Sri Lanka: Strengthening Social Protection Key Messages Milan Vodopivec Senior Social Protection Economist The World Bank September 2006

Road map 1.The role of social protection 2.Key issues 3.Policy directions

1. The role of social protection Social protection refers to 3 areas: 1.Labor market policies - enhance employment opportunities 2.Social insurance/security: help manage various risks (old age, health, unemployment) 3.Safety nets - help the poor to cope with poverty

Key challenge for Sri Lanka In the past, growth was associated with increases in inequality The challenge for social protection policies is to reduce poverty and enhance equity, and, simultaneously, promote growth -- making it more inclusive

2. Key issues - labor market Rigid employment protection, e.g. TEWA: –limits job creation and access to “good” jobs, and hurts productivity, –vulnerable groups, including youth, are worse off Inadequate employment promotion – active labor market programs

International comparison of job flows

Key issues – social security The coverage of formal old age income support schemes is low The schemes offer inadequate benefits (except for civil servants) Questionable financial sustainability

Actual coverage rate of formal old age schemes, 2002 (%)

Key issues – safety nets There is a variety of social safety net programs, but they leave notable gaps for the conflict-affected and disabled The Samurdhi program is mistargeted, has minimal impact, and imposes high administrative costs Insufficient human capital investments of the poor – malnutrition, dropping from school early

Social safety nets expenditures, 2004

3. Policy directions: labor market Consider cost effective active labor programs, e.g. job counseling and information, and demand driven training programs Create a more equitable and efficient employment protection program by reducing rigid job protection and by strengthening income protection of workers

Policy directions: social insurance (social security)  Improve the adequacy and sustainability of formal schemes for old age income support  Explore possibilities to expand the coverage of formal schemes  Improve coverage of disability and death risk  Pave the way to more flexible labor market by introducing unemployment insurance adjusted to Sri Lanka’s circumstances.

Policy directions: safety nets Improve targeting, the level of Samurdhi benefits, and incentives to leave the program Help the poor escape poverty by strengthening human capital investment (reduction of school non-attendance and child malnutrition) Promote access of the poor to jobs through skill development and access to micro-finance Address disability by strengthening delivery of the social welfare and care services through public private partnerships Provide more effective relief, rehabilitation, and reconstruction services to conflict affected population