Financial Times

Sri Lanka must counter old age impacts on labour force, says ILO economist

By Dilshani Samaraweera

The International Labour Organisation (ILO) says Sri Lanka needs to plan for impacts of an aging population on the labour force. The ILO says that demographics indicate old age is catching up with the country. This means in 10 – 12 years time Sri Lanka’s labour force growth will be much slower, if nothing is done to change the trend.

“Demographics indicate that Sri Lanka’s labour force growth is already starting to slow, because of an aging population. If this is the case, then Sri Lanka must address this trend, because it will have direct economic impacts,” an economist from the Economic and Labour Market Analysis Department of the ILO, Steven Kapsos, told the Sunday Times FT in an interview.

The ILO analysis shows that from 1990 to 2008, Sri Lanka’s labour force increased at the rate of 1% per year. But from 2008 to 2020 the labour force growth rate is projected to drop to 0.3% per year. This, says the ILO, can reduce the rate of Sri Lanka’s economic growth.

“From 2000 to 2008, Sri Lanka has an annual average growth of about 5.1%. Of that, about 1.5% is from an increase in employment and the balance 3.6% is from increases in labour productivity. So if the labour force growth rate were to slow to 0.3% from 2009 to 2020, the GDP growth rate will reduce from 5.1% to about 3.7%. This would be a 1.4% drop. This is a substantial reduction in growth given the end of the conflict and potential for growth,” explained Mr Kapsos.

Reversing the trend
The ILO says the way out, is to increase the number of working people or to increase productivity.
“The way to increase economic growth is to increase the number of workers or increase the output per worker. Sri Lanka needs to look at both options,” said Mr Kapsos.

Increasing productivity in the agriculture sector, the income generator for a majority of Sri Lanka’s rural populations, is one option. The ILO says labour productivity increases in the agriculture sector would increase outputs and would also free-up more people to work in higher value manufacturing and services sectors.

The other option of increasing the number of workers is not about increasing the rate of population growth. The ILO says the number of workers in Sri Lanka can be increased, despite an aging population. This is because Sri Lanka already has high unemployment rates among young people and women. Tapping into youth and female populations will swell the labour force.

“The labour force participation rate in 2008 for instance was 74.1% for men and 42.3% for women. So there is a gap of about 30%. Youth unemployment in Sri Lanka was 18.3% compared to the South Asian average of about 10.1%. So there is room for more women and young people to enter the labour force,” said Mr Kapsos.

The ILO says Sri Lanka needs to start identifying and removing factors that prevent young people and women from working, to fuel economic growth. National economic policies must also look at increasing national productivity.

“You need to ask which industries have the greatest potential for driving both employment growth and value-addition in the years ahead,” said Mr Kapsos. The ILO says industrial and agricultural productivity is below potential right now. Increasing services productivity, says the ILO, would have a large impact.

Including informal sector
Sri Lanka’s social protection coverage for working people is also seen as inadequate, because although the formal sector provides some social protection for working people, the informal sector gives nothing. However, a majority of Sri Lanka’s working people are in the informal sector. In the current global downturn, the ILO says, the informal sector is growing in Sri Lanka.

“An estimated 62% of Sri Lanka’s workers are in the informal sector. This is more than 10 times the number of unemployed and there is evidence that informal agricultural employment is rising during crisis, while formal employment in the industrial sector is declining,” said Mr Kapsos.

The ILO says the government needs to start looking at ways and means of extending some system of social protection to informal sector workers, particularly given the aging population trend in the country.

ILO study shows global crisis transmitted to Sri Lanka through export sector

The latest study by the International Labour Organisation (ILO) office in Sri Lanka shows that the global recession is being transmitted to Sri Lanka mainly through the export sector.

An independent consultant, Dr Ramani Gunatilaka, who conducted the study, said that both services and goods exports have been hit by the drop in export demand. The impact is being transmitted to the local financial sector by reducing liquidity in the banking sector. The banking liquidity shortage meanwhile, is having a rippled effect on all local businesses, particularly small and medium enterprises, by making credit more difficult to access.

“Though not directly affected, the global economic slowdown has squeezed liquidity in the banking sector which has, in turn, had a domino effect on businesses. Small and medium enterprises are particularly affected,” said Ms Gunatilaka.

In services exports, inward remittances are Sri Lanka’s biggest foreign exchange earner. However, within the first four months of 2009, compared to 2008, a sharp drop is seen in the numbers going abroad to work. People leaving for foreign jobs reduced by 11%, from 82, 282 in 2008 to 73,264 in 2009. First quarter remittances however, declined only marginally by 1.7%.

Shipping and port activities reflect the drop in the international goods trade. The number of ships coming to the Port of Colombo in January, reduced by 5.4%, year-on-year. Container throughput fell by 10.5%, total cargo discharged reduced by 16 % and total cargo loaded reduced by 18%.
The total tonnage handled, also fell by 17.2 %.

The apparel industry, being the largest industrial exporting sector in Sri Lanka, is the most visibly hit by the drop in export demand. However, other smaller export sectors like tea, horticulture, tableware and porcelain, gems and jewellery, automobile parts and rubber products are also reporting damages.
In addition, said Ms Gunatilaka, many foreign investors have been forced to quit their investments in Sri Lanka. This is having a major knock-on effect on property developers and construction companies.
The number of non-performing loans in commercial and development banks has jumped as exporters, importers and the construction sector are not able to meet their financial obligations.

he financial problems of downstream enterprises have a domino effect on their upstream suppliers, throwing them also into crisis because of non-payment of bills for inputs. The credit crunch has forced banks to reschedule loan repayments and in many cases, foreclose defaulting businesses. The credit squeeze on working capital has particularly affected small and medium firms.

Overall, ordinary working people in Sri Lanka are feeling the global downturn because of large numbers of job losses and increased employment uncertainty.

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