Poverty and Economic support in Sri Lanka: The case of Samurdhi Programme

Poverty and Economic support in Sri Lanka: The case of Samurdhi Programme Mayandy Kesavarajah, University of Colombo, Department of Economics rmkesav@yahoo.com Abstract Despite Sri Lanka has achieved impressive results in human development indicators over the decades, continuously it has encountered difficulties in its battle against poverty. Since the independence, the country has recovered significantly, mainly through the implementation of various social assistant programmes. However, the poverty in Sri Lanka is still widespread and acute, and is generally a rural phenomenon. Poverty reduction has been slow due to widening inequalities among income groups and across regions. Sri Lanka has a long history of social programs and of food subsidies in particular. Like many other countries, the government of Sri Lanka has a number of social assistance and poverty alleviation programs. The largest one of these is the Samurdhi program, which was introduced in 1995. The main objective of Samurdhi is to ensure the participation of the poor in the production process by increasing access to resources for self-employment, enhancing their health and nutritional status as well as improving rural infrastructure. Based on the empirical analysis of the distributional outcomes, Samurdhi does not emerge as an efficient transfer program. It is modestly successful in reaching the intended beneficiaries, but it transfers a large portion of its resources to the nonpoor. Moreover, the non-randomness of its targeting errors indicates that the program would need extensive redesign in order to improve its efficiency. This paper presents a description of the structure of Samurdhi and examines its design and targeting outcomes. In light of these results, the paper intends to stimulate a discussion of whether this program is an effective vehicle for reducing vulnerability and poverty alleviation by using the secondary data from Department of Census and Statistics and various Central Bank Reports. Key Words: Human Development, Poverty Alleviation, Samurdhi Programme and Sri Lanka

1. Introduction Reducing poverty is one of the great challenges facing the international community today. It has become more discourage in the context of the global financial crisis, which has severe implications for the poorest in the world. According to recent estimates by the World Bank, almost 1.4 billion people in developing countries live in poverty, and a significant part of this population lives in acute poverty. Since the declaration of Millennium Development Goals, by the United Nations in 2000, both the respective national government and International Agencies have recognized the importance of poverty alleviation in the process of national development in developing countries. Although the social indicators are more in line with those of developed nations, poverty is still a big and widespread problem in Sri Lanka. A closer look at the current state of affairs shows that the performances in poverty reduction over the past two decades have been disappointing. Approximately 15.7 (2006/2007) percentage of the population is in poverty. Therefore, the country has given much attention for the poverty alleviation at the national arena. Since independence, successive governments of Sri Lanka have followed numerous policies, welfare programmes such as Food subsidies, Food stamps, Janasaviya, and Samurdhi Programe aimed at reducing poverty. As the largest poverty reduction programme in Sri Lanka, the Samurdhi programme takes up a considerable portion of government expenditure and covers a large part of the population. In that context, the objective of this paper is to examine how the Samurdhi Programe was reduced the poverty level in Sri Lanka over the period from 1995 to 2008 by analyzing the targeting outcomes of the programe. The remainder of the paper is as follows. Next part reviews some of the Literature and then the paper discusses the definition, trends and patterns of poverty in Sri Lanka. The following part focuses on the Samurdhi Programme, next part provides Data, methodology, and analysis the effectiveness of the Samurdhi programme on poverty reduction in Sri Lanka. In the final part presents some concluding comments. 2. Literature Review Many literatures provide a number of predictions about the shortcomings of the Samurdhi Programme in Sri Lanka. Ranathunga (2006) states that beneficiary selection was not successful due to political and other personal interventions though the selection criteria itself was sound. This indicates that failures are not in the concept but in the implementation procedure. Glinskaya (2000), states that the Samurdhi programme contains an inclusion error. He points out that at the central level, the allocation of Samurdhi resources across provinces is efficient but the targeting issues arise at the grassroots levels. Aryaratna and Ravisingha (2009) identified biasness of grassroots level officers, (Samurdhi Development Officers) as one of the major reasons for targeting errors. SDOs who selected Samurdhi beneficiaries have given priority to personal relationships rather than the Samurdhi

eligibility and exit criterion. On the other hand, the targeting procedure of the Samurdhi programme has been influenced by local political patronage, particularly at the grassroots level, as many of these officers are political appointees. Elena Glinskaya (2000) described the components of the Samurdhi program and evaluated the targeting outcomes of its food stamp, social security, and credit components. Based on the empirical evidence, the paper reaches the conclusion that the targeting outcomes of Samurdhi are inadequate. 3. Definition, trends and patterns of poverty in Sri Lanka 3.1 Definition of Poverty There are many definitions of poverty depending on the contest of the situation and the views of the person defining it. Commonly, Poverty is the lack of basic human needs, such as clean water, nutrition, health care, education, clothing and shelter, because of the inability to afford them. According to the World Bank, Poverty is pronounced deprivation in well-being (World Bank, 2005). Fundamentally, poverty is a denial of choices and opportunities, a violation of human dignity. It means lack of basic capacity to participate effectively in society (UN). Poverty is a condition characterized by severe deprivation of basic human needs, including food, safe drinking water, sanitation facilities, health, shelter, education and information. It depends not only on income but also on access to services. The Department of Census and statistics (2002) in Colombo defines poverty as any barrier to prosperity and is lack of resources and opportunities, feelings of disenfranchised from various support systems and diminished feelings of empowerment to obtain these resources and opportunities. 3.2 Trends and patterns of poverty in Sri Lanka Poverty in Sri Lanka is high and widespread. It has been declining in Sri Lanka, in terms of the proportion of the population who are below the poverty line. The Poverty rate rose from 26% in 1990/91 to 29% in 1995/96 and then declined to 23% in 2002 and 15.2% in 2006/2007. Figure: 1, Poverty Headcount Index (percentage), 1995/96 to 2006/07

Source: Household Income & Expenditure Survey, Department of Census and Statistics Moreover, the Household Income & Expenditure survey 2006/07 reveals, that the poverty in urban sector has recorded a relatively lower level (6.7%, 2006/2007) throughout the period, which is understandable with the higher economic opportunities available in the cities. The rural sector has also shown an encouraging decline in poverty incidence with time, dropping by nearly 50 percent from a stagnating 29 percent to a more acceptable 16 percent between 1990/91 and 2006/07. However, Poverty in the estate sector, which has reached a new high to 32 percent in 2006/07 from 30 percent in 2002, indicating that almost one in every three persons suffers from poverty. 4. Samurdhi programme in Sri Lanka In the light of the government s concern for poverty reduction, there are numerous policies and programmes, such as the Janasaviya Programme (1989-1994), the Samurdhi Programme (since 1995) and various food subsidy programmes aimed at the national level to reducing poverty. The program is an income transfer to the poor to get out of the poverty trap. This paper attempts to discuss only the Samurdhi Programme. As the largest poverty reduction programme in Sri Lanka, the Samurdhi programme takes up a considerable portion of government expenditure and covers a large part of the population. Moreover, it is a national poverty alleviation programme conceived by the people s Alliance Government. The programme claims almost 0.2% of the GDP. According to Samurdhi act of 1995 the main objectives of the Samurdhi National programme are broadening opportunities for income enhancement and employment, organizing youth, women and other disadvantaged sections of the population into small groups and encouraging them to participate in decision-making activities and developmental processes at the grassroots level; assisting persons to develop their latent talents and strengthening their asset bases through productive employment. The programme has three main components: the consumption grant for eligible households, a savings and credit programme and loans for entrepreneurial development, and community

infrastructure development programmes (Glinskaya 2003). Gunasinghe (2009) mentions that while the first component focuses on assisting the poor in the face of adverse shocks, the other two focus on long-term poverty reduction goals. The second component of samurdhi is a savings and credit programe carried out through samurdhi banks and entrepreneurial and business development loans. The third component of Samurdhi is a workfare and social development program administered by the Department of the Commissioner General. 4.1 Samurdhi consumption grant components Although Samurdhi programe has numerous projects under its purview, the main component of Samurdhi is the consumption grant accounting for 80% of the total budget (Glinskaya 2003). The Department of the Commissioner General of Samurdhi states the objectives of the subsidy programme as: a means to provide financial assistance to low income families in order to enable them to maintain at least a sustainable standard of living, while encouraging them to improve their income level and thus bring them in to the mainstream of economic activities in the country in a very useful manner. This Consumption transfer is provided under three programmes. The largest is the Income Supplementary Programme, also referred to as the Samurdhi Subsidy Programme; the others are the Dry Ration Programme and Nutrition Programme. According to the Central Bank (2009) reports, the Income Supplementary Programme covered 1.6 million families and had a budget of Rs.9, 976 million in 2008. The bulk of program resources distributed as transfers of consumption grants to households, with eligibility determined by the monthly level of income of a household and the number of members in the family. All the income sources of a household considered when identifying them as beneficiaries. Table: 1 shows the eligibility criteria and the Value of allowance. Table: 1 Samurdhi Eligibility criteria Monthly income in rupees and Household size (number of members in the family) Value of allowance card (Rs per month) Household income<1500 and number of members>=4 1500 Household income<1500 and number of members>=3 900 Household income<1500 and number of members>=2 575 Household income<1500 and number of members>=1 375 Former janasaviya receipients 415 Source: Samurdhi Division, 2007

The worth of the income transfer the household receives varies from Rs. 375 to Rs. 1, 500. If the household earns an income below Rs. 1,500 per month, it is identified as a beneficiary household. The amount varies according to the number of members in a family. Niyamakas screen potential beneficiaries using household questionnaires about income sources, living conditions, possession of durables, and extensive information about Janasaviya and food stamps receipts. 4.2 Targeting Outcomes of the Samurdhi Transfer Programme Since Samurdhi programe inception in 1995, its coverage has increased to 1.6 million households by the end of 2008 (Central bank Annual Report 2008). However, the total number of Samurdhi beneficiaries has declined by around 9 percent between 1996 and 2007, contrary to what is expected. Further, Table 2 shows that the number of beneficiary families reduced in 2004 and 2006, which was most probably due to stricter targeting. Therefore, simply reducing the number of Samurdhi beneficiaries is not a comprehensive solution to the targeting errors inherent in the Samurdhi programe. Figure: 2, Trends of Samurdhi Beneficiary Families (1995-2008) Source: Ministry of Samurdhi and poverty Alleviation, 2008. Table: 2, Samurdhi Recipients by Districts, 2006/2007 District Percentage of Samurdhu Beneficiary Households (2006/2007) Percentage of Poor Households (2006/2007) Colombo 13 3.9 Gampaha 34 7.2 Kalutara 30 10.3 Kandy 39 13.9 Matale 48 15.7 Nuwaraeliya - 27.5

Galle 41 10.7 Matara 45 11.7 Hambantota 52 10.5 Kurunegala 52 12.9 Puttalam 42 10.6 Anuradhapura 39 12.7 Polonnaruwa 39 10 Badulla 48 21 Monaragala 53 29.2 Ratnapura 52 21.5 Kegalle 42 18.4 Source: Ministry of Samurdhi and poverty Alleviation, 2008. It is interesting to note, that the number of Samurdhi beneficiary households is much greater than the number of poor households in all districts. Consistent with Glinskaya (2000), it is evident that the Samurdhi programme contains an inclusion error. The poorest provinces receives the largest share of the national Samurdhi budget. Therefore, it clearly reveals that, the targeting issues arise at the grassroots levels. 4.3 Trends of Samurdhi Expenditure (1995-2008) Taking a closer look at the recent past, the Samurdhi expenditure remained at approximately 0.2 per cent of GDP, though there were slight fluctuations (Figure 3). Since 2001 to 2004, the expenditure on Samurdhi has been on a declining trend and even has come down closer to Rs. 8.5 billion in 2004. Nevertheless, after 2004 it has been increasing. In 2006, the total expenditure increased reflecting the increase in the value of food stamps by 50% in 113 DS divisions and by Rs.15 in the remaining DS divisions. In 2009, the government expenditure on Samurdhi was 0.2 per cent of the GDP. Figure: 3, Trends of Total Samurdhi Expenditure (1995-2008) Source: Ministry of Samurdhi and poverty Alleviation, 2008.

5. Data, Model and the Methodology For the purpose of analysis, secondary data for the period of 1995 to 2008 are used in the study. Data on poverty and Samurdhi expenditure was obtained mainly from the annual reports of the Central Bank of Sri Lanka, Department of the Commissioner General of Samurdhi and Department of Census and Statistics various reports. A Limitation in the data is often the exclusion of North and East Provinces, due to internal conflict in these areas. Moreover, due to lack of citizen cards from Indian Tamils in Plantation sector were also not included in the data.this analysis involved measuring the impact of the Samurdhi expenditure on reducing poverty in Sri Lanka. Finally, based on data, an appropriate regression model has developed to quantify the impact of Samurdhi expenditure on poverty reduction. The impact of the Samurdhi expenditure on the poverty reduction in Sri Lanka was analysed by examining the Samurdhi expenditure as well as proportion of population under the poverty line in Sri Lanka over the 1995-2008 period. This served to identify the effectiveness of the Samurdhi expenditure on the poverty reduction in Sri Lanka. In addition, the study used the Samurdhi Subsidy Programme as the unit of analysis since it is the single largest component of the Samurdhi Programme. In the analysis, all the expenditure and beneficiaries are in relation to the Samurdhi Subsidy Programme. The main part of the analysis began by examining targeting at household and district levels. This has done through a comparison of the number of recipient households with the number of poor households in a district. Further, analysis continues by using single linear regression model to analyze the effectiveness of Samurdhi expenditure on the Poverty Reduction. The limitation of the above study is that it failed to consider other factors influencing poverty in Sri Lanka, and only compared the trends in Sri Lankan poverty with Samurdhi expenditure data. 5.1 Regression Model For the purpose of this study, the following simple linear regression model has used to measure the Impact of Samurdhi expenditure on poverty reduction: Y t + Xt + Ut = 0 β1 β... (1) Pov t + SamExpt + Ut = 0 β1 β...(2) Where Y t = Poverty level (proportion of people under the official Poverty line) X t = SamExp: Samurdhi expenditure (Rs. Millions) U t = Error term Based on this Regression finding, the model thus ascertains the effectiveness of the Samurdhi expenditure on Poverty Reduction.

5.2 Analysis and Findings Turning to the question whether increased Samurdhi expenditure helps to reduce poverty, the impact of Samurdhi on poverty reduction has been examined by the targeting outcomes of the programme. As such, the analysis began by examining targeting at household and district levels. This has done through a comparison of the number of recipient households with the number of poor households in a district and by using regression analysis. Figure:4, shows the level of discrepancy between the number of households considered poor (earning less than Rs.2066 a month) and the number of households receiving Samurdhi (who should according to the criteria have been earning less than Rs.1500 a month) in 2006. Figure: 4: Comparison of poor households and Samurdhi Recipient families 2006 Source: DCGS 2009, DCS 2009 The data indicate that more than one million non-poor households (in the 17 districts studied) received Samurdhi in 2006. The error was least in Nuwaraeliya, the poorest district in the country, with just 818 non-poor households receiving Samurdhi. The error was largest in Kurunegala where 162,030 non-poor households were Samurdhi recipients. If these non-poor households were removed and Samurdhi expenditure remained unchanged, a poor household would, on average have received Rs.1387 as opposed to the Rs.467 they actually got. This monthly transfer would then be much more effective in pulling a household out of poverty. District Table: 3 Targeting Error within the Samurdhi Programe. No. of poor households 2006/07 No. of families receiving samurdhi Average household grant Samurdhi expenditure 2006 Average grant without nonpoor households Colombo 21,000 75,566 420 31,718,670 1,510 Gampaha 39,000 159,371 407 64,855,350 1,663 Kalutara 28,000 83,347 447 37,294,200 1,332 Kandy 45,000 129,403 448 57,919,610 1,287 Matale 19,000 63,253 442 27,948,595 1,471

Nuwaraeliya 51,000 51,818 396 20,538,430 403 Galle 28,000 104,263 434 45,211,370 1,615 Matara 23,000 97,707 477 46,642,855 2,028 Hambantota 15,000 78,247 549 42,953,425 2,864 Kurunegala 52,000 214,030 443 94,896,830 1,825 Puttalam 21,000 78,887 511 40,316,865 1,920 Anuradhapura 27,000 95,901 427 40,994,180 1,518 Polonnaruwa 10,000 40,917 407 16,668,380 1,667 Badulla 43,000 74,293 533 39,627,460 922 Monaragala 32,000 58,871 497 29,271,995 915 Ratnapura 59,000 141,981 562 79,776,730 1,352 Kegalle 38,000 90,222 528 47,674,035 1,255 National 551,000 1,638,077 467 764,308,980 1,387 Source: DCGS 2009, DCS 2009 When analyzing the income supplement of the samurdhi programme, the cutoff for Samurdhi eligibility in 2006 was monthly household income of less than Rs.1500. This cut-off of Rs.1500 rules out a large segment of the poor population, since it was any one person earning less than Rs.2066 a month that was categorized as poor in 2006. Given these circumstances, the proportion of people receiving Samurdhi should be much less than 15.2% of the population, which is clearly not the case. If the households receiving Samurdhi were, in fact, all earning less than Rs.1500, there would be a much smaller target population, which would mean much larger per household grants. This increase in average household grant would be in addition to the increase in average grant that would result from removing non-poor households from the programme, which was discussed earlier. Assuming that each household receiving Samurdhi is earning the maximum income (Rs.1500) that still maintains their eligibility for the transfer, the total income after receiving the transfer per district is given in Table 4. The table reveals that Samurdhi (assuming that households do not earn more than the Samurdhi cut-off income) does not even bring a household s income even up to that district s per capita poverty line. The only exception is Hambantota, which happens to be the district with the lowest poverty line. Table: 4, Maximum income after receiving samurdhi in 2006 Average monthly household grant Samurdhi Monthly grant Maximum income after Samurdhi District poverty line 2006 District Hambantota 549 1500 2049 1942 Kurunegala 443 1500 1943 1962 Polonnaruwa 407 1500 1907 1983 Monaragala 497 1500 1997 1983 Anuradhapura 427 1500 1927 2004 Matale 442 1500 1942 2024 Matara 477 1500 1977 2024 Badulla 533 1500 2033 2045 Puttalam 511 1500 2011 2066 Nuwaraeliya 396 1500 1896 2086

Kegalle 528 1500 2028 2086 Kandy 448 1500 1948 2107 Ratnapura 562 1500 2062 2107 Galle 434 1500 1934 2128 Gampaha 407 1500 1907 2190 Kalutara 447 1500 1947 2210 Colombo 420 1500 1920 2231 National 458 1500 1958 2066 Source: DCGS 2009, DCS 2009 This suggests that the programme is not fulfilling its objective of providing financial assistance to facilitate the minimum standard of living. As such, the success of Samurdhi as a poverty reduction strategy is questionable. Better targeting of poor households would increase the impact of Samurdhi as an income supplement, while adhering to the eligibility criterion would further increase this impact. Further analysis was carried out by a regression analysis between the change in incidence of poverty (ΔPov) and Samurdhi expenditure (SamExp). Data on poverty rate variables was available only for the year 1995/1996, 2002, 2006/2007. Regression analysis was performed between the change in incidence of poverty (ΔPov) and Samurdhi expenditure as percent of GDP (SamExp/GDP) using annual data for 1995/1996, 2002 and 2006/2007. A regression analysis model yielding the following results. ΔPov = 34.362 0.002 SamExp (5.746) (-2.195) R 2 = 0.016 The above results shows that increased Samurdhi Expenditure is associated with reduced poverty, but such results are not highly desirable. With each one percent increase in Samurdhi expenditure being associated with a 0.002 percent decline in the poverty Headcount ratio during the above period. Further, regressions results show that that increases in Samurdhi expenditures are likely to reduce poverty, but not in a significant level. The R 2 shows that the relationship is not strong enough to form a long run relationship between the two variables. The above results provide a confirmation for the case of Sri Lanka of the need for increasing Samurdhi expenditure in a bid to reduce poverty and meet other development goals such as human development and improvement in productivity of workers through improved education and health. Further, the findings of this analysis indicate that the impact of Samurdhi transfers on poverty reduction is unsatisfactory.

6. Conclusions The objective of this paper is to shed light on the effects of government s Samurdhi expenditure on poverty reduction in Sri Lanka. Based on empirical evidence, the paper reaches the conclusion that the targeting outcomes of Samurdhi are inadequate. Moreover, based on the empirical analysis of distributional outcomes, Samurdhi transfer programme emerges as inefficient program. Even though poverty has seen a sizeable decline from 2002 to 2006, the Samurdhi transfer does not appear to have played a major role in this process. The transfer that a household gets on average per month is too small to make a difference to the household s standard of living. The literature also indicates that the programme excludes some of the poorest segments while covering some non-poor groups. Samurdhi incurs the targeting cost of 8 percent of the total programme that is comparable with the administrative cost of other targeted program. On the contrary, the program employs the administrative capacity but fails to deliver expected outcomes. The Samurdhi programme appears to lack in the checks of accountability and transparency. Samurdhi officers are influenced by the local politician. Politicization is embedded in the design and influences of both the selection of Samurdhi administrators and the selection of beneficiaries. These design flaws lead to implementation problems and compromise the system of social assistance at large. In the framework of this paper, this seems to indicate that, government Samurdhi expenditures do not play a significant role in reducing poverty in Sri Lanka. Therefore, it is vital to redesign the Samurdhi program and increasing the Samurdhi expenditure in a bid to reduce poverty and meet other development goals such as human development and improvement in productivity of workers through improved education and health. Acknowledgement I would like to thank Dr N.Ravinthirakumaran, Senior Lecturer, Department of Economics, University of Colombo, for his time in providing material, advice and suggestions on the content, structure and scope of this analysis. References Central Bank of Sri Lanka (2009), Annual Report 2009, Colombo. Department of census and Statistics (2008). Official poverty line for Sri Lanka, Colombo. Dissanayaka, S.B. (1995), Samurdhi Program: Concepts and Challenges, Economic Review, Vol. 21, No. 5, People's Bank, Colombo. Elena Glinskaya (2000) An Empirical Evaluation of Samurdhi Program,World Bank.2000 Gunatilaka. R, Salih. R, Perera. R & de Silva, C. (1997). The Samurdhi Programme: A Preliminary Evaluation, Colombo: Institute of Policy Studies.

Gunewardena, D. (2007). Consumption Poverty in Sri Lanka 1985-2002. Colombo: Centre for Poverty Analysis. Institute of Policy Studies, Sri Lanka, CPRC Working Paper No 9, Chronic Poverty. Kelegama, S. (2001), Poverty Situation and Policy in Sri Lanka, Institute of Policy Studies, Sri Lanka. Ministry of Samurdhi and Poverty Alleviation 2007, Progress 2006 and Programmes 2007, Ministry of Samurdhi and Poverty Alleviation, Colombo. Ministry of Samurdhi, Youth Affairs, and Sports. Progress 1999, Programmes 2000." Report for the Parliament. Colombo. Poverty in Sri Lanka, (Based on Household Income and Expenditure Survey - 2006/07), Department of Census and Statistics, Ministry of Finance and Planning Sri Lanka, 2009 Poverty Indicators, Household Income and Expenditure Survey - 2006/07, Department of Census and Statistics, Ministry of Finance and Planning, Sri Lanka, March 2008. Poverty Statistics/ Indicators for Sri Lanka (2008), Department of Census and Statistics, Sri Lanka.