For the past few months Sri Lanka has been in an economic and political crisis. In March this year, our country defaulted on its international debts, brought on by the drying up of foreign currency earnings as the COVID-19 pandemic and a series of local administrative blunders saw foreign earnings drying up, local agricultural production dropping and an inability to meet foreign debt payment deadlines.
To put the crisis in perspective, the COVID-19 pandemic saw expatriate earnings -- the largest source of the country’s exchange earnings -- dry up as migrant workers were forced out of employment abroad.
Workers’ remittances have been a key pillar of our foreign currency earnings. Providing a substantial cushion against the widening trade deficit and thereby enhancing the external sector resilience of the country. Workers’ remittances have covered around 80% of the annual trade deficit, over the past two decades, according to the Central Bank.
Tourism industry, the next largest foreign exchange earner was also brought to a standstill as countries shut down, bringing to a halt overseas travel. In 2019, the tourism industry in the country was booming and brought in a revenue of approximately US$ 4.66 billion to the country. In the aftermath of the outbreak of pandemic in 2020, revenues generated by tourism industry plummeted to US$1.08 million.
A local administrative mess up, saw a blanket ban being imposed on the import of agro-chemicals which hit the tea, rubber and coconut industries (3rd largest foreign exchange earners, adversely. The bungled ban on fertilizer imports in 2021, hit tea growers hard, with production falling 18% a year for the period from November 2021 to February 2022.
Customs data showed that first-quarter exports in 2022 plunged to 63.7 million kg (140 million pounds), down from 69.8 million kg in the January-March period last year. Export earnings for the first quarter also declined, to US$287 million from US$338 million.
The fertilizer ban also hit local farming communities adversely. Speaking in parliament, Agriculture Minister Mahinda Amaraweera said in 2020/2021, the paddy harvest was 1,862,901 metric tonnes, down from 3,061,394 in 2020.
According to Trading Economics, annual inflation accelerated to reach a record high of 64.3% in August of 2022. Food inflation rose to 93.7%. Prices of non-food items increased by 50.2%.
It was in these circumstances the country sought an IMF facility to restructure its foreign debt. The International Monetary Fund has preliminarily agreed to extend a 48-month US$2.9 billion loan to us to help restore economic stability.
Having won a temporary respite, via the IMF bailout, we cannot, by any means, sit back in complacency. Now is really a time for renewal. It’s time for our political leaders to stop playing the blame game and pointing fingers at each other. ‘The people are fully aware that how all political parties, have jointly brought this country to its present pathetic predicament.
It’s time to explore new ways and means to get out of the crisis using newer options that are opening up in the wake of changing realities in the world today.
China and Russia have reached agreement for accepting payment for goods and services in Chinese Yuan and Russian Ruble.
India, our giant neighbour, has opened up new possibilities. It has negotiated trade agreements with Russia by way of payments using the India Rupee for purchase of goods from Russia (including fuel) while accepting payment of the Russian Ruble for exports to that country.
India, Russia and China were among the top tourist generating countries to Lanka in the period from January to September 2020. India was the largest source of tourist traffic to Sri Lanka, accounting for 17.6 % of the total traffic received. While the Russian Federation accounted for 9.7 % and China 5.2 % respectively, according to Sri Lanka Tourist Development Authority.
Can we not explore the possibility of accepting Russian Rubles, Chinese Yuan and the Indian Rupee, as a means of payment from incoming tourists from these countries? Could we not then use these currencies to import goods from the countries concerned? With Europe now banning Russian tourists, could we not use this to our advantage by accepting payment in Rubles, from incoming Russian tourists? Similarly can we not accept payment in Yuan from Chinese tourists and the Indian Rupee from Indian tourists?
We need to think ‘out of the box’ for diverse ways and means to extricate ourselves from our present position. While accepting the advice of the IMF and other donors, we need to also plan on our own without depending on others to get us out of this mess of our own making.
