Sri Lanka needs to focus on key human capital outcomes to realise full potential

• SL has best human development outcomes in South Asia, despite relatively low spending levels on health, education and social safety nets
• However, World Bank’s Human Capital Index states a child born in SL today will only reach 60% of their potential in adulthood
• To improve human capital outcomes, WB says SL needs to address child stunting, shortfalls in learning outcomes, especially in poorer regions

Sri Lanka has consistently led South Asia in human capital development but falls below human capital outcome levels seen in upper-middle income and high-income East Asian and European countries. 

More ambitious policies are needed to tackle the twin challenges of the negative impacts of the COVID-19 pandemic and slower economic development and ensure future generations reach their full human potential.

Sri Lanka’s pre-Pandemic Human Capital Index (HCI) score of .60 is the highest in SAR and is higher than the world average and that of countries with similar income levels. However, this means that a child born today will only be 60% as productive as she would be with full education and health when she reaches 18 years old.

 By contrast, children born in Singapore can expect to achieve 88% of their potential, while children born in Japan and Korea can expect to achieve 80% of their potential.

On International Literacy Day 2021, drawing on the findings of the recent report on Sri Lanka’s human capital development, we ask “why the disconnect of substantial progress on human development but a lagging Human Capital Index?”  

“In 2015, about 15% of 10-year-olds could not read or understand a simple text by the end of primary school. The COVID-19 pandemic has exacerbated these challenges with school closures and the sudden shift to online learning, to which many poor and vulnerable students do not have access. It is critical to improve learning of children in lagging regions, bridge the digital divide in the country, and ensure teachers are adequately trained for more inclusive and equitable access to modern methods of teaching and learning,” said René León Solano, Practice Leader for Human Development.

As Sri Lanka strives to become an upper-middle-income economy, it will need to further develop its human capital, with a special focus on rural and estate sector regions, to increase competitiveness and help create a modern, knowledge-based economy and accelerate growth. These objectives place an increasing premium on higher-order cognitive skills, socio-behavioural skills, reasoning, and self-efficacy. Building these skills requires strong human capital foundations. This means Sri Lanka will have to improve its learning outcomes and reduce stunting rate which is currently about 17%.

“Reduction of under-nutrition, which would be reflected in lower stunting levels; more equitable improvements in learning outcomes, especially in rural areas and in the estate sector; and an adequate and affordable pension system as well as programs for the aging population are key policy initiatives that Sri Lanka needs to focus as future investment priorities,” said Education Global Practice Lead Economist Harsha Aturupane.

Sri Lanka also faces high levels of inequalities along geographic dimensions. Sri Lanka’s Provinces vary considerably in their HCI scores. The Southern Province has the highest HCI at 63%, followed by Western Province at 62%. At the other end of the scale, Eastern Province has the lowest HCI of 51%, followed by the Northern Province at 52%.

Three provinces—Southern, Sabaragamuwa, and North Western – have human capital levels above the national average; North Central, Central, Uva, Northern, and Eastern Provinces are below average in both human capital development and income per capita. The HCI report recommends prioritising these regions to create more equitable human capital development outcomes.

Nearly all provinces record better learning outcomes for women. Women score an HCI value of 67% in the Southern Province (60% for men) and 65% in the Western Province (58% for men) and the largest gap is in the Eastern Province with a score of 55% among women and 47% for men.

However, higher HCI values and learning outcomes for women are not necessarily reflected in labour inclusivity with women only making up about 34% of Sri Lanka’s labour force.

“Policies to facilitate greater female labour force participation, including better childcare and elder care facilities and networks, are needed,” Aturupane added.