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Increased Samurdhi allowances: Relief measures or deepening crisis?

19 Feb 2022

  • Allowance to add Rs. 7 b to State expenditure each month
  • Uncertainty on how State will raise funds for allowance
  • Funding ‘not a problem’: State Minister Semasinghe
  • 1.7 m low-income families in Samurdhi scheme to benefit from allowance
  • Food-related inflation hit 25% in January
By Maheesha Mudugamuwa  Economists have raised concerns over the recently-announced allowances for the public sector employees as well as Samurdhi beneficiaries, pointing out that the move may worsen Sri Lanka’s economic woes. Some believe that although the Government claims that the relief effort is being taken to enhance consumer purchasing power, the financial burden of the allowance will further intensify the current economic crisis faced by the country. In January, the Government announced a Rs. 5,000 allowance for the public sector and this month yet another increment for Samurdhi beneficiaries was announced. Both these allowances are coming at a time the Government is struggling to facilitate basic imports essential for the overall economy.  According to the Ministry of Finance, the allowance announced for the public sector has expanded the Government’s expenses by another Rs. 7 billion per month while for the Samurdhi allowance, the Government is expected to incur an additional loss of Rs. 15 billion this year. As per the budgetary calculations, the total expenditure for the payment of Samurdhi will cost the Government Rs. 65 billion this year. According to Government statistics, the total expenditure on personal emoluments for public servants including Provincial Council employees has been increased by 15.7% to Rs. 516.3 billion in the first eight months of 2020, compared to Rs. 446.4 billion in the same period of 2019.  The Central Government’s contribution to Provincial Council salaries increased by 32.6% to Rs. 153.8 billion in the first eight months of 2020 from Rs. 115.9 billion in the same period of 2019. Pension payments increased by 11.5% to Rs. 160.1 billion in the first eight months of the period, compared to Rs. 143.5 billion in the same period of 2019. Since the allowances are being announced at a time when the Government is curtailing imports of several basic raw materials that are essential for the country’s overall economic growth as well as limiting imports of several essential food items due to the foreign reserve shortage, questions have been raised as to how the cash-strapped Government will generate the required funds to provide the allowances.  ‘No issue with funds’ State Minister for Samurdhi, Household Economy, Micro Finance, Self-employment, Business Development, and Underutilised State Resources Development Shehan Semasinghe said that the funds were being released by the Treasury as done for all other State expenses and that the Treasury had sufficient funds to provide the financial assistance announced by the Government. “There is no issue with regard to the funds that are required to provide allowances,” he stressed. According to the State Minister, a total of 1.7 million family units are entitled to the Samurdhi benefit and the monthly Samurdhi allowance of a family unit which received Rs. 3,500 would be Rs. 4,500 from this month, while a family unit which received Rs. 2,500 would be entitled to Rs. 3,200 and a family unit which received Rs. 1,500 would be entitled to Rs. 1,900.  He noted that the Samurdhi allowance would also be similar to the allowance given to the public sector and the decision had been taken to support low-income families affected by the Covid-19 pandemic. Semasinghe said the increased allowances could be obtained through Samurdhi community-based banks.  The Government launched its Samurdhi (or Prosperity) Programme in 1995 with the main goal of reducing poverty in Sri Lanka. It had a wide network of national and local level officials administering its activities and was led by its own Ministry and the Samurdhi Authority.  Under fire The Government decision to increase the allowances has been criticised by economists. Speaking to The Sunday Morning, senior economist and the former Deputy Governor of the Central Bank of Sri Lanka (CBSL) Dr. W.A. Wijewardena said the decision would further deepen the existing economic crisis.  Explaining further, the senior economist stressed that when allowances were given to the public, their purchasing power also increased in parallel and as a result they would spend that additional allowance to buy more goods that might be short in supply in the market, such as fuel.  When purchasing power increases, market demand for certain goods also increases and when the demand cannot be met, shortages will further increase, Dr. Wijewardena explained.  Taking the existing fuel crisis as an example, he stressed that when people had more money in their hands they would pump more fuel and as a result the demand for the fuel would increase. When the Government then finds itself unable to meet the demand for fuel in the market, a shortage is created. Therefore, when the purchasing power of the people increases, market demand also increases in parallel, he stressed.  However, responding to claims made by economists, State Minister Semasinghe noted that programmes had been launched by the Government to increase productivity, which would counter the adverse effects of salary and allowance increases.  “When it comes to price increases, it is a result of disturbances in the supply chain and we also have to look at that aspect. In a crisis situation you can always argue in both ways. The Opposition is creating speculation,” the State Minister noted. “At present the Finance Minister has said that he has written to the International Monetary Fund (IMF) and also the financial institutions of the friendly nations are also supporting us,” he added.  Meanwhile, as per CBSL statistics, headline inflation, as measured by the year-on-year change in the Colombo Consumer Price Index (CCPI), increased to 14.2% in January 2022 from 12.1% in December 2021.  Inflation was driven by monthly increases of prices of items in both food and non-food categories. Subsequently, food inflation has increased to 25% in January 2022 from 22.1% in December 2021, while non-food inflation has also increased to 9.2% in January 2022 from 7.5% in December 2021.  The monthly change in the CCPI was recorded at 2.43% in January 2022 due to price increases observed in items of both food and non-food categories which were 1.15% and 1.28%, respectively.  

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