While the economic crisis has aggravated the strain felt by ordinary Sri Lankans, stagnating incomes coupled with increasing living costs are signalling a growing concern at the heart of the country’s economic recovery.
The Department of Census and Statistics has revealed that an individual requires a minimum of Rs. 16,318 per month (as of February) to meet their basic needs. Further, the highest cost of meeting basic needs was recorded at Rs. 17,599 in the Colombo District, while the lowest cost was in the Monaragala District at Rs. 15,603.
This indicates an over two-fold increase in the minimum monthly expenditure required by an individual, given that the amount stood at Rs. 6,966 in 2019. At the time, the highest cost of meeting basic needs was also recorded in the Colombo District at Rs. 7,513, while the lowest was similarly in the Monaragala District at Rs. 6,661.
Declining well-being
However, speaking to The Sunday Morning, University of Peradeniya (UOP) Department of Economics and Statistics Professor of Economics Dileni Gunewardena noted that precise statistics on an increase in expenditure were unavailable due to the lack of an updated Household Income and Expenditure Survey (HIES).
“For estimating household income and expenditure, the standard measure is the HIES and we have not had one since 2019. So technically, we do not know the exact amounts by which spending has increased and income has changed (or not),” she noted.
However, she pointed out that it was reasonable to expect the reality of a situation where “well-being has undoubtedly gone down since 2019, although it may have picked up with the economic recovery of the last year or two”.
Prof. Gunewardena noted: “Families typically spend the most on food, with poorer families spending a larger proportion of their budget on food. Next would come education, health, transport, and utilities, which are basically essentials. Current spending affects spending priorities differently depending on where you are in the income distribution.”
For instance, the Advocata Institute’s Bath Curry Indicator, a tool that tracks the prices of common food items that go into packets of rice in Sri Lanka, shows an increase from Rs. 836 in January 2019 to Rs. 2,623 in December 2024.
“Judging by the volume of Avurudu shopping and holiday travel this month, obviously some people are better able to maintain their spending priorities. The ones who are not able to do so are likely invisible,” she added.
Increased vulnerability
The World Bank, in its Sri Lanka Development Update for April, notes that there is elevated poverty and food insecurity due to household incomes being well below pre-crisis levels. This has also led to increased vulnerability, with a third of Sri Lankans living in poverty or one shock away from falling back into it.
Similarly, malnutrition increased in 2024, which poses concerns over potential long-term impacts on human capital formation and intergenerational poverty transmission. Food prices more than doubled between 2021 and 2024 as well, leading to households changing their diets and reducing the consumption of nutritious food.
This situation has contributed to an increase in malnutrition from 12.2% to 17% (underweight among children under five) and from 7.4% to 10.5% (stunting among children under five) between 2021 and 2024.
Moreover, beyond an economic slowdown, the ongoing reliance on regressive indirect taxes could worsen the poverty outlook.
With people being burdened by both higher taxes and increased cost of living due to higher prices, the Central Bank’s ‘Annual Economic Review 2024’ notes that based on the National Consumer Price Index (NCPI), the estimated average monthly household consumption expenditure increased by 1.6% from Rs. 103,383 in 2023 to Rs. 105,063 in 2024.
Nevertheless, this highlights a notable easing compared to the 74.9% increase recorded in 2022 compared to 2021, as well as the 16.5% increase in 2023 compared to 2022.
In such situations, families increasingly resort to negative coping mechanisms when it comes to managing their spending.
Need for targeted support
Providing what she termed an ‘educated guess,’ Prof. Gunewardena said: “From the rapid surveys, etc. that have been done by some agencies, it is clear that food spending was reduced and food insecurity was on the rise, especially between 2019 and 2023. This affects the most vulnerable segments of the population – poor families, and the most vulnerable within those families.
“For families that have cut down on education spending (such as tuition), general social norms suggest that they may spend less on girls in order to maintain spending on boys. The increase in utility pricing is also a heavy burden for families.”
In order to address this, targeted support is needed, rather than overall subsidies, according to Prof. Gunewardena.
“That said, we have good publicly provided universal education and health services, and we should ensure that Government budgets to these sectors are protected, along with social protection. However, in other areas, such as utilities, it makes no sense to subsidise the rich, who spend disproportionately on electricity, for example, relative to the poor,” she noted.
“In fact, I have done a study that shows that using electricity consumption is a better way of targeting than the previous ‘Samurdhi’ targeting and is potentially more effective than the revised ‘Aswesuma’ targeting, as it does not rely on a third person to verify your eligibility, but instead can be determined by your own data: your electricity consumption, as indicated in your bill.
“As over 99% of households are electrified, this is something that can be easily done, and the Ceylon Electricity Board (CEB) has good data systems that will make this method easy to apply. What is needed is the political will to move away from patronage-based support systems, and I believe the current Government has the mandate to do so,” Prof. Gunewardena added.
According to the latest World Bank Sri Lanka Development Update for April, the poverty rate was 24.5% (at $ 3.65 per person per day, PPP) in 2024. Although poverty declined marginally during the year, it remains over double what it was in 2019 (11.3%).
The World Bank notes that poverty is estimated to remain above 20% in the medium term: “Following continued macroeconomic stabilisation, poverty is expected to decline to 22.7% in 2025 and remain around 20% in the medium term. Under current projections, the economic crisis is expected to have reversed a decade of poverty reduction in Sri Lanka.”