4.SOCIAL ProtectiON

An effective social protection system becomes ever more important as the poor come to increasingly depend on private sector growth to raise incomes and improve welfare. Where markets fail, the Government has to play a major role in ensuring that welfare standards are maintained. Government has steadfastly demonstrated its unstinting commitment to a social protection policy that is both inclusive and tuned to the needs of those who are vulnerable and excluded from the economic mainstream.

The Government already provides an extensive array of social protection services aimed at assisting the poorest groups. The Government will continue to play a major role in social protection, especially as the economy adjusts to a greater open-market orientation. The main challenge, however, is to refocus the social protection service to meet the needs of the poorest households, to build on those interventions that have been most successful and to phase-out activities that have not proven to be effective in helping poor households escape poverty. The social protection system must also anticipate Sri Lanka’s demographic transition, and prepare the groundwork for an expansion of services to the low-income elderly groups. The relief, rehabilitation and ethnic reconciliation requirements arising from two decades of ethnic conflict pose an immense social protection challenge.

The range of social protection services provided, and the ways in which these are delivered, become increasingly important as society shifts from a poverty alleviation effort based more on pro-poor economic growth and less on the provision of Government welfare programmes and public employment. Social protection services should be delivered in a way that encourages the poor to integrate as fully in society as possible, without inspiring dependency, complacency or the erosion of individual and community initiative.

A well-functioning social protection system becomes increasingly important because:

  • There are a large number of near-poor households who can slip back into poverty as economic conditions change. Avoiding poverty backsliding through social protection is essential if these households are to achieve a durable reduction in poverty.
  • Sri Lanka’s economy is highly open and is exposed to sudden changes in global trade and investment conditions. Increased globalization provides a myriad of opportunities for poverty reduction, but it also exposes the poor to volatile global commodity and capital market conditions. Sudden changes in global markets are difficult to anticipate and can have dramatic effects on the welfare of the poor.
  • Rapid structural change will inevitably imply some level of economic dislocation. An effective social protection system is needed to reduce the downside welfare risks arising from economic dislocation.
  • The population is rapidly aging, and the share of the elderly is expected to triple over the next two decades. Social protection systems must anticipate the future requirements of the elderly poor and help those now in the workforce prepare for the income replacement needs of old-age.
  • A number of groups have become socially excluded, for a variety of reasons. These groups will require effective social protection assistance to escape regional, ethnic and social poverty traps.
  • A large number of refugees and internally displaced persons have lost nearly all of their assets and will require effective relief and rehabilitation assistance to rise out of conflict-induced poverty.

Any individual who is poor or may, at some point in time, become poor will require some measure of social protection. In Sri Lanka, households, communities, non-governmental organizations and the government combine resources to provide a wide range of social protection services. The social protection systems must cope with a number of shocks, such as economic downturns, agricultural seasonality, natural disasters and social exclusion. Rapid, unanticipated changes in the economic, political and security setting can change the profile and severity of the poor in a relatively short period of time. In a volatile environment, the type of social protection system that is appropriate depends both on the reasons that different households are vulnerable and on the type of poverty-shock that the protection system attempts to address.

Sri Lanka has a long tradition of providing income support and economic advancement assistance to poor groups. Nearly one-fifth of the Government’s current expenditures are used for transfers to households --- a share of public spending normally witnessed only in upper-income OECD nations. A wide range of government agencies operate transfer schemes. The Department of Social Services provides assistance to orphans, poor widows, the disabled, poor elderly and disaster victims. The Samurdhi programme provides cash grants to some 2.1 million families[1] and separate cash grants to 82,000 families under the infant nutrition programme. It also operates a range of compulsory savings, a Samurdhi bank society, and national youth job creation and village development efforts. Government sponsored micro-credit programs aim to expand access to capital to a large number of poor households. There are donor-supported integrated rural development programmes aim to strengthen local planning, augment social and economic infrastructure, while promoting entrepreneurial development in poor communities. A range of agriculture programmes provide subsidies and low-cost credit to farm groups to encourage agricultural modernization. Several organizations provide relief and rehabilitation assistance to those displaced by the ethnic conflict in the North and Northeast.

Despite a wide range of programs and interventions, many of the poverty alleviation programmes do not adequately protect the poorest of the poor. These households are still heavily dependent on informal or traditional social protection mechanisms. But as society evolves, these mechanisms have tended to erode. Due to a range of targeting and coordination problems, the cost of social protection services is higher than it need be, while many of the most vulnerable groups are not adequately protected.

In the area of social protection, the Government faces five main challenges:

  • Improve access and quality of care for the poorest groups.
  • Enhance the efficiency and impact of income transfer, public works and community development schemes.
  • Help the poor to effectively manage catastrophic risk.
  • Address the special poverty needs of socially excluded groups.
  • Meet the special poverty reduction requirements of the victims of the ethnic conflict.

Table 4.1: Transfer Payments and Subsidies to Households 1995-2000 (Rs billion)

1995 / 1996 / 1997 / 1998 / 1999 / 2000 budget
Total Transfers & Subsidies / 29.3 / 34.1 / 38.4 / 37.7 / 37.2 / 39.0
% of GDP / 4.4 / 4.4 / 4.3 / 3.7 / 3.3 / 3.1
Transfers excluding pensions / 14.8 / 18.6 / 20.5 / 18.2 / 18.1 / 17.8
% of GDP / 2.2 / 2.4 / 2.3 / 1.8 / 1.6 / 1.4
Food Stamps, Food Subsidy etc. / 1.8 / 0.6 / 0 / 0 / 0.3 / 0.5
Samurdhi/Janasaviya / 5.1 / 8.6 / 8.7 / 8.0 / 8.0 / 8.0
Fertiliser Subsidy / 1.3 / 1.5 / 1.9 / 2.2 / 1.4 / 1.5
School uniforms, Text books and Season tickets / 1.2 / 1.8 / 1.8 / 2.0 / 1.8 / 2.2
Refugees / 2.3 / 2.3 / 3.4 / 2.3 / 2.7 / 3.0

Source: Central Bank of Sri Lanka, Annual Report 1999

4.1Improve access and quality of care for the poorest groups

The Government provides income transfers and special social services to alleviate the effects of economic misfortune for the most disadvantaged and vulnerable groups. In 1999, some 200,000 indigents received Rs.643 million per annum in public assistance grants of up to Rs.5,000 to start self-employment projects. Assistance was also provided to the victims of floods, landslides, cyclones and man-made disasters for low-income victims. Care for the poor aged and disabled is provided in state-run institutions and voluntary homes, which are assisted by the government. Handicapped persons are provided vocational training by these centers so they can return to society with useful skills for self-employment. Total expenditures of the Department of Social Welfare reached Rs. 1.4 billion in 1999, some 40 percent of which were allocated to public assistance grants for the indigent. There is an urgent need to increase social welfare spending and access for the disabled, elderly and conflict-victims, widows with orphans, while making more effective use of resources provided for the indigent. In the area of socially protection for the most vulnerable groups, the main priorities are to:

  • better protect the disabled and destitute children: by expanding both community-based treatment and institutional protection. In addition, more rehabilitation centers will need to be established, in cooperation with NGO groups, to provide equal opportunities for children in need;
  • restore essential services and economic opportunities to conflict victims: by expanding access to essential services for those in welfare centers, by restoring access to basic irrigation, water, education and health services for those displaced by the conflict and by providing psycho-social counseling and community development support; and
  • augment support for the elderly-poor: by revising the public assistance scheme to support the minimal living requirements of the elderly poor who cannot meet old-age survival requirements. The main emphasis will be on providing public support for community-based care. Families will continue to be encouraged to care for the elderly. Additional elders homes for the elderly-destitute will only be provided where there is a clearly demonstrated need;

4.2Enhance the efficiency and impact of income transfers, public works and community development schemes

A great number of different public initiatives have been launched with the aim of providing employment, community development and business development opportunities for low income families. While many of these efforts have undoubtedly prevented deterioration in living conditions, there is very little evidence that any have contributed to a sustainable reduction in poverty levels. From a vast number of projects and programmes, certain “best practices” and lessons of experience are emerging[2]. The most important of these are the following:

  • More research into the reasons for vulnerability and impoverishment must be done before launching efforts aimed directly at tackling poverty. If not, then the programmes may temporarily address the symptoms, but not the underlying cause of impoverishment.
  • Community and participatory approaches to poverty reduction should be at the center of efforts to provide assistance directly to the poor communities. This requires effective facilitation, design flexibility and stakeholder involvement at all stages of the intervention.
  • Entrepreneurial and business management capacities in poor communities are limited. The capacity of the very poor to assume enterprise development risks is more limited still, suggesting that efforts aimed at micro-enterprise development and SME development should be aimed at the near-poor or the middle-class. Many poor households express a preference for wage employment, rather than assistance in starting new businesses.
  • The post-intervention sustainability of anti-poverty programmes merits serious consideration, particularly when new institutions are established. Those institutions that would not be viable without programme or project support are often abandoned after the direct interventions are completed.
  • Local community capacity to manage and oversee poverty reduction efforts is often under-estimated, resulting in the involvement of a costly and complex myriad of Government and NGO project intermediaries. Better results have been obtained when local communities and community-based organizations have been provided direct responsibility for community-defined poverty reduction activities.
  • Direct poverty-reduction efforts have been most successful when aimed at groups of low-income women. Such programmes have also had the beneficial effect of augmenting the capacity of local women’s community groups to advance and articulate an agenda for gender reform.

Well-informed designs, participatory approaches, sustainable institution building and assistance efforts that are targeted and managed by poor community groups (especially groups of poor women) are approaches that will be adopted in almost all direct poverty reduction efforts.

4.3Samurdhi Reform

Special attention needs to be paid to the Samurdhi programme for it is, by far, the single largest welfare program in the country, with total expenditures running in excess of Rs. 10 billion, or nearly 1 percent of GDP. While some 2.1 million households benefit from this programme, recent research finds that the programme does not assist some 40 percent of the poorest income quintile at all. This suggests that the programme both misses a large number of the poor and provides benefits to many non-poor households[3]. Efforts are needed to tighten targeting and concentrate income-transfer assistance to the poorest groups. The use of categorical measures of impoverishment (e.g. housing status) and community based assessment of severe impoverishment should be used to determine eligibility instead of an income-based criteria.

There are three main components to the Samurdhi programme. The first is an income transfer component, which provides consumption support to the poor and funds social insurance support to help protect the poor during extreme (health and loss of life) situations. As a large income transfer effort, there is a danger that households will come to depend on the transfers, and be reluctant to work their way out of poverty. In some regions, the combination of private remittances and Samurdhi payments has raised the reservation wage and discouraged the poor from seeking employment. Clear exit procedures and incentives for households to graduate from Samurdhi, are needed if welfare dependency is to be discouraged.

By contrast, the social insurance scheme, under the Samurdhi Social Security Trust Fund, appears to be operating reasonably well. Under this scheme, households contribute Rs. 25 per month against which they can claim insurance payments for death of a family member (Rs. 5,000), marriage of one child (Rs. 3,000), birth of a first child (Rs. 2,000) and illness (Rs. 50 per day hospitalization up to Rs. 1,500 for a year). In its first three years of operation, some 11 percent of those covered have claimed benefits, and the programme has been able to build reserves. Plans exist to expand coverage to education insurance, old age pensions and a broader medical insurance. Increasingly, the role of direct income transfers will be reduced and replaced by support for social insurance.

The second component of Samurdhi consists of a series of efforts aimed at community development, through investments in economic and social infrastructure, agriculture, nutrition and small enterprises. The largest are the investments made by the Samurdhi Regional People’s Company Programme in a wide range of small-scale, productive ventures. In many of these areas, Samurdhi’s mandate overlaps with that of the Department of Social Services, the Department of Agriculture and various local government agencies. Many of the Samurdhi capital and enterprise development projects are planned and executed in an ad-hoc manner, resulting in technically inferior investments and limited community involvement in maintaining assets. In the future, only those community development projects that are well designed and thoroughly endorsed by the local community should be financed. A far greater measure of community co-financing may also help reveal the extent to which the local communities in fact, desire such projects.

The third component of the Samurdhi programme is its efforts to encourage savings and provide financial markets that serve the poor. Samurdhi has encouraged savings through some seventy thousand Samurdhi household groups and more than one thousand Samurdhi bank societies. As at the end of 1999, more than 106,000 households had borrowed some Rs. 524 million from the Samurdhi bank societies. Repayment rates under Samurdhi credit programmes are quite high (due in part to the use of future welfare payments as quasi-collateral) and there is evidence that the Samurdhi banks are flexible enough to cater to the needs of the poor. These institutions also play an important role in providing emergency credit to the poor. But efforts should be made to ensure that the Samurdhi financial institutions are, in fact, financially sound and that the use of their resources is in line with community preferences and sound financial market practice. Linking Samurdhi financial institutions to formal, supervised financial institutions may be needed to safeguard the savings of the poor. Regular financial audits will be required to guide the development of these institutions as they expand in size[4].

The Samurdhi programme employs nearly 32,000 animators and 1,500 managers. As the institutional capacity of community groups improve, it should be possible to initially correct imbalances and then ultimately reduce the number of Samurdhi staff. If the focus of the programme shifts increasingly to the provision of social insurance and other financial market services, then the staff composition and profile would need to be adjusted accordingly.

Managing Risks Effectively Using Social Insurance. While poor families and communities have shown a remarkable ability to effectively manage most risks, it is the major, unplanned shocks that plunge poor households into a difficult cycle of indenture and hardship. Catastrophic events, such as a major illness, family breakup, premature death of the main household earner or widespread crop failure, can plunge the poor into severe deprivation and indenture. Research conducted following the 1995/1996 drought shows, for example, an alarming increase in borrowing at punitive rates by the poor from village moneylenders. The fear and hardship engendered by catastrophic events discourages poor farmers from diversifying production into high-value crops, induces poor women to accept employment as low-wage urban servants and aggravates problems of alcoholism and abuse.

Local institutions help poor communities cope with catastrophic risks. Death donation societies, for example, help spread the costs of burial widely throughout the village community. In recent years, a number of non-governmental organizations have started to provide insurance coverage to the poor. The 8,000 SANASA thrift and credit cooperative societies have developed the All Lanka Mutual Assurance Organization Ltd. (ALMAO) to make insurance cover available to the poor. ALMAO provides life insurance, social security coverage, loan and savings protection, and property insurance, and personal accident benefits have been provided to more than 40,000 poor households in seventeen districts of the nation.