By: Staff Writer
October 14, Colombo (LNW): The Institute of Policy Studies of Sri Lanka (IPS) recently released its annual flagship report, “Sri Lanka: State of the Economy 2024,” under the theme “Economic Scars of Multiple Crises: From Data to Policy.”
The report offers an in-depth look at Sri Lanka’s economic recovery, outlining key challenges and necessary policy measures for the country’s development.
Limited Policy Options amid Fragile Recovery
Dr. Dushni Weerakoon, IPS’ Executive Director, discussed the constraints faced by Sri Lanka’s macroeconomic environment. Emphasizing the limited policy tools available for boosting economic recovery, she highlighted the need for marginal adjustments in tax and spending policies to address the distributional impact on different income groups.
According to Dr. Weerakoon, the data-driven insights in the report aim to guide policy discussions to navigate Sri Lanka’s economic path forward.
Addressing Taxation Inequities
One of the report’s significant findings focuses on the impact of recent tax reforms. IPS Research Economist Priyanka Jayawardena pointed out that the poorest income groups are disproportionately affected by increases in VAT rates, spending up to 10% of their income on VAT compared to just 6% for higher-income earners.
In contrast, direct taxes like Pay-As-You-Earn (PAYE) and Personal Income Tax (PIT) were found to be more progressive, with the wealthiest 10% contributing 95% of these taxes. However, tax evasion remains a major issue, as less than one-third of the estimated PIT payable was actually collected in 2023.
Enhancing Welfare Programs through Better Targeting
The report also delves into the effectiveness of the Aswesuma welfare program in targeting the most vulnerable populations. Dr. Pulasthi Amarasinghe from IPS highlighted that Aswesuma uses a more multidimensional approach than its predecessor, the Samurdhi program.
Despite this improvement, nearly 40% of food-insecure households were found to be ineligible under the current Aswesuma criteria. Dr. Amarasinghe recommended incorporating nutrition and disaster exposure as additional factors for eligibility to ensure better support for food-insecure families.
Youth Employment and Skill Development
Challenges in youth employment and education were another focal point of the report. Dr. Nisha Arunatilake, IPS Director of Research, noted that while there has been an increase in vocational training since 2018, a significant issue remains with 65% of youth aged 20-24 not engaged in any form of education. This lack of skill development poses a threat to Sri Lanka’s labour market productivity, especially in light of technological advancements and evolving job requirements.
Conclusion
The IPS report underscores the complex socio-economic issues facing Sri Lanka and highlights the need for strategic policy interventions to support equitable growth. By focusing on progressive taxation, targeted welfare, and youth skill development, Sri Lanka can navigate its fragile economic recovery more effectively.
