Most of Sri Lanka's poor in urban areas: poverty report

ECONOMYNEXT - Most of Sri Lanka's poor are in cities or near cities, though poverty has fallen in recent years helped by the end of a war, urbanization, higher produce prices and a move from farming to industry and services.

Though the official poverty rate is 7 percent about 40 percent of the population earned were 'near poor' sustained on less than 225 rupees a day. Those close to the poverty line could slip back into poverty, a report by the World Bank said.

"There are pockets of serious poverty, and inequality has risen," David Newhouse, Senior Economist World Bank said presenting a report on Poverty and Welfare Trends in Sri Lanka.

Critics however say acting on measures of inequality, such as those devised Benito Mussolini's statistics man Corrado Gini, which fires envy and hate, may lead to state interventions and growth of a bureaucracy which undermine markets and choices of the poor.

Steep reductions in poverty in countries like China and Vietnam in recent years have came from allowing markets to work, forcing producers to compete and provide cheaper goods, and reducing or abandoning state planning and collectivism which led to uniform levels of absolute poverty.

A World Bank report in 2004, which showed output differences between the Western Province and other provinces, was used by rural nationalists to de-stabilize state finances, boost subsidies and protectionism.

He said while the consumption of the 'near poor's was slightly higher, in terms of asset ownership, such households were similar to the defined poor.

Pockets of poverty included in the North and East and Moneragala in the South, had high rates of poverty, though the numbers themselves were low.

Many of the poor was in Colombo and Gampaha districts.

Poverty fell with increase in labour income, the report said. 

The report said higher economic growth and the end of a war were believed to be key drivers of lower poverty. 

"Two other factors were Increasing urbanization as people moved out of rural areas to urban areas and a movement of out of agriculture to services and industry," Newhouse said.

Newhouse said all over the world when subsistence farmers moved out of agriculture into industry and services they were able to pull themselves out of poverty.

With higher agricultural prices incomes of farmers had also gone up with tea and rice. But this may not continue with tea and other prices falling, officials said.

Urban authorities had to be ready to accommodate the movement of people from rural areas with good quality services, officials said.

A World Bank official said they had not studied in depth the effect of higher food prices like rice, on the urban poor, most of whom were food consumers, but it could have transferred wealth from non-farm workers near cities to farmers and farm workers.

In Sri Lanka the price of rice is artificially kept up with import duties and buy back prices, unlike in East Asian countries like Vietnam, where prices were globally competitive and yields were high. Farmers also got fertilizer subsidies.

The spread of electrification had also lifted living standards. More people owned motor cycles than before. In countries like Vietnam, where poverty collapsed, women in particular are mobile with scooters. In Sri Lanka however the state taxes motorcycles also with other vehicles heavily.

Officials said inflation was also low, but the report did not go deep into how lower inflation and currency stability may have helped reduce poverty. 

Analyst say without steady annual currency depreciation and inflation, governments lose their most powerful tool to destroy real wages to lower living standards and generate poverty.