Beating COVID’s Economic Terror
Promoting ‘smart’ agriculture, remunerative non-farm jobs, labour productivity and human capital development are four key ways that Sri Lanka can mitigate the ill-effects caused by the COVID-19 pandemic which has thrown more than 500,000 Sri Lankans to poverty last year alone, a World Bank (WB) feature titled ‘Four Priorities to Accelerate Economic Transformation and Poverty Reduction in Sri Lanka’ and released on Sunday (17) said. The first priority is to increase agricultural productivity and earnings.
‘Structural transformation is happening, but rather slowly,’ the WB said. Supporting farmers’ transition toward higher-value, export-oriented crop mixes will be important given that farmers are significantly more likely to be poor, it warned. The sector could also benefit from a mix of programmes that support the adoption of climate-smart technologies, improved agro-logistics or expanded access to value chains, it said. ‘The second priority is to address the constraints to accessing remunerative non-farm jobs in rural areas,’ the WB said.
Non-farm activities are an increasingly important and potentially a productive source of livelihoods, it advised. Education plays a key role when it comes to livelihoods decisions: the more educated are significantly more likely to work in non-farm sectors over farm sectors and within non-farm sectors in more remunerative jobs, the WB said.
This implies that diversifying into low-return activities will not help increase incomes. While the non-farm sector is diverse, strategic investments in tourism could support rural income growth given its job creation potential for lowskilled and vulnerable groups, the WB said. The third priority is to support broader reforms to increase labour productivity and create jobs which could ultimately help improve the quality of jobs. In Sri Lanka, informality is widespread, estimated at around 70 per cent of the workforce and strongly associated with inferior working conditions, limited job security and heightened risk of poverty due to low earnings.
In line with international evidence, reforms could aim to address the causes and consequences of informality rather than target informality itself, the WB said. The final priority is to promote spatial transformation and strengthen inclusion, it said. This includes priorities to close spatial disparities and improve access to basic services. ‘Investments in human capital— health, education and social protection—are key to unlocking the potential of Sri Lankan children and boosting future productivity and economic growth,’ the WB quoting its Country Manager for Sri Lanka and Maldives Chiyo Kanda said.
Meanwhile, in respect of improving ‘agriculture productivity,’ the WB’s first key intake in reducing poverty, it said that it advocates the promotion of agro exports. In this context, the EU said that of Sri Lanka Euro three billion (USD 3.51 billion) exports to that region in 2019, 53 per cent or Euro 1.59 billion (USD 1.86 billion) was through the GSP+ duty free facility. The EU further said that of this 53 per cent exports using the GSP+ facility, the export of vegetable products, food stuffs, beverages and tobacco alone stood at Euro 304 million (USD 355.68 million) in 2019. Therefore it’s important for Sri Lanka to nurture such markets in a bid to overcome farmer poverty.
In respect of promoting better non-farm jobs, the WB’s second priority to reduce poverty, the key to unravelling this bottleneck is promoting the teaching English and maths. Multilateral institutions such as the WB and the ADB are involved in such programmes in the education sector. Greater support by the Government is needed to bring into fruition the promotion of such subjects/ programmes.
The third aspects vis-à-vis labour reforms may revolve round making Sri Lanka’s rigid labour laws which are a disincentive for employment creation, flexible and the fourth aspect, human capital development hinges around better education as expressed above. Meanwhile, the WB in its feature said that COVID-19 has led to an abrupt halt to years of progress as the economy suffered its worst contraction on record last year.
Jobs and earnings losses were widespread in the immediate aftermath of the outbreak. The Government acted swiftly to contain the pandemic and buffer the economic shock, but the measures were not sufficient to offset the full-blown impact. The share of poor, earning less than USD 3.20, per day, per person as per the WB definition of being considered as being non-poor, saw the number of poor to be estimated to have increased to 11.7 per cent in 2020, from a low of 9.2 per cent in 2019, by driving over half a million people to poverty.
This is huge setback equivalent to the loss of five years’ worth of progress, considering that Sri Lanka’s poverty count was a high of 11 per cent in 2016, the WB said. Vulnerability was high among the workforce due to high informality and weak safety nets which reduces their capacity to cope with shocks. Inequality is poised to increase as well, the WB warned. Nonetheless, to ensure to create more jobs and achieve a sustainable trajectory toward poverty reduction and shared prosperity, the WB advocated the aforesaid four priority areas for improvement.