Extended Fund Facility Program with Sri Lanka : IMF welcomes strengthening of social safety nets | Sunday Observer

Extended Fund Facility Program with Sri Lanka : IMF welcomes strengthening of social safety nets

The deployment of a new social registry will enable to better target social safety net programs and help mitigate the impact of the reform programs on the most vulnerable segments of the population, the staff report by the International Monetary Fund (IMF) on its Extended Fund Facility Program with Sri Lanka, has stated.

The IMF also welcomes the initiatives to encourage female and youth employment including gender responsive budgeting and vocational training, while supporting Sri Lanka’s aging challenges over the medium term.

It recognises the ongoing reforms to strengthen social safety nets and supporting youth and women’s economic empowerment which is important to promote inclusive growth. The report notes that the 2019 Budget increases allocations to the Samurdhi cash transfer program to expand coverage to additional beneficiaries, being eligible based on new criteria as developed by the World Bank, and approved by the Cabinet in March.

Sri Lanka has several social safety net (SSN) programs although their resources remain low compared to peers. The largest one, the Samurdhi, provides cash transfers, microfinance and various community and livelihood development activities to approximately 19 percent of the population, the report stated.

In 2015, the Samurdhi transfers were significantly increased by more than doubling individual benefits - SSN spending currently is about 0.8 percent of the GDP.

However, the report notes that Sri Lanka’s SSN suffers from low coverage and inadequate targeting. Samurdhi for example leaves around 63 percent of the poorest quintile group out of the program.

In terms of benefit incidence, under Samurdhi, around two thirds of the benefits accrue to the poorest 40 percent while the rest goes to higher income households. These weaknesses partly reflect the lack of a centralised and integrated framework to determine eligibility. The Sri Lankan government is reforming the SSN with the support of the World Bank’s Social Safety Net program.

The World Bank approved a US$75 million credit line from the International Development Association (IDA) to support Sri Lanka’s main welfare programs by developing an integrated system to better manage the selection, administration and payments to beneficiaries of the programs. The project will contribute to improving the equity, efficiency and transparency of the social safety net.

The Social Safety Nets Program implemented by the Ministry of Finance, will assist the government to develop a single registry of citizens containing information on family structure and economic characteristics.

The Welfare Benefits Board, set up to manage the selection and payment of welfare beneficiaries, will develop and apply new selection criteria based on data in the registry. This will make the identification process fairer and more transparent, and ensure that the benefits reach the intended households. The project will also strengthen the government’s capacity to monitor and improve welfare programs.

The World Bank also notes that VAT exemptions are effectively subsidies to the non-poor. Instead, if VAT exemptions were limited to goods and services primarily consumed by the poor, the latter could actually benefit.

Similarly low fixed fuel prices mainly benefit the richer households who are in the top 30 percent accounting for 70 percent of direct consumption of fuel.

“VAT reforms should go hand -in-hand with strengthening safety net and targeted public expenditure to mitigate the impact on the poor, such as investment in infrastructure in districts with a high poverty incidence, and in the quality of public health and education services, even as we ensure that public funds are used wisely and channeled effectively,” a World Bank official had stated.