced The fully automated system includes or to other parts of the country be- photograph, thumbprint, name, age, cause (i) the security situation remains etc. of individuals. However, obtaining hazardous in their places of origin, the National Identity Card remains a (ii) they have lived in their place of dis- problem because of the need to establish placement for some time and have be- Assistance Technical Preparatory Study/Project Feasibility Additional Value-for-Money: Assessing the date of birth of the applicant. Many come accustomed to it, or (iii) they older people do not have the necessary believe that economic prospects are bet- information and documentation, while ter in other parts of the country. Such most IDPs have lost their birth certifi- families need assistance in terms of be- cates. Although the government is taking ing allocated suitable land and assistance 3 : Appendix steps to introduce biometric registration to establish their homes. Where state for everybody by the end of 2008 under land is not available or is unsuitable, the World Bank–assisted e-government they need to be provided with a grant initiative of the Information and Commu- that will enable them to find their own nication Technology Agency, documenta- accommodation. tion for date of birth is still required by Under the Unified Assistance Scheme, the computerized system. long-term IDPs are to be provided with

27 new permanent housing, water supply, be expected as most IDPs depended sanitation, a cash grant of Rs25,000 for on farming or fishing prior to displace- household resettlement and business ment. Restoration of livelihoods for IDPs start-up expenses, and dry rations for depends mainly on the prospects of re- 6 months after they leave their camps. settlement. Although IDPs may choose However, the program has insufficient to relocate and find work elsewhere, funds to provide such relief to all re- this may not be possible for those who turning IDPs. Projects for rehabilitating have lost their identification documen- housing in 2007 were meeting less than tation. Should the issue of identity be 15% of the total estimated need of re- resolved, some IDPs can find jobs as constructing over 326,000 damaged long as they possess marketable skills. houses. The situation of the Puttalam However, the majority of young IDPs do IDPs is somewhat better. Having opted to not have any skills, primarily because of integrate locally, a large number of them frequent disruptions to their education have been provided assistance through by conflicts. Almost all young IDPs lack a an extension of the World Bank’s North working knowledge of Sinhala, which is East Housing Reconstruction Project. essential for relocating to and working The United Nations Development Pro- in southern Sri Lanka, where employ- Poverty and Human Development in Sri Lanka in Development and Human Poverty gramme Transition Project also provides ment prospects are better and Sinhala is assistance for housing reconstruction the lingua franca. combined with construction skills devel- The security situation is the principal opment, microcredit, and food for work determinant of economic regeneration by the WFP. in the conflict zone. In addition, restora- In contrast, the homeowner-driven tion of livelihood depends on the avail- program for tsunami housing recon- ability of credit, access to input and out- struction funded by ADB, Kreditanstalt put markets, and the availability of skills. für Wiederaufbau (Credit Institute for Re- Critical shortages in inputs constrain lo- construction), the Swiss Agency for De- cal agriculture, fisheries, livestock, and velopment Cooperation, and the World small and medium-sized business. The Bank, and was far more successful al- shortage is usually caused by transport though the overall performance of ADB’s difficulties and restrictions imposed by operations in Sri Lanka is rated partly suc- the armed forces on goods such as nails cessful (ADB 2007b). Working through and cement, which can be diverted to the banking system, the program gave military use by the LTTE. Long delays at grants for families whose housing was checkpoints increase transport costs and affected by the tsunami—Rs100,000 reduce competitiveness. Also, restric- for repairs or Rs250,000 for rebuilding tions on fishing craft in certain areas and within 4 months. Nevertheless, many of on the size of outboard motors impede the tsunami programs did not have to the regeneration process. contend with the shortage of materials While many organizations, including and labor that the conflict areas have to the International Labour Organization In- contend with. come Recovery Technical Assistance Pro- gramme, have worked out the technical modalities to provide conflict-affected Sri Prospects for Regeneration Lankans with decent work and economic of Livelihoods opportunities, these microlevel interventions need to be supported by other Loss of livelihood was reported in 94% interventions that can create appropri- of sites surveyed in Batticaloa District ate conditions for economic growth at in 2007 (UNOPS et al. 2007). This is to the level of large spatial units such as

28 regions. Some progress is being made Coordination of activities takes place toward achieving this objective in East- at national and local levels. Two national ern Province where several highways and coordination committees meet regularly township development projects have been to deal with relief, resettlement, and re- initiated with donor assistance. habilitation issues. The first is the Con- sultative Committee on Humanitarian Assistance (CCHA), which meets once a Institutional Arrangements month to discuss important policy issues. for Relief, Rehabilitation, and Chaired by the minister of Disaster Man- Development agement and Human Rights, the commit- Sichuan of The Case tee includes secretaries from the following The government has only recently adopt- ministries: (i) Defence, (ii) Foreign Affairs, ed a coordinated approach to rehabili- (iii) Nation Building and Estate Infrastruc- tation and development. National and ture Development, and (iv) Resettlement district interagency coordination commit- and Disaster Relief Services. Committee tees have been established to coordinate meetings are attended by the presidential relief activities. Within the government, advisor, the commissioner general of Es- three central government ministries are sential Services and the secretary-general directly tasked with IDPs and humanitar- of the Secretariat for the Coordination of Areas in Conflict-Affected Development Human ian issues in the north and east: the Peace Process. The international community is represented by (i) a cochair of • The Ministry of Nation Building is re- the Tokyo Donors Conference; (ii) the head sponsible for ensuring that the basic of the European Commission Humanitar- needs of resettled people are met and ian Office; (iii) the International Coun- providing them with support services cil of the Red Cross head of delegation; for livelihood regeneration. In prac- (iv) representatives of the UN Resident and tice, it is also responsible for the provi- Humanitarian Coordinator, the UN High sion of food to IDPs inside and outside Commissioner for Refugees, and the UN welfare centers; the provision of non- Office for the Coordination of Humanitar- food items to IDPs in welfare centers; ian Affairs; and (v) a representative of the the maintenance of services such as Consortium of Humanitarian Agencies. electricity, water supply, and sanita- There are five subcommittees to fa- tion to the centers; the maintenance cilitate the CCHA’s work. They are co- of checkpoints; and the provision of chaired by a government representative housing and infrastructure for return- and a representative from a UN agency ing IDPs. and address the following areas: logis- • The Ministry of Resettlement and Di- tics and essential services, livelihoods, saster Relief Services is responsible for education, health, IDPs’ shelter, and re- paying compensation for those killed settlement. The subcommittees address or injured; for housing and establish- all operational issues that fall within ments that have been destroyed; the each area. They meet once a month to provision of water, sanitation, and discuss and resolve any issues, and sub- electricity for returning IDPs; and car- mit a monthly report to the CCHA indi- rying out community development ac- cating policy areas that the CCHA needs tivities. to address. The CCHA only addresses is- • The Ministry of Disaster Management sues that cannot be implemented by the and Human Rights is responsible for respective subcommittee. In order that coordinating disaster relief and reha- reports are compiled and follow-up ac- bilitation activities. tion taken, all subcommittees meet at

29 least a week prior to the monthly CCHA placement, and resettlement or reloca- meeting. tion. To do this, the District Rehabilitation The second national committee for Coordinating Committee meets weekly coordination is the IDP Coordination to discuss sector issues and fortnightly to Meeting, which is held monthly and discuss policy-related issues. The process chaired by the minister for Disaster Man- is led by the district secretaries who are agement and Human Rights. The meeting primarily responsible for the implementa- takes up various practical issues arising tion of relief and resettlement activities from work related to IDPs. The member- of the IDPs. They also call for and award ship of this committee is much wider tenders, and supervise and coordinate and includes representatives of all the implementation in consultation with line relevant government, the UN, and na- departments and local government bod- tional and international nongovernment ies. The decentralized administration con- organizations. It also includes the respec- ducts the registration system of IDPs, even tive district secretaries and the military though the United Nations High Commis- coordinator for certain areas, who acts sioner for Refugees and nongovernment as a liaison officer between the military organizations do their own registrations. and the civil administration. When an It appears that relief activities are car- Poverty and Human Development in Sri Lanka in Development and Human Poverty issue is raised at the meeting, the chair ried out fairly effectively, with lack of re- seeks a response from the representative sources being the main constraint. While of the organization the issue relates to. planning and coordination of activities Depending on the response, a solution for the development phase in Eastern is determined and the agent responsible Province are progressing apace, they for implementation is identified. The next are still being developed for Northern meeting then follows up on whether the Province. Nevertheless, the experience necessary action was taken. gained in the east should make for faster District, division, and village commit- progress in the north once the security tees coordinate relief, resettlement and situation permits rehabilitation and re- development activities in areas of dis- settlement activities to commence.

30 Conclusions

ri Lanka is on track to halve in- last. Loss of identity documentation se- come poverty by 2015. Even so, verely constrains the mobility and secu- 15% of all Sri Lankans remain in rity of IDPs. consumption poverty. In terms Over the last decade, the govern- S Sichuan of The Case of other MDG indicators, Sri Lanka per- ment’s approach to poverty reduction forms well, but national figures mask has undergone a significant change. An considerable gender-related, sector, and integrated development policy is being regional variations. instituted, with strong emphasis on infra- While Western Province has benefit- structure development, to reduce regional ed from geographical and infrastructure- inequalities and enable poor localities to related comparative advantages unleashed link up with growth centers. However, the by the macroeconomic liberalization of culture of political patronage and revenge 1977, underserved locations still have at the grassroots level may make pro-poor high poverty rates. Poor infrastructure programs vulnerable to political capture contributes to the spatial segmentation and subversion at local levels. Prolifera- of the labor market. Regions subject to tion of institutions in the public sector armed combat and natural disasters are and fragmentation of the political system the worst off. On a sector-by-sector ba- make it inefficient and difficult to coordi- sis, agriculture must address the issues nate. Ad hoc attempts at devolution have of low productivity and competitiveness. been ill-designed, poorly executed, and Nonfarm sectors face infrastructure— have actually made matters worse. On particularly high electricity costs—and the other hand, centralizing development other constraints, and the education and planning and implementation will work skills-development system is still in the against participation and accountability. process of gearing to the world of work. The current global economic crisis At the individual level, certain groups are is likely to curb future growth, making particularly vulnerable to poverty, includ- it hard to achieve a marked reduction ing those with ill-health, lack of social in poverty. However, if the security situ- contacts, little education, and low social ation in the conflict-affected areas im- status of parents. proves, Sri Lanka may be able to achieve Reducing poverty and stimulating economic growth targets that will help economic growth in the conflict-affected reduce poverty significantly. Assistance Technical Preparatory Study/Project Feasibility Additional Value-for-Money: Assessing areas is the most daunting develop- Sri Lanka’s most pressing need is to ment challenge that Sri Lanka faces. Dis- generate a growth dynamic that will in- placement of large numbers of people tegrate markets and regions, engineer a because of conflict is a serious human more intensive structural transformation development issue. Even though access of the economy and workforce, and see 3 : Appendix to health and education services by IDPs more rural poor move into better pay- has been comparable with non-IDPs, the ing nonfarm employment. Investments in conflict-affected areas face shortages human capital will generate expected re- and high prices of food with serious im- turns only if the nonfarm sector generates plications for nutrition. In addition, new more jobs at higher wages. This requires displacement creates immense obstacles a massive infrastructure push to improve to providing services while hostilities connectivity to domestic and international

31 markets. Otherwise, better education in tinue to assist Sri Lanka in the develop- conjunction with limited job opportunities ment of infrastructure, but that they fo- is a recipe for insurrection and violence, as cus on integrating markets and regions, Sri Lanka’s experience over the last three and on enhancing productive capacity in decades clearly demonstrates. strategic growth centers. This is the most It is strongly recommended that ADB effective and efficient way to reduce po and other development agencies con- verty in Sri Lanka. Poverty and Human Development in Sri Lanka in Development and Human Poverty

32 References

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