The Institute of Policy Studies of Sri Lanka (IPS) recently held a knowledge-sharing and networking event to launch its annual flagship report, Sri Lanka: State of the Economy 2024. The report, titled “Economic Scars of Multiple Crises: From Data to Policy,” provides an in-depth analysis of the country’s economic recovery, focusing on the socio-economic challenges ahead and the policy decisions that will shape Sri Lanka’s future.
In discussing the nation’s macroeconomic situation, IPS Executive Director, Dr. Dushni Weerakoon, emphasized Sri Lanka’s limited policy options during its fragile recovery. “The country has very few tools to provide relief and stimulate output recovery,” she said, suggesting that it would be wiser to explore marginal changes in tax and spending policies to address concerns around income distribution. The report’s findings, grounded in the latest available data, sparked discussions during the event.
Reassessing Taxes and Spending for Greater Fairness
Recent hikes in VAT rates and the removal of exemptions have disproportionately affected the poorest 10% of income earners, who now spend about 10% of their income on VAT, compared to 6% for higher-income groups, according to IPS Research Economist Priyanka Jayawardena. In contrast, direct income taxes like Pay-As-You-Earn (PAYE) and Personal Income Tax (PIT) are highly progressive, with the wealthiest 10% of households contributing 95% of these taxes. However, there is significant tax evasion: only LKR 43 billion out of the estimated LKR 131 billion in PIT was collected in 2023.
Enhancing Welfare Targeting with Aswesuma
IPS Research Economist Dr. Pulasthi Amerasinghe highlighted the effectiveness of the Aswesuma welfare program, which uses a multidimensional approach and better targeting criteria. Only 54% of former Samurdhi beneficiaries qualify under Aswesuma’s 22 criteria, indicating more precise targeting. However, nearly 40% of food-insecure households were found to be ineligible for Aswesuma, as per the Household Income and Expenditure Survey (HIES) data. Dr. Amerasinghe recommended incorporating food insecurity and climate impacts on food availability as additional criteria for welfare eligibility.
Preparing Youth for the Workforce and Ensuring Decent Jobs
IPS Director of Research, Dr. Nisha Arunatilake, pointed out the challenges related to youth employment and education, based on Labour Force Survey data. “Although there has been an improvement in vocational training since 2018, 65% of youth aged 20-24 are not engaged in any form of education,” she stated. This lack of skills development as young people enter the workforce could negatively impact Sri Lanka’s labour market productivity, especially as technological advancements reshape job demands.
Supporting this, IPS Research Officer Suresh Ranasinghe shared data showing a drop in high-skilled employment from 23% in 2018 to 20% in 2023, along with a sharp decline in managerial positions. This trend is largely due to the emigration of skilled workers seeking better wages abroad, compounded by falling real incomes in Sri Lanka.
Engaging Discussions and Future-Oriented Solutions
The event drew over 100 participants from the government, private sector, development organizations, and research institutions, with discussions covering health spending, public sector wages, regional trade deals, energy pricing’s impact on exports, and agriculture sector diversification. Many of these issues are explored in the Sri Lanka: State of the Economy 2024 report, which provides valuable insights into the country’s economic trajectory, acknowledging both progress and persistent challenges.
The IPS report is available for purchase at the IPS office (No. 100/20, Independence Avenue, Colombo 07) and major bookstores across the country.
