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Sri Lanka's latest household income and expenditure
18 Jul, 2013 07:51:55
By Rohan Samarajiva
July 18, 2013 (LBO) - The Household Income and Expenditure Survey (HIES) is my favorite among all the surveys done by the government.
Where else do you get information as granular as how much Kelawalla fish people buy? Given the ICT Agency’s stated commitment to open data, I was expecting data in Excel at least, sadly, not so. And the first results are partial. No Kelawalla prices. Just whatever they thought would be of interest.

Before I got my teeth into it, I got a call asking for my views. Could not fully answer right then. But here goes.

It is wrong to claim, as journalists have, that mean household expenditure is now higher than mean household income. That can only happen if all households are run like the government.

Income and expenditure

It is true that household expenditures appear to have increased more rapidly than household incomes. But, even here, I advise caution. Income is notoriously difficult to ascertain. First, people with irregular income (most of us) have trouble giving an accurate number. Second, people have reasons to over-/under-state income.

Third, errors are introduced in moving from individual income to household income. Last time I wrote about the HIES data, I had not even mentioned income data.

Anyway, according to the Department of Census and Statistics (DCS) the mean household income was LKR 46,207 in 2012, showing an increase of 26.8 per cent over 2.5 years. When adjusted for inflation, the increase is said to be 5.5 per cent over 2.5 years.

Expenditure data are less problematic. DCS states that mean household expenditure was LKR 40,887 in 2012, an increase of 30.5 per cent over the LKR 31,331 reported 2.5 years ago. Real (adjusted for inflation) household expenditure grew 8.5 per cent over 2.5 years.

So what has happened, if you take both sets of numbers to be equally credible, is that household expenditure increased at a slightly faster pace than household income. That suggests that Sri Lanka’s already low saving rate has declined even further, but not much else. I happen to believe that expenditure numbers are a lot more credible than income numbers, so I do not place much weight on a few percentage points here or there.

Food ratio

In my analysis of the 2009/10 HIES, I found the food ratio for 2009/10 peculiar and said:

After declining from a high of 64.6 percent in 1990-91 to 37.6 in 2006-07, the proportion spent on food increased in the three years prior to the latest household survey by a significant 4.7 percent. Not only that, but a similar 4.6 percent increase has occurred in expenditure on rice as a percent of total food expenditures. Not only are we going counter to Engel’s Law, but we are also going against its corollary which says there should be a shift from carbohydrates to protein within the food budget. Taken alone, these numbers could be interpreted as a rise in poverty.

I cannot replicate that analysis at this time because DCS does not report protein expenditures in its teaser report (only Dhal is reported.Some kind of vegetarian bias?). It does present some food consumption data, but per-capita and not at household level (I guess someone forgot that the survey is a Household Survey).

But anyway, there is a problem even with the available data. As a country becomes wealthier, the food ratio must go down (Engel's Law). In 2009/10 it went up to 42.3 per cent. In 2012 it has gone back exactly to where it was in 2006/07, 37.6 per cent. So, at best, we have madeno progress, as measured by the food ratio, since 2006/07. At worst, we are left with questions about the universality of Engel's Law and/or the credibility of the HIES data for 2009/10 and/or 2012.

Eating less rice and sugar?

I’d rather work with household numbers consistently, but what to do?

 Sri Lanka household income preliminary data 2012

Decreases in consumption have occurred in Kakulu rice (429 grams), wheat flour (128 grams), bread (327 grams) and sugar (108 grams). Consumption of Samba rice has increased by 144 grams and dhal by 71 grams. Even though the sample is large (25,000 households across the country), there still is a margin of error so I disregard small changes.

Let’s start with sugar. A nine per cent decrease in sugar consumption. Is this something to worry about? Or is this just better nutrition by an aging population? I think the latter but am open to discussion.

A 10 percent decrease in Kakulu consumption, with Nadu remaining constant and Samba increasing by 9 per cent. Overall, people are eating less rice. Is this a bad thing, for a population increasingly suffering from lifestyle diseases caused, among other things, by over-consumption of rice?

There is a move to the more expensive and high-status Samba that does not quite fit the health narrative. The move away from bread and wheat flour should make the government happy, though I would like to see the district-wise distribution given wheat preference is strongest amongst the plantation workers.

Preliminary conclusions

The preliminary results do not allow strong conclusions to be drawn. No evidence of a population rapidly moving to middle-income prosperity. No evidence either of immiseration. Have to wait for the protein data. And maybe the data on household assets, which I used last time Poverty: Where should Sri Lanka focus resources.

There seems to be something fishy about the food ratio, but that is a problem that started in 2009/10. I keep hoping someone will start digging into that.

If there is nothing wrong with the food data, it appears that people are spending more on non-food items like personal care and health and saving less. More on that when more data is available.

Rohan Samarajiva heads LirneAsia, a regional think tank. He was also a former telecoms regulator in Sri Lanka. To read previous columns go to LBOs main navigation panel and click on the 'Choices' category.

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7. Rohan Samarajiva Aug 07
Some of these ideas were expanded on in a discussion with the economist Dr Harsha de Silva, M.P. on a TV program last week: (segment 1)
6. Rohan Samarajiva Jul 22
Mr Waduthanthri is throwing out the baby with the bathwater. Everyone who collects or analyzes social science data knows that each method has its own biases and inaccuracies. Nothing is perfect, except perhaps the collection of data from the transaction itself, a subset of big data.

My understanding is that DCS spends a lot of effort on the HIES, spreading out the interviews so seasonal variations will be balanced out and so on. I hope we will be able to get a formal response from DCS. Perhaps LBO can ask for one.

5. Mitrapala Waduthanthri Jul 19
Its a waste of time to discuss the results of HIES. Because the design and methodology of this survey is faulty. No sane respondent can survive whole 9 yards of the questionnaire without going bonkers. The responses on most of consumption and expenditure memory dependent. One cannot expect how much of keallawalla and hallmassas and eggs were consumed. Also the survey totally disregards seasonality in income and expenditure.

As Prof Samarajiva has pointed out, estimating income of those who have irregular income is difficult. Given that we have a large informal economy and in rural areas the income is in the form of agriculture produce, estimating income makes even more difficult.

Harsha's assumption that "error factor" across different surveys is constant may not be valid. This is claim most of the survey research people make; who take "snap shots" at regular intervals. For error factor to be fairly stable all the other factors need to be constant. But between the current study and the previous studies there is a huge difference in the universe. In the previous studies N&E were not adequately represented.

There are some useful data, but I think I&E is totally useless.

4. Rohan Samarajiva Jul 18
For those who care about income: the 5.5 percent real growth in household income is over a 3.5 year period, so the annual real growth in household income is even smaller. But I find the expenditure data more useful.
3. kawdaboy Jul 18
How can consumption come down when prices have also come down? Looks like the household cookbook numbers are cooked to say the least.
2. Harsha de Silva Jul 18
Rohan your concern about the accuracy of income data is well known and has been an issue for a long time. However, there is no reason to believe that the accuracy levels changed significantly from the previous measurement to this one. So the increase in both nominal and real are comparable, as the error would pretty much be constant.

Now, what is being said is that that the real household income increased by only 5.5 percent in the 3 year post-war period. This must be viewed in the background of real GDP growth always spoken very highly of by the Government as a great development achievement; 8 percent, 8.3 percent and 6.4 percent respectively.

It is unfortunate that the Department does not provide the analyses (I looked at the previous final report and couldn’t find either) for Q.5.5.2 “Loans taken from banks/money lenders etc.” and for Q.4.2.15 “Other savings (Including seettu)” which would be very useful to see the saving-dissaving habits of the households to arrive at a more informed understanding and a discussion on the increasing deficit between real income and expenditure.

1. fb Jul 18
Eating less sugar etc may be good if the people were earlier getting the basic calories. It could be that some people are getting obese, but what about the other side of the spectrum?

What happened to the estate sector where poverty is highest and they used to eat wheat flour, which is now taxed. Wheat flour is cheaper than rice globally. In Sri Lanka potatoes are also taxed.

It will be interesting to know what happened to proteins and the impact on the poorest.Tinned fish is taxed and so is maize. Milk is taxed. If income rose sufficiently then it is ok. But even then people would eat less than they would if trade freedoms were available.

The problem is these nationalist policies hit the poorest most.

Even with current data there seems to be problem as per the Engels Law as pointed out in this column.

There are enough studies about the impact of autarky especially straight from the horses mouth where it all originated. In Nazi Germany self-sufficiency caused children to become stunted. Worse problems were seen in Franco's Spain with outright famine. It is said that the 1940s price of wheat in Spain was not seen again until the mid 1975 great inflation period.

These are dangerous policies for the poor and even the less poor who are not landowners.

Wherever the nationalist policies advocated by Adolf Wagner coupled with Gustav von Schmoller were followed misery had been the result.

World over it is odd that interventionists who speak of price support and protectionism for farmers can in the same breath talk of poverty and world hunger.