• Opposition slams Basil for avoiding Parliament and enumerating the financial situation in detail
• Cabraal deeply perturbed over Basil’s mission to the IMF, tweets it has nothing to do with restructuring
Sri Lankans are reeling after being hit by multiple price increases in food, fuel and cooking gas. It comes on the heels of the government relenting to months of pressure to devalue the rupee. The series of announcements about the price hikes came rapidly after the Lanka India Oil Company announced its second price revision in one month as a result of which all types of petrol and diesel increased in price. A litre of petrol increased by 50 rupees and a litre of diesel by 75 rupees. State run CEYPETCO also raised the price of petrol and diesel by 55 and 77 rupees for a litre.
Among the price increases in essential items were those of a loaf of bread which increased by 30 rupees to 110 rupees and a sharp jump in the price of milk powder. The price of one kilogram of milk powder went up by 300 rupees and a 400g pack saw a rise of 120 rupees. Others such as the prices of airline tickets were rose as much as 27 percent and the pharmaceuticals industry was preparing for a price hike in medicines.
Meanwhile the official exchange rate for therupee, which had had a tenuous peg to the US dollar at around 203 rupees for a long time, was fixed at 230 rupees but ended up hitting 250 rupees. It was said to be the first time that the rupee’s official dollar rate had hit 250 rupees. Some commercial banks were reportedly selling dollars for more than 265 rupees.
Needless to say, the government’s popularity is at rock bottom. The results of a gallup style poll by Verite Research which were published earlier in March put the approval rating for the government at 10 percent. Only six percent said they were satisfied with the way things are going in Sri Lanka while the confidence in the negative got a negative score of – 82. 96.
The expected fallout from a rupee float and the ensuing unpopularity which will cost the government the next election could have been one reason for it to defer devaluing the rupee.
Nevertheless, the government’s decision to do so has been welcomed by industry experts. In a statement soon after the exchange rate relaxation the Ceylon Chamber of Commerce (CCC) welcomed the greater flexibility in the exchange rate and urged the government to consider its other recommendations such as introducing market driven pricing for fuel, gas and electricity and commencing a preemptive debt restructuring process and engagement with the International Monetary Fund.
The flexibility with the exchange rate and the incentive of an extra 38 rupees for every dollar which is remitted by migrant workers is expected to attract more remittances from them and ease the shortage of dollars.
According to the CCC a more market-orientedexchange rate will also enable both export and tourism sectors to become more competitive while protecting their margins against escalating costs while discouraging unnecessary exports will ease the pressure on on foreign currency reserves.
That said the government continues to traverse the path of uncertainty while its roadmap for the country’s short-, medium- and long-termeconomic salvation remains shrouded in fog.
The appointment of an economic council by President Gotabaya Rajapakse hardly did anything to restore confidence in the government’s ability to manage the economy. The ten member council comprises the President and his two brothers Mahinda and Basil Rajapakse who are the Prime Minister and Finance Minister, Johnston Fernando who is the Minister of Highways, Trade Minister Bandula Gunewardene, Agriculture Minister Mahindananda Aluthgamage, Plantations Minister Ramesh Pathirana, President’s Secretary Gamini Senarath, Secretary to the Treasury SR Atygalle, Deputy Governor of the Central Bank of Sri Lanka DhammikaNanayakkara and Governor Central Bank Ajith Nivaard Cabraal. Not only did the composition of the Council which has only one economistdraw ire but also laughter at the recycling of the government’s frontline MPs and officials.
In the Indian state of Tamil Nadu, a hand- picked five member Economic Advisory Council to the Chief Minister comprises Esther Duflo, a joint winner of the 2019 Nobel Prize in Economics and a Professor of Poverty Alleviation and Development Economics at the Manchester Institute of Technology in the US, Raghuram Rajan who is a Katherine DusakMiller distinguished service Professor of Finance at the University of Chicago’s Booth School, Arvind Subramaniam a senior fellow at Brown University’s Watson Institute for International and Public Affairs and a distinguished senior fellow and professor at the Centre for Global Development in the Ashoka University, Jean Dreze who is a development economist and S. Narayan an Indian Administrative Service cadre officer.
Even as news broke that finance minister BasilRajapakse, who is being flayed by the opposition for not addressing parliament in three months even to make a statement on the economic crisis, will be going to Washington for talks on debt restructuring and managing the country’s foreign exchange shortage with the IMF and World Bank, Central Bank governor Ajith Nivard Cabraal did not waste time denying it. According to Cabraal, Rajapakse’s visit to the IMF will not be for talks on debt restructuring.
While the state of the economy will continue to be a worry primarily because the government has proven that it does not have the capacity to manage it, another national crisis looming large on the horizon is the country’s food security in the months to come.
With the start of the yala season round the corner, agriculture experts are warning of a drop in the harvest without the required quantities of fertiliser being available when cultivation starts which is usually from March to May.
In addition to not having US dollars to buy synthetic fertiliser, the other issue is the availability of fertiliser because of the Russian and Ukrainian war, and which will affect paddy production. Russia contributes more than 25 percent to the world’s urea production along with China and India. Belarus, which is in the neighbourhood, is an almost exclusive producer of Muriate of Potash (MOP).
Another challenge will be the availability of water which is needed for paddy cultivation,because of its overuse to generate hydropower to overcome the fuel shortage.
The water in the country’s key reservoirs aretraditionally released for agriculture and hydropower but because of the diesel issue and the use of water which was reserved for agriculture to generate hydropower, the water reserves for agriculture are likely to be low.
It is a deep problem which will affect paddy production in the entire dry zone including the Mahaweli areas and much will now depend on the rainfall. The major contributors in terms of paddy production in the yala season are areassuch as Trincomalee, Ampara and Batticaloa in the north-central, northern and eastern areas to which the rain starts early.
A failed yala season will not only compound the issue of food security but would also mean the failure of consecutive maha and yala seasons, which has not happened before. The estimated loss of production from the last maha season has been about 30 percent.
Failed seasons will also have an impact on seedpaddy which has to be produced continuously because it cannot be stored for a long time. The failure of both seasons could potentially raise difficulties with the quantities of seed paddy in the country, necessitating imports which will have its own implications.
