Poverty measurement in Sri Lanka: towards a

solution?

Ambar Narayan (World Bank)

Nobuo Yoshida (World Bank)Workshop on Methodology of Poverty Analysis In Sri Lanka

March 1st, 2004

Criteria for poverty line

Intuitive

Transparent

Contextual

Objective

Issues

Calorie requirement for poverty line

CBN vs. FEI

Equivalent Adult Scale vs. Per Capita

Household Survey Based Price Index vs. Price Survey Based Price Index

Updating Poverty Lines

Base Year

Calorie Requirement for Poverty Linea. Existing work in Sri Lanka

• Nanayakkara (1994)• 2500 – 2520 kcal per equivalent adult per day • 2000 – 2050 kcal per capita per day (Nanyakkara, 1994)

• DCS, Gunewardena (2000) and Vidyaratne and Tilakaratne (2003) adapt very similar figures to the above

b. International experience: 1978 kcal – 2300 kcal per capita per day

c. Consistent with recommended nutrient allowances given by Medical Research Institute of Sri Lanka

CBN vs. FEIa. Both approaches estimate total household expenditure which

can sustain the minimum calorie requirement (in per capita/per adult equivalent terms)

b. Compared with CBN, FEI involves fewer steps in estimation, but unreliable if urban and rural consumption patterns are very different

c. (FEI) India, Pakistan; (CBN) Nepal, Indonesia, Bangladeshd. For Sri Lanka, both VT (2003) and Gunewardena (2000) use

CBNe. Given the advantage of CBN and its acceptance in SL, CBN

is a reasonable choice - with careful treatments on choice of food basket, prices, and estimation on non-food exp

Equivalent Adult Scale vs. Per Capita

Adjustment for equivalence scale can be done inPoverty line estimation (actual calorie intake)

Consumption aggregate

Equivalent Adult Scale Per Capita pros Adjustment to age/gender specific

calorie requirement

Clear, transparent

cons Not valid in adjusting for non-food consumption

Lack of consensus on figures Risk of unlimited complication –

calorie requirements should vary according to age/sex as well as workload, pregnancy, and others

The poverty rate of large families can be overestimated

International experience

Pakistan India, Bangladesh, Nepal, Indonesia

Equivalent Adult Scale vs. Per Capita, cont.

Two options:1. Use per capita for both poverty line estimation and

consumption aggregates2. Use equivalent adult scale for poverty line

estimation but use per capita for consumption aggregateNo matter which option is chosen, check sensitivity of poverty profiles and trends to

Equivalent adult scale vs. per capita Economies of scale in consumption

Updating poverty lines

Updating poverty line with inflation ratesPoverty line is explicitly fixed to a specific welfare level so that poverty indices can be easily comparable over timeDue to changes in life style and taste, poverty lines updated with inflation rates might not be able to achieve calorie requirement

Estimating poverty line for every surveyPoverty line in real terms might change – makes a comparison over time difficultThe new poverty line is supposed to achieve the calorie requirement

RecommendationAt intervals of 10 or more years, re-estimate the poverty line to adjust to changes in lifestyle and tasteIn the meantime, update the poverty line with inflation rates to make poverty indices comparable over time

Spatial and Over time Price Adjustments

Price indices (spatial/inflation)

Household survey price index

SLCPI CCPI

Features 1. Weights same as HIES 2. Prices from unit values of

HIES 3. Any price index can be

computed 4. Includes all areas covered

by HIES (20 districts) 5. Large sample size:

representative at district level for all districts

6. Many items: Around 300 7. Must exclude many non-

food items due to lack of quantity info in HIES

8. Cannot be used to adjust poverty line for inflation during non-HIES years

1. Weights same as HIES

2. Prices from independent price survey conducted based on HIES

3. Laspayeres (Tornqvist, Fisher possible)

4. Includes all areas covered by HIES (20 districts)

5. Large sample size: representative at district level for all districts

6. Many items: Around 300 7. Non-food items can be

included in price index

8. Can be used to update poverty lines for inflation for all years, provided price survey is done every year

1. Weights from Colombo Family Budget Survey (49/50)

2. Prices from price survey

3. Laspayeres

4. City of Colombo only

5. Small sample size: Weights come from 455 hhlds

6. Fewer items: 187 7. Non-food items can be included

in price index

8. Can be used to update poverty lines for inflation for all years

Base year Any survey year is possible 95-96 (Any survey year is possible) 1952 Official price index

No No Yes

Recommended options

1. Use SLCPI or unit values from HIES for both spatial and over time price adjustments

2. Use SLCPI or unit values for spatial price adjustment, and CCPI for inflationIf price indices from SLCPI are used, these should be validated using unit values from HIES

Using CCPI for inflation adjustment is likely to be more acceptable; it is still important to crosscheck using HIES unit values

Choice of base year for poverty line estimation

Pragmatic option for Sri Lanka appears to be 1995-96Adjust that poverty line for 1990-91 and 2001-02 (and 2005?) using inflation rate (CCPI?)

Note: all comparisons over time hinge critically on the comparability of consumption aggregate

Comparison among the existing methodologies in Sri Lanka

DCS Vidyaratne and Tilakaratne (2003)

Gunewardena (2000)

Calorie Requirement

2475-2750 kcal per equivalent adult per day

2030 kcal per person per day 2500-2550 kcal in per male adult (age 20-39) equivalent.

CBN vs. FEI Food poverty line with food share

CBN CBN

Poverty line 1995-96: Total food exp of Rs. 732.75 per adult equivalent per month (with food ratio>50%)

1995-96: Rs. 953 per capita per month

1995-96: Total consumption exp of Rs. 792 per capita per month

Equivalence scale Uses age and sex-specific equivalence weights

Per capita Per capita

Spatial price index None SLCPI based price index Unit values from HIES Updating Poverty line

Estimating poverty line every survey

Not Available Inflation rate using unit values from HIES

Summary of poverty estimatesDCS VT G

95-96 HC (% of population poor)

28% 39% 39%

Trend (90-91 to 95-96)

4 % fall - 5% increase

G nos. are based on CBN lower bound + 20% as poverty line (Rs. 968)

DCS trend is based on % of households who are poor

Puzzle……!!

Discrepancy in poverty rates for 1995-96DCS is at odds with G/VT

Conjecture: DCS doesn’t adjust for spatial price differences – likely to understate poverty in expensive areas (urban?)

Opposing trends: DCS and G differ

Conjecture: DCS re-estimates poverty line every year – thus real value of poverty line not held constant