Measuring poverty in the new reality of Sri Lanka as an upper middle income country (2023)

Wimal Nanayakkara February 5, 2020

Measuring poverty in the new reality of Sri Lanka as an upper middle income country (1)

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Sri Lanka was granted Upper Middle Income Country (UMIC) status in July 2019 as the country's Gross National Income (GNI) rose from US$3,840 per capita in 2018 to US$4,060 per capita in 2019. New World Bank (WB ) thresholds for UMIC are USD 3,996 – USD 12,375 GNI per capita. Sri Lanka has passed the demarcation line to enter the new UMIC threshold and is still at the lower end of the spectrum. As such, there is still a risk of relegating to lower-middle-income country (LMIC) status if the economy does not progress at the levels expected for UMICs.

Based on the World Bank's Global Poverty Line (GPL) for UMIC – US$5.50 per day per person (PKM 2011 or at 2011 prices) – 40.4% of Sri Lanka's population lives in poverty. But based on the National Poverty Line (NPL) currently used in Sri Lanka, only 4.1% lived in poverty in 2016. However, as long as the country has UMIC status, poverty levels should be measured using GPL US$5.50 per day per person (PPP 2011).

Although all countries have their own poverty measures to assess poverty at national and regional levels, it would not be appropriate to use the current NPL to assess poverty in Sri Lanka for the following reasons: (i) Sri Lanka has UMIC status; (ii) major changes in the economy and income distribution expected in the near future due to the rapid technological progress of the Fourth Industrial Revolution (4IR); (iii) currentNPLis based on the market value of a basket of goods and services based on the Household Income and Expenditure Survey from 2002; (iv) most UMICs and high-income countries use 'relative poverty' measures instead of the 'absolute poverty' measures used in Sri Lanka.

This blog presents some key points that statisticians, planners and policy makers should consider when developing methodologies and measures to assess poverty in Sri Lanka in the future.

Measuring poverty in Sri Lanka by UMIC status

With Sri Lanka's elevation to UMIC status, it is not appropriate to use poverty lines intended for LMICs for cross-country comparisons. A GPL of $1.90 per day is the poverty line used to assess extreme poverty and is typical of the world's poorest countries. This GPL is also used to assess extreme poverty in other countries. Based on this ($1.90 per day), in 2016 only 0.89% of Sri Lanka's population lived in extreme poverty. For international comparisons, Sri Lanka used US$3.20 per day (until the country was upgraded to UMIC status), below which 10.13% of the population lived in poverty in 2016. With the upgrade to UMIC status, Sri Lanka will have to use the GPL of US$5.50 per day.

Measuring poverty in the new reality of Sri Lanka as an upper middle income country (3)

In this context, Sri Lanka cannot continue to use the current NPL to measure poverty in the country. If the country wants to keep the UMIC status, the NPL must be reviewed. One of the main considerations would be whether to continue with the concept of absolute poverty or adopt the concept of relative poverty like most other UMICs. Relative poverty is a state in which the household income is a certain percentage below the median household income. For example, the relative poverty threshold can be set at 40%, 50% or 60% of the median household income. Relative poverty is useful for showing the percentage of the population that is left. Based on the HIES-2016 conducted by DCS, 7.8% of the population has below 40% of the median household income, 12.3% of the population has below 50% of the median household income, and 18.2% is below 60% of the median household income. It must be decided which threshold Sri Lanka should use and then an appropriate methodology must be developed to measure poverty in the future.

Far ahead

It is not possible to arbitrarily decide on the best method for measuring poverty in Sri Lanka in its new reality such as UMIC. For international comparisons it would be necessary to use GPL $5.50 per day. For poverty assessments at the national and regional level, it would be necessary for the UMIC country to develop an appropriate methodology/criterion. DCS may need to develop an acceptable methodology for assessing poverty in Sri Lanka in the future. In order to achieve this, it is important to enter into a dialogue with planners, policy makers and other stakeholders.

Labels: Income Measuring poverty Poverty Poverty estimates Poverty lines Sri Lanka Upper middle class income

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What is the upper middle class income in Sri Lanka? ›

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What are the 3 main measurements used in measuring poverty? ›

Official Poverty Measure

The OPM uses calculations of these three elements—income, threshold, and family—to estimate what percentage of the population is poor.

Is Sri Lanka a middle-income country? ›

Sri Lanka Will Remain A 'Middle-Income' Country, President's Office Clarifies. Sri Lanka had a GDP of USD 3,815 in 2021, which currently places the country in the 'middle-income' category, according to the World Bank.

How is poverty defined and recognized in Sri Lanka? ›

Q: How is poverty measured in Sri Lanka? A: In Sri Lanka, poverty figures refer to the share of individuals whose household per capita consumption falls below the official poverty line. This poverty headcount index is the standard measure of the incidence of poverty.

What is the middle class income in Sri Lanka? ›

The literature defining the middle class by using an absolute approach, defines it as those earning some benchmark income range. For example, Bhalla (2021) defines middle class to be those earning more than US$ 3,658 (in 2020 prices) a year or US$ 10 a day in purchasing power parity terms.

What is upper middle class in Sri Lanka? ›

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What is the upper middle class lifestyle in Sri Lanka? ›

The upper middle class in Sri Lanka consists of bourgeois and educated professionals who generally come from educated background, having been educated at public or private schools and local or foreign universities.

What is considered upper middle income? ›

Many have graduate degrees with educational attainment serving as the main distinguishing feature of this class. Household incomes commonly exceed $100,000, with some smaller one-income earners household having incomes in the high 5-figure range.

What are the 2 ways of measuring poverty? ›

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How to measure poverty level? ›

There are two primary sources for U.S. poverty statistics: the Current Population Survey and the American Community Survey. The official annual estimates of national poverty levels are calculated from the Annual Social and Economic Supplement to the Current Population Survey (CPS ASEC).

Is Sri Lanka a rich or poor country? ›

OVERALL PROSPERITY. Sri Lanka is 91st in the overall Prosperity Index rankings. Since 2011, Sri Lanka has moved up the rankings table by 8 places.

Why is Sri Lanka a low income country? ›

Sri Lanka faces an unsustainable debt and severe balance of payments crisis, which is having a negative impact on growth and poverty. According to the latest South Asia Economic Focus and the Sri Lanka Development Update, Sri Lanka's real GDP is expected to fall by 9.2 percent in 2022 and a further 4.2 percent in 2023.

What is the main source of income in Sri Lanka? ›

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Is poverty a problem in Sri Lanka? ›

There is clearly a high concentration of poverty in South Asia despite poverty levels varying greatly within the region. Sri Lanka has been widely appreciated for its declining poverty rates, especially through the last two decades.

What are the types of poverty in Sri Lanka? ›

The study thus argues for a new approach in the context of Sri Lanka to recognise four poverty types, namely 'extremely poor', 'poor', 'vulnerable non-poor' and 'non-poor', along with calculations of poverty incidence based on these new criteria.

What is the poorest part of Sri Lanka? ›

Colombo and its neighbor Gampaha remain the least poor; while Moneragala is still has high poverty incidence.

What income category is Sri Lanka? ›

2 As per some classifications, Sri Lanka is caught in a so-called middle income trap. Economists use this term to represent a scenario where countries that move with speed into middle income levels failing to continue such growth momentum so as to reach high income levels.

How many people in Sri Lanka are low income? ›

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Why is it difficult to measure poverty? ›

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Poverty measurement provides us essential information about how well the economy is performing overall. It helps us understand financial hardship and the effects of poverty on government, communities, and families.

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It is not only because of its extremely narrow definition of 'who is poor' and the debatable methodology used to count the poor, but also because of a more fundamental assumption underlying it. It exclusively relies on the notion of poverty as insufficient income or insufficient purchasing power.

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In terms of World Bank estimates of per capita GDP Sri Lanka is a poor country indeed: twenty-fifth from the bottom of their list of 125 countries.

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Worldwide gross domestic product in 2021 was at about 12,183 USD per capita. GDP in Sri Lanka, on the other hand, reached USD 4,014 per capita, or 88.93 billion USD for the whole country. Sri Lanka is therefore currently ranked 67 of the major economies.

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What are the current problems in Sri Lanka? ›

Sri Lanka is experiencing an economic crisis stemming from an unsustainable debt load and perennial deficits on both the international balance of payments and the government budget, resulting in a severe shortage of foreign currency exchange (forex).

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What is Sri Lanka's most valuable resources? ›

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What is the average income of Sri Lanka? ›

Sri Lanka Annual Household Income per Capita reached 1,422.182 USD in Jun 2019, compared with the previous value of 1,385.427 USD in Jun 2016. Sri Lanka Annual Household Income per Capita data is updated yearly, available from Jun 1981 to Jun 2019, with an averaged value of 577.877 USD.

How is poverty measured? ›

To calculate total family income, the incomes of all related family members that live together are added up to determine poverty status. If an individual or group of individuals (such as housemates) are not living with family members, their own individual income is compared with their individual poverty threshold.

How is poverty measured in a country? ›

More than two centuries later, the same concept underpins definitions of poverty around the world. Countries identify a minimum level of income required to meet basic needs such as food, clothing and shelter. Those who have less are considered poor. Unsurprisingly, these thresholds vary by country.

What is poverty how it is measured? ›

This way of measuring poverty includes the consideration that expenditure on food in households is a constant proportion of total expenditure. The poverty line is fixed by multiplying the value of the basic food products by the reverse of the proportion that food expenditure signifies for total expenditure.

What are the two methods to estimate poverty line? ›

In conclusion, both income-based and multidimensional methods are used to estimate poverty. Income-based methods rely solely on income, while multidimensional methods consider a range of factors that contribute to poverty.

Is Sri Lanka a poor country or not? ›

The report said that Sri Lanka is one of the poorest Asian countries based on GDP per capita as of 2021.


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