In recent years, Sri Lanka has faced unprecedented economic challenges that have significantly increased the number of vulnerable households in need of State support. The economic crisis, compounded by the Covid-19 pandemic, pushed poverty rates to nearly 25% by 2022, up from 11.3% in 2019, according to the World Bank.
This dramatic rise in poverty has exposed the weaknesses in the country’s social welfare systems, with cash transfer programmes emerging as one of the most vital tools to alleviate the plight of the poor. However, despite the crucial role of these programmes, there are fundamental issues that undermine their effectiveness.
Sri Lanka’s welfare programmes, particularly the long-standing ‘Samurdhi’ and the recently launched ‘Aswesuma’ schemes, have faced severe criticism for their inefficiency, targeting errors, and failure to empower recipients to break free from the cycle of poverty.
Evolution of cash transfer programmes
For years, the ‘Samurdhi’ programme, established in the mid-1990s, has been the cornerstone of Sri Lanka’s poverty alleviation efforts. However, it quickly garnered criticism for its inefficiency, high administrative costs, and pervasive political patronage.
Research from the World Bank and local think tanks, such as Verité Research and the Institute of Policy Studies (IPS), found that the ‘Samurdhi’ programme systematically excluded a large portion of the most vulnerable populations, with estimates suggesting that over 50% of the poorest households were left out, while better-off families continued to benefit from the scheme.
Recognising the flaws of ‘Samurdhi,’ the Government introduced the ‘Aswesuma’ welfare benefit scheme in 2023 to replace it and correct its shortcomings. ‘Aswesuma’ was designed to introduce a more objective, data-driven approach to identifying and supporting the country’s most vulnerable citizens.
The scheme employs a multi-dimensional poverty index, using 22 indicators across six dimensions, including education, healthcare, and access to utilities, to assess a household’s deprivation. This is a marked improvement over the previous programme, which mainly relied on family size as the basis for determining eligibility.
According to a report published by the Right to Life Human Rights Centre in November 2023, ‘Aswesuma’ received an overwhelming response, with over 3.74 million applications for welfare benefits, of which 1.79 million households were initially deemed eligible.
However, the large number of over one million appeals lodged after the first round of selections reveals that the new system is not without its flaws. Many households that were excluded from the list have raised concerns about inaccuracies in the beneficiary selection process.
Key challenges in cash transfer system
Despite the introduction of ‘Aswesuma,’ which was meant to address the errors and inefficiencies of ‘Samurdhi,’ Sri Lanka’s cash transfer system continues to face challenges. These include targeting errors, administrative inefficiencies, and a lack of a sustainable exit mechanism for beneficiaries.
- Inclusion and exclusion errors
One of the most critical problems in the cash transfer programmes has been the issue of inclusion and exclusion errors. The Advocata Institute has consistently highlighted this challenge, noting that many households which do not meet the criteria for assistance are still receiving benefits, while those in desperate need of support remain excluded.
This problem, known as inclusion and exclusion errors, severely undermines the credibility and effectiveness of welfare programmes.
Advocata Institute Chairperson Murtaza Jafferjee pointed out that this issue persisted despite the use of a scoring system designed to assess poverty levels quantitatively, stating: “While the ‘Aswesuma’ programme uses dimensions and indicators to evaluate deprivation, there are still serious concerns about the accuracy and objectivity of the assessments.”
He argued that the inclusion and exclusion problems stemmed from both human error and the potential for manipulation by local officials, who might use their discretion to favour certain individuals or exclude others based on personal biases or political considerations.
He further noted: “The best way to eliminate these errors is to implement a fully digitised and objective system for delivering cash transfers. India’s model, where welfare payments are directly deposited into beneficiaries’ bank accounts, offers a useful example of how to minimise corruption and human interference.”
In Sri Lanka, however, nearly 234,997 households were unable to receive their payments as of mid-2023 because they did not have bank accounts, while 75,457 households lacked National Identity Cards, further complicating the disbursement of funds (Right to Life Human Rights Centre, 2023).
- Political patronage and corruption
Another major obstacle to the success of cash transfer programmes in Sri Lanka is political interference.
LIRNEasia, a local research organisation, reported that many individuals had been excluded from welfare programmes like ‘Samurdhi’ because they did not belong to the ruling party or lacked political connections. This politicisation of welfare benefits is a deeply entrenched issue that erodes public trust in the system and perpetuates inequality.
Respondents to a survey conducted by LIRNEasia noted that they were denied access to ‘Samurdhi’ benefits until they began working for politicians affiliated with the ruling government. This form of gatekeeping has contributed to widespread disillusionment with the programme, even though it is designed to assist the poorest segments of society.
- Administrative inefficiencies
The fragmented nature of Sri Lanka’s social welfare system has long been a source of inefficiency. ‘Samurdhi’ was managed by the Samurdhi Authority, while other welfare programmes, such as allowances for the elderly and people with disabilities, were handled by separate Government institutions. This decentralisation led to delays in adding new recipients to the rolls, updating beneficiary lists, and disbursing funds.
In its April 2023 assessment, the IPS highlighted how these inefficiencies often resulted in beneficiaries waiting for months – sometimes even years – to receive their payments. This delay in payments is detrimental, especially for households living in extreme poverty, where immediate access to cash is often a matter of survival.
The World Bank also stated that one of the biggest challenges facing Sri Lanka’s welfare programmes is their high administrative costs. According to World Bank data, the administrative expenses for ‘Samurdhi’ accounted for 22% of the programme’s total budget, largely due to wages for local welfare officers. These high costs divert much-needed funds away from the beneficiaries themselves, further weakening the programme’s overall effectiveness.
- Lack of exit mechanisms
A long-standing criticism of Sri Lanka’s welfare programmes is their failure to provide beneficiaries with a clear path to financial independence. Under both ‘Samurdhi’ and ‘Aswesuma,’ there are no well-defined exit mechanisms, leaving many recipients dependent on cash transfers for years without any tangible improvement in their economic status.
Jafferjee pointed out that the absence of an exit strategy was one of the most significant flaws in the system.
“While the cash transfers provide short-term relief, they do little to help households move out of poverty in the long run. India’s National Rural Employment Guarantee Act (NREGA) is an example of how welfare programmes can incorporate work requirements to encourage economic independence. Under the NREGA, beneficiaries must work a minimum number of days to qualify for financial assistance, thus promoting self-reliance while still providing a safety net.”
In contrast, Sri Lanka’s welfare programmes have lacked similar initiatives, leaving many recipients reliant on Government aid indefinitely. This has contributed to a growing culture of dependency, with few beneficiaries able to improve their economic situation despite receiving financial assistance.
Potential solutions
In light of the significant challenges facing Sri Lanka’s cash transfer system, experts from various institutions have proposed several reforms to make the system more efficient and equitable.
- Strengthening the targeting mechanism
One of the most promising reforms is the use of household electricity consumption as a proxy for poverty. Research conducted by Verité Research in July 2022 suggests that electricity consumption is a reliable and objective measure of household income.
The study found that households consuming less than 60 kWh per month are likely to be among the poorest in the country, making this criterion a valuable tool for determining eligibility for cash transfers.
Using electricity consumption as a targeting mechanism would not only reduce the likelihood of inclusion and exclusion errors but also eliminate the potential for political interference.
Because electricity consumption data is already digitised and monitored by the Ceylon Electricity Board (CEB), it can be used to continuously update the eligibility list, ensuring that the most vulnerable households receive the aid they need. This method is expected to reach over 80% of the poorest households in Sri Lanka, compared to the current welfare programmes, which only cover 43% of the poorest individuals (Verité Research, 2022).
- Universal Basic Income (UBI)
Another proposed solution is the introduction of a UBI, which would guarantee a minimum level of income for every citizen, regardless of their economic situation.
Advocates of UBI, including Jafferjee, argue that it could reduce the stigma associated with welfare and provide a more stable and predictable source of income for households. This could, in turn, lead to better long-term planning and economic resilience among recipients.
While UBI has been implemented in some countries on a pilot basis, it would require financial resources in Sri Lanka, where the Government is already grappling with budgetary constraints. Nevertheless, UBI remains a potential long-term solution to poverty alleviation.
- Digitising and integrating the welfare system
The Welfare Benefits Information System (WBIS), introduced alongside ‘Aswesuma,’ represents a step toward digitising and integrating Sri Lanka’s welfare programmes. The WBIS allows for the digitisation of applicant information, enabling the Government to streamline the process of selecting beneficiaries and disbursing payments.
However, experts, including those from the Centre for Poverty Analysis (CEPA), argue that further improvements are needed. For example, ensuring that all beneficiaries have access to bank accounts is essential to the success of a digitised system. As of 2023, nearly 30% of households eligible for ‘Aswesuma’ benefits did not have bank accounts, making it difficult for them to receive payments electronically.
- Implementing exit mechanisms and skills development programmes
A sustainable welfare system must include mechanisms that help beneficiaries transition out of poverty and reduce their dependence on cash transfers. Experts, including Jafferjee, advocate for the introduction of work-based welfare programmes, similar to India’s NREGA.
The IPS has also called for the integration of skills development programmes into the welfare system, noting that Sri Lanka’s economic recovery will depend on empowering its labour force with the skills needed to compete in a globalised economy.
Although ‘Aswesuma’ is a good step in the right direction, reforms are still needed to address the systemic issues that have plagued the country’s cash transfer programmes for decades. From improving targeting mechanisms to implementing exit strategies, the challenges facing Sri Lanka’s welfare system require urgent and immediate attention, against a backdrop where malnutrition and poverty are on the rise.
A new social welfare system?
Meanwhile, The Sunday Morning Business learns that the Government is preparing to introduce a new social welfare system aimed at supporting economically vulnerable groups, ensuring they become active contributors to the economy through future job creation.
Senior Consultant to the President on Economic Affairs and Finance Prof. Anil Jayantha Fernando noted that it was the Government’s responsibility to identify and assist those most in need, while laying the groundwork for viable employment opportunities.
However, before any new welfare initiatives can be implemented, Prof. Fernando noted that budgetary allocations would need to be finalised under the 2025 Budget following the appointment of a new Parliament.
“Long-term solutions such as job creation are in the works; immediate support will be provided through a revamped welfare system,” he stated, adding that the new programme would be designed to address the flaws in the current system, ensuring efficient and targeted assistance.
Prof. Fernando noted that the priority in the first six months would be to maintain stability. “We understand that without adequate income, people’s lives and social stability can unravel. That is why we will approach this process carefully, ensuring it is both effective and sustainable.”