September 15, 2022
This article highlights how findings from the 2021 SLB Survey signposted to the impending economic crisis that erupted in 2022.
In 2022, Sri Lanka has been facing its worst economic crisis since independence. Its incomes from exports and foreign currency earnings and reserves have remained low over the years indicating that the present crisis has been building up over many years, if not decades.
As a result, the country’s essential imports such as food and fuel became harder to finance over the years. At the same time, financing subsidies, including agricultural subsidies put even more strain on the economy. The inability to ensure sufficient government earnings to meet expenditure led to a dependence on borrowings and growing fiscal debt over the years (Silva 2022).
The effects of the crisis have been felt by people across the country, affecting short-term and long-term household wellbeing. The rapid rising of inflation and the cost of living have resulted in consistent shortages of essentials, such as cooking fuel, petrol and milk powder, electricity cuts and a collapsing health system (Rasheed et.al, 2022). As businesses were affected, people lost jobs, which has affected their purchasing power. Their income has a lower value with an estimated 15% decline in real income. It has been estimated that at least half a million jobs were lost between 2021 and 2022 in industry and services (Hadad-Zervos 2022).
People’s perceptions on sources discrimination provide some initial insights. In 2021, 34.2% of Sri Lankans perceived economic status as the main basis for discrimination in the country. Together with those who believed that poverty is the leading cause (6.4%), over 40% of the population perceived economic factor as the basis for discrimination in Sri Lanka. These findings point to the effects that systemic discrimination have on people’s wellbeing. In conditions of crisis, people who are already at a disadvantage are unable to protect themselves and are less resilient.
Those who are dependent on state services would also be affected in a crisis context as these services may become more strained. Further, sustaining such services could also become unfeasible in a context of limited state finances, making people’s livelihoods, particularly those dependent on such services, vulnerable.
The survey results in 2021 indicated that Sri Lankans felt they had only a moderate ease of access to auxiliary and basic services; a mean score of 6.3 for basic services and 5.5 for auxiliary services at the national level in 2021. The ability of households to have continued access to services even in a crisis is crucial to ensure wellbeing and security and help address vulnerabilities.
As the crisis imploded in early 2022, its effects were felt at the very local level, across the country and diverse groups, with the middle and lower socio-economic classes being mainly hit. The effects of this are estimated to have severely affected the progress Sri Lanka has made in reducing extreme poverty, with some estimating that poverty was at its highest since 2009 since the crisis hit.
According to the World Bank, poverty levels are estimated to have doubled from 13.1% in 2021 to 25.6% of people in 2022, which translates to 2.7 million more people falling below the poverty line in one year). A majority of these (80%) live in rural areas, but urban poverty is estimated to also have tripled to 15%. In the estate sector, more than half of the population are now below the poverty line (Hadad-Zervos 2022). In addition, according to UN estimates 4.9 million (22% of the population) is food insecure. A UN survey reported 36% of families reducing their food consumption in late 2020, and this doubled to 70% of families in 2022 (HRW 2022).
Views on relative wellbeing were asked in relation to how people felt their household wellbeing was compared to other families in their communities and the rest of the country. In 2021 views on relative wellbeing shifted to a more pessimistic view. At the national level, people indicated that improvements to people’s wellbeing were minimal. People felt that their household’s relative wellbeing has dropped (from a mean score of 7.5 in 2020 to 6.8 in 2021 nationally).
At a provincial level too, across all provinces, relative wellbeing reduced, where mean scores declined across all provinces. Across all spatial locations too people perceived that their relative wellbeing remained the same in comparison to others in 2021; 7.1 urban, 6.8 rural and 6.1 estate. In 2020 these scores varied from 7.9 urban, 7.4 rural and 7.0 estate. This means that across all sectors, people feel their relative wellbeing worsened since the 2020. This is indicative deteriorating economic conditions before the crisis hit in 2022.
In 2021, people also identified economic factors as the main threats to household wellbeing for at least one in two Sri Lankans (52.8%), which included the inability to earn an adequate income (22.7%) to support the household needs, the high cost of living and related economic issues (17.0%) and unemployment/lack of a job (13.1%). These findings indicate that economic threats had intensified since 2020.
The mean score increased from 1.4 in 2020 to 2.2 in 2021. At the provincial level, there was an increase in mean scores across all provinces to varying levels with increases mainly in the Northern, Eastern, Western, Southern, and Sabaragamuwa provinces. People were having to endure hardships in meeting their basic needs; further evidence that people were feeling the early effects of the economic crisis.
Therefore, the findings from the SLB survey in 2021 indicated the deteriorating economic conditions in the country before it imploded in 2022. The far-reaching impacts of the crisis may be felt for generations, which may require a multitude of actors to be able to address the effects of it.
Hadad-Zervos (2022). Resilience: Sri Lanka’s strength to navigate an uncertain future. World Bank Blogs. 17 October 2022. https://blogs.worldbank.org/endpovertyinsouthasia/resilience-sri-lankas-strength-navigate-uncertain-future
Human Rights Watch (2022). Sri Lanka: Economic crisis puts rights in peril. https://www.hrw.org/news/2022/08/16/sri-lanka-economic-crisis-puts-rights-peril
Rasheed, Z. and Kuruwita, R. (2022). Sri Lanka faces ‘man-made’ food crisis as farmers stop planting. https://www.aljazeera.com/news/2022/5/18/a-food-crisis-looms-in-sri-lanka-as-farmers-give-up-on-planting
Silva, M. (2022). Sri Lanka: Is a push for organic behind the country's unrest? BBC News. 16 July 2022. https://www.bbc.com/news/science-environment-62149554
Sri Lanka Barometer (2023). National Public Perception Survey on Reconciliation in Sri Lanka 2021.