SL to tap World Bank for US$ 200mn loan to strengthen social safety net

The Cabinet green-light has been granted to borrow US$ 200 million from World Bank (WB) under the proposed social security project, which aims to establish a sustainable social protection system with a mechanism in place to provide direct cash transfers to most vulnerable and poor communities.

President Ranil Wickremesinghe in his capacity as the Minister of Finance, Economic Stabilisation & National Policies on Monday sought the approval of the Cabinet of Ministers to conduct the loan negotiations with the World Bank to secure funds for the project.

Cabinet Spokesperson Minister Bandula Gunawardana said an effective safety net is a priority initiative in the International Monetary Fund (IMF) programne, which can protect the most vulnerable groups in the society amid the unprecedented economic crisis.

According to WB, the percentage of the population living in extreme poverty (International poverty rate) is estimated to have risen to 5.8 percent in 2022 from 1.5 percent in 2021 and further rise to 6.6 percent this year. 

The share of the population living in lower middle-income poverty rate (US$ 3.65 in 2017 PPP) more than doubled to 25 percent in 2022 from 13.1 percent in 2021. In addition, a record 65 percent of the population has been estimated to live below upper middle-income poverty line (US$ 6.85 in 2017 PPP) up from 51.1 percent in 2021.

Further, around 37 percent of households were facing acute food insecurity as of November last year. According to a recent (unpublished) analysis, Severe Acute Malnutrition (SAM) is estimated to have increased from 1.5 percent to 3.4 percent and wasting from 13.2 percent to 19 percent. 

Similarly, a recent study showed that almost 60 percent of households with school children reported that their child had missed school at least once due to lack of fuel or transport since March 2022.

Although, Samurdhi programme covered 1.8 million families with monthly cash transfers, or approximately one-third of the population as of 2020, the WB pointed out that only 48 percent of the poorest income quintile received cash transfers in 2019, while nearly 12 percent of the richest income quintile received cash transfers during the same year.

“The transparency in the process for selecting and registering beneficiaries has been limited and lacked independent oversight and accountability. Once entered into the programme, beneficiaries will continue to receive support indefinitely, leaving limited or no space for potential new eligible beneficiaries to receive support or for graduation from the programme,” the WB said.

In addition, it was also pointed out that the real value of the benefit amounts has been progressively eroded by inflation, making the already low benefit amounts even more inadequate relative to the needs 
of the beneficiaries. 

The proposed programme aims to address these shortcoming with an plan to establish a more  sustainable social protection system, which is made up of three components. 

The component one is expected to finance targeted cash transfers to poor and vulnerable groups, using the newly established social registry while the second component will complement cash transfers provided under the first component and finance a small-scale economic inclusion programme for a selected number of poor and vulnerable people in selected geographic areas and sectors.

Lastly, the third component will finance activities to improve the management capacity of the project implementing agencies and accountability mechanisms for effectively delivering cash transfers and productive inclusion activities to the most in need. 

“It will also support the strengthening of the main building blocks of a social protection system, with specific focus on digital payments, financial inclusion, integrated information systems, and the adaptive social protection agenda. Finally, it will finance continued investments to inform broader SP reform, such as social protection policy, strategy and analysis to inform the vision for a more sustainable social protection system,” the WB noted.

Over 3.7 million families have registered for cash transfer benefits with the Welfare Benefits Board (WBB), who are now being surveyed by local officials at their homes to determine their eligibility. 

The direct cash transfers to the newly targeted families are expected to commence from next month, with payments to be made electronically to beneficiaries’ bank accounts.