The World Bank presented their first Sri Lankan Development update of 2019 at the Galle Face Hotel recently.The issue in focus was the impact of the aging of Sri Lanka’s population, how this will impact the economy and what can be done to deal with potential obstacles. This was discussed in relation to other issues such as Sri Lanka’s stagnating economic growth as well as the country’s relatively low rate of female participation in the labour force.
Following the presentation of the World Bank’s development update, a panel discussion was held, moderated by Dr. Ramani Gunatilaka of the International Centre for Ethnic Studies, in which these issues were explored further and approached from a variety of angles.
Taking part in this discussion were Professor Amala De Silva of the Economics Department of the University of Colombo, Professor Indralal De Silva, the former Chair of demography at the University of Colombo, State Finance Minister Eran Wickramaratne and former Deputy Governor of the Central Bank Dr. W.A Wijewardana.The Background: Sri Lanka’s Macroeconomic Position
South Asia region for the World Bank Vice President Dr. Hartwig Schafer began proceedings by providing a general overview of Sri Lanka’s economic performance.From Left: Dr Fernando Im, Minister Eran Wickramaratne, Dr. W A Wijewardana, Prof. Indralal de Silva, Prof. Amala de Silva and Dr. Ramani Gunatilaka
Dr. Schafer noted that Sri Lanka was one of the top performers in the region, but that significant improvements could still be made in a number of areas.“If you look at the Human Capital Index, Sri Lanka ranks on top. If you look at income levels, tremendous progress over the last decade, moving per capita income from about 890 dollars per capita in 2009 to over 4,000 dollars per capita, well on the road to upper middle-income status. Tremendous progress, but behind that are a lot of pressure points. Growth rates right now are around 3.4/3.5 percent, in the medium term, it’s projected to reach 4 percent. An economy that has done so much with regard to economic reforms, that has such a skilled labour force should be growing at 6-8 percent, so that is the question why we aren’t reaching the full potential,” he remarked.
Among the challenges to Sri Lanka’s economy highlighted by Schafer were the pressure on public funds as well as Sri Lanka’s growing debt burden.
“There is a need to focus on reigning in fiscal pressures, what that means is to actually look at efficiency of spending, what that means is to look at expenditures, the high losses that state-owned enterprises are making, to make sure that we actually divert spending to the social sectors and free up fiscal space for social expenditure. Payments for debt service -the huge indebtedness - is another one of the pressure points that we are all aware of.”
Dr. Schafer argued that what would most benefit Sri Lanka’s growth was private sector investment and continuing to facilitate a conducive environment for conducting business in Sri Lanka.
“A lot of the growth has to come not from demand but from investments by the private sector into labour intensive activities. We are working very closely and will continue to work very closely with the government to improve ease of doing business, where Sri Lanka has performed extremely well, moving up 10 positions in the international ranking,” Dr. Schafer noted.
Demographic Difficulties: Sri Lanka’s Aging Population
The key focus of the World Bank’s development update was the gradual aging of the Sri Lankan population and the need for policies to be implemented to deal with the adverse economic effects that this demographic shift entails. Specifically, the decrease in the labour supply and the increasing number of elderly dependents were highlighted as obstacles on Sri Lanka’s path towards economic development. The World Bank’s report specifies that by 2050, it is estimated that the proportion of those in the population who are elderly (those over 65) will surpass the proportion of the youth (those under 15).
Dr. Fernando Im, the World Bank’s senior country economist for Sri Lanka and the Maldives, noted that the reasons for this trend included “prolonged periods of low fertility, lower mortality rates and increasing life expectancy.”
With regard to birth rates Dr. Im noted that “Sri Lanka continues to be an outlier with about 2 births per woman which is more comparable to upper middle-income countries and OECD countries where the average is 1.8”.
It is predicted in the report that the aging of the population will have an increasingly negative impact on the country’s growth. This is because, with a greater proportion of the population coming to be elderly, the labour supply, that is, the proportion of the country’s population that is available to work and thus contribute to overall production, will decrease. At the same time, the number of dependents who will rely on those in work, as well as public funds, to survive, will increase.
However, in the panel discussion following the presentation of the report, Professor Indralal De Silva, argued that it is not entirely clear that the labour force will shrink in the way the report suggested. He argued that though the report had its merits, it had not accounted for a few key factors which would prevent the labour force from dwindling in the way they had predicted. De Silva argued that the report had failed to account for the increase in the labour force accompanying an increase in the number of children born in the 2000s.
“Sri Lankan population will continue to grow even beyond the 2060’s. Our population is expected to grow to something like 24 million by the early 2030’s and even by 2040s it will go beyond 25 million. This report definitely identified the population aging parameter, but it has missed something about the youth bulge we are going to observe in a few decades time. We are going to see an increase in the number of youths in Sri Lanka due to the fertility increase we observed in the early 2000s.”
In addition to an increase in the number of youths, Professor Indralal De Silva highlighted other factors that would lead to an increase in the Sri Lankan labour force, most significantly, that of migration patterns both into and out of Sri Lanka as well as greater longevity with people continuing to work until an older age.
“In my studies as well as Dr. Sanderatne’s, who is an expert in these labour issues, we both argue that Sri Lanka’s labour force is going to continue to grow for the next five or six decades. One reason for that is longer longevity, another reason is that in 2012/2013 more than thirty thousand people left the country, but now gradually it has declined to almost twenty thousand. At the same time significant numbers are coming to Sri Lanka as foreign labour. Those numbers will expand in coming years along with the number of development projects. The bulk of people coming into Sri Lanka as foreign workers are fairly young people, they won’t be just leaving the country after 2-3 months’ time, probably they will live longer in Sri Lanka, so they will be added to the Sri Lankan population,” he noted.
Accessibility for women in the workforce
Another underlying theme in the development update was that any possible decrease in the labour force as a result of demographic change, can be dealt with by addressing another issue in the Sri Lankan economy, namely the low rates of women’s participation in the work force. Of course, regardless of the accuracy of predictions regarding the decreasing of Sri Lanka’s total labour supply, the issue of women’s participation in the workforce represents a highly important issue on its own, particularly with regard to efforts to improve gender equality in Sri Lanka.
The World Bank report indicates that the workforce participation of women in Sri Lanka is low compared to other developing countries with only 40 percent of women either in work or looking for work.
Dr. Fernando Im notes that “There is a huge gap between labour force participation rates between males and females, this hasn’t changed almost at all over the last 20 years.”
Im noted that several policy measures could be implemented in order to make the work more accessible such as “improving the supply of elder care and child care services, safe transport and flexible work arrangements for women.”
With regard to why we see this strikingly low proportion of women in the labour force, some reasons were provided by Professor Amala De Silva who drew attention to a number of factors that acted as barriers to women’s entry into the workforce.
“Attention has to be paid to the institutional factors because the fact that the economy is growing doesn’t seem to be getting women into the workforce. For the last 10 years, we haven’t seen a change in the labour force participation rate. It may be that people are giving up work in order to bring up their families and this is an investment, they’re making the sacrifice on the basis of an investment, it’s a very rational decision. If you want to get them out of that thinking and you want to get them into the workforce, there will have to be very targeted policies that can achieve this,” she noted.
Professor Amala De Silva also highlighted the fact that though people quite rightly bring up the issue of childcare, what hasn’t been focussed on enough is the link between women’s exiting the workforce and the responsibility placed on women regarding educating their children.
“There are many women who leave the workforce to invest in their children. A lot of the burden of schooling is being shifted from the schools to the parents, where a lot of supervision is involved (for example taking children for tuition.) When you talk about institutions, it’s not just childcare, but also about the schooling system.”
She also noted that allowing these issues to be dealt with by the market will not be sufficient due to the many forms of discrimination faced by women attempting to enter the workforce.
“Leaving it to the labour market may not be okay. In the labour market the biggest issues are the points of recruitment, there is discrimination against women, there is well documented evidence (of this).”
She continued, “When they want to come back may be after finishing their childcare responsibilities, you take any advertisement and look, there is an age cut off, you have to be less than 30, less than 35, you are not encouraging people to re-join the workforce. We need to rethink that way of thinking of employment as being very much age bound.”
Prof. De Silva also noted that societal attitudes towards women’s having jobs represented a significant barrier to their entry into the workforce.
“The social factors, the perfect mother, the perfect house, the fact that when you talk to young people, there are many males who don’t want their wives or fiancés working with the public. In an economy which is very much involved with the service sector one wonders where they expect their female companions to work, this is coming from a study,” she noted.
In addition to the intrinsic good of increased agency for women engaged in paid employment, Prof. De Silva noted that an increase in female labour force participation will have multiple benefits with regard to growth, highlighting the fact that “the GDP will go up not only because of their production, but also because someone will have to start doing their job for pay and the commercialisation of services like buying food from outside or laundry and childcare.”
With regard to increased labour force participation as a potential solution for the fall in the labour supply resulting from an aging population, it was argued in the World Bank’s report that even if female participation increased until it reaches 75% of the male participation rate by 2100, a decrease in the labour force should still be expected. As such the World Bank’s report noted that further methods of better utilising the labour force must be explored.
Skills mismatches and the reallocation of labour
One further method by which the problems of a declining labour force could be mitigated is through the reallocation of labour to more productive sectors of the economy.
Even though there has been a shift in our economy from the agricultural sector to secondary and tertiary sectors in recent years, the allocation of labour in the Sri Lankan economy remains inefficient.
Dr. Im noted that “Over the past 10 years there has been some labour reallocation from agriculture to other sectors. The problem here is that this labour reallocation has been from agriculture to sectors that have a productivity that is below the average productivity of the economy. If the country can achieve allocative efficiency by going towards sectors that are more productive, we could mitigate the impact of demographic changes”.
The role of educational institutions in providing students with the tools to enter the labour market was noted by Dr W.A Wijewardana who argued that the current system was ill suited in terms of equipping people with the skills to take up jobs in more productive sectors of the economy.
“Unfortunately, the present education system in Sri Lanka is concentrating on producing certificate holders rather than people who have the skills and the main focus is to separate students into arts, commerce and science streams which is again developing a human capital unit which cannot accept any kind of job available in the market.”
Wijewardana continued, “If we are to get the country back to the high economic growth trajectory it is necessary that we must go for this high technology production model, to do that we need to produce the necessary human capital which is equipped with those skills. There is a massive educational reform that has to be undertaken.”
Role of the Private Sector
In addition to the various problems faced by the Sri Lankan economy, a further topic approached in the discussion following the presentation of the World Bank’s report, was that of the role of various sectors in facing up to these problems.
When quizzed on the role of the private sector in sending Sri Lanka down the path of economic prosperity, State Minister Wickramaratne noted the need for a change in the dependence on the government in certain sections of the private sector, in order to facilitate Sri Lanka’s economic development.
“We say it often that the private sector is the engine of economic growth and all, actually these are clichés. It’s not really true about the Sri Lankan economy, it should be, but it isn’t,” he noted.
“I don’t know the exact reason why, it may be the historical evolution of the colonial economy, the plantation economy, the chambers, it created some kind of a dependency. Therefore, we’ve got a fairly dependent private sector and I’m talking about the older private sector, not the new private sector.”
“We are having an emerging new private sector as well, that private sector is distinctly different. They are not looking for the government, they’ve made vast strides, they are very efficient, they are very competitive, they can globally compete. More recently they have been investing overseas.”
Minister Wickramaratne also noted that poor implementation of policies by the public service is a major impediment to solving issues in the Sri Lankan economy.
“I think that generally speaking we are weak on implementation. Partially this is to do with the training that we actually get, even in the public service. I worked in the private sector and I then went into a bank which was originally public. The first thing I noticed as I went there and became the CEO, was that the amount of money we spent on training in the private sector, percentage wise, was so much higher than what we were spending in the public sector. The emphasis was very different.”
He also noted the need to increase the amount of exposure afforded to employees in the public service in Sri Lanka.
“When I went to business school, I discovered that some countries were putting their middle to senior management public servants in business schools. Those are countries (ranging) from Malaysia to Saudi Arabia. They were exposing them, and you can imagine the outcome, they were sitting around the table with international businesses, they were speaking the same language, they could relate coming from different perspectives. When it comes to implementation, its training, its investment, its exposure and I think that has to be a comprehensive plan and we have to do it systematically over a decade. If I put it another way, if you ask me if there’s one single reform that I have to pick for the country, I would say that it’s the public service.”
Minister Wickramaratne’s statements reflect the intuition held by much of the public, that inefficiency in the public sector has been seriously detrimental to the social and economic development of the country. Though, many acknowledge that this is in large part due to the failure of elected politicians, the role of bureaucrats and government workers in ensuring that policies are carried out effectively, must also be at the forefront of our political discourse.
In the midst of the spectacle that has been Sri Lanka’s electoral politics in the last few months, we must not lose sight of the need to address the burning economic issues which could take a calamitous toll on the people of Sri Lanka in future. If these issues are to be addressed, whether they be the new issues highlighted by the World Bank, or older ones that have been plaguing the country for decades, it is clear that a great deal of the political energy in all sections of Sri Lankan society must be directed towards overcoming them.
