Welfare and budgets

Thursday, 7 March 2019 00:00 - - {{hitsCtrl.values.hits}}

Given Sri Lanka’s socioeconomic dynamics, it is high time that the budget stops being a vehicle to dish out election goodies. Unfortunately the public are so used to this system that many watch the budget for no reason other than to find out what concessions have been made. Even though Budget 2019 has made a strong attempt to balance handouts with long-term economic policies, the latter usually gets limited attention.

One key proposal in Budget 2019 is to expand Samurdhi by 600,000 people. Samurdhi is the largest social welfare program in the country, which was allocated Rs. 43 billion in 2017 and already has about 1.4 million families on its roster. Many analysts, and even politicians themselves, have admitted that the selection process for the program has been less than ideal, with many families that are not below the poverty line competing to receive Samurdhi funds. Budget 2019 will attempt to adjust this but given that Sri Lanka has a high percentage of near-poor families, inclusion remains attractive.

The politicisation of Samurdhi is also helped by the fact that poorer families also find it difficult to access loans from conventional banks. Since their financial inclusion is poor, Samurdhi recipients are more likely to turn to the Samurdhi Bank, which would provide them capital at moderate interest rates, an easy and better alternative to loan sharks.

On paper, this plan does not seem to be as bad as some of the other ideas the Government has had over the years. However, the problem with increasing Samurdhi recipients is that unless allocations are also raised proportionately, the impact of the funds is reduced. In addition leakage of funds could also increase, straining an already-difficult public finance situation.

The World Bank, in a 2016 benchmarking exercise, found Samurdhi has had a minor and decreasing impact on poverty reduction. Samurdhi transfers are too small to make a large impact on poor households’ budgets, as they contributed only 1.7% to household consumption of the poorest 20% of the population in 2012/13. In other words, subtracting the Samurdhi benefit from household consumption would increase the national poverty rate by 2.1% points in 2020. But by 2012/13, the comparable figure had declined to merely 0.6% points.

On the basis of this data, it could be argued the time has come for the Government to decide whether Samurdhi is a poverty alleviation program or an entrepreneurship drive. If it is the former, then Samurdhi should be reformed so only genuinely poor families are identified and they are given a higher amount of funds that can have tangible impact. The Government should also regularly gather data on these families to track how many of them emerge from poverty and link Samurdhi to healthcare, education, housing, and other projects to ensure the most vulnerable are assisted properly.

If on the other hand the Government decides Samurdhi is an entrepreneurship program, then it should reform the Samurdhi Bank and link it to other complimentary programs such as Enterprise Sri Lanka. Failing to have clear policies with well-defined targets has been the fault of successive governments. Politicians should not misdirect and waste public funds under the guise of poverty alleviation without having transparent, efficient, and achievable policies in place first.