Problems, confusion and a difficult year ahead

As the year 2021 draws to a close, problems faced by Lankans are getting worse by the day. During this year wages have either remained static or have, in many instances been lowered. Costs of essential items on the other hand, have either risen steeply or are in extreme short supply.

Unsurprisingly, workers are taking to Trade Union (TU) action. Today Railway Station Masters are not working quite to rule. They are not issuing tickets to commuters. Talks between management and TUs have broken down and Station Masters have said they will no longer transport fuel, wheat flour and cement in their trains. The Engine Drivers’ Unions have extended their support to the striking Station Masters’ unions.  

Despite government’s assurances that LP gas an essential item, in urban households it is not freely available. It has become a common sight to witness desperate people carrying empty gas cylinders going from one gas outlet to another in search of this precious commodity. In the absence of a regular supply of this LP gas, many households are attempting to switch to kerosene cookers as an alternative. Unfortunately, the price of a kerosene cooker which had been sold at Rs. 2,500/- has suddenly jumped to Rs. 8,000/- as reported recently in media outlets.

To make matters worse a well-intentioned attempt by government to help provide the country’s people with poison-free meals via encouraging ecological farminh, backfired with the sudden ban on importing petroleum-based fertiliser, weedicides and herbicides due to an absence of an alternative products.

We have no doubts that the agri-business companies may have had a hand in bringing the farmers onto the streets, but the poor farmer has to bear the loss of a sudden government decision to ban the use of chemical based fertilizer.

In these times of scarcity who can blame the farmers?
On the one hand, the government’s hasty decision led to farmers leaving their fields and taking to the streets to air their grievences, while on the other, it meant fields were uncultivated and/or under-cultivated during the major cultivation season this year. This has already led to skyrocketing prices of vegetables. Experts in the field are warning of a possiblity of food shortages next year as production levels have fallen.

As though the present contradictions in our economy were insufficient, there now appears to be infighting within the Cabinet of Ministers itself. 

Three Ministers have appealed to the Courts to halt a collective decision taken by the Cabinet regarding the ‘Yugadanavi power plant’. 

The President has suggested it would be better for the three Ministers to resign their portfolios, rather than challenge a collective decision in the courts. The Easter Sunday terrorist attacks, followed by Covid-19 pandemic effectively killed off the country’s main foreign exchange earner - the tourism industry - leading to a severe drop in the country’s exchange earnings. 

The Govenor of the Central Bank, quoted in a state media outlet said the country’s foreign reserves stand at $1.6 billion. He stressed one of the reasons for the shortfall in reserves was due to a drop in tourism earnings amounting to around $ 4.5 billion caused by the pandemic.  

According to ‘fitchratings.com’, the government faces foreign-currency debt service payments, including principal and interest of US$6.9 billion in 2022, equivalent to nearly 430% of official gross international reserves as of November 2021.  

This has put the country in a severe  dollar crisis. Now, to add to the misery, there is a possibility of airlines cutting the number of flights to the country, as airline offices have fallen back in remitting dues payable in dollars to principals abroad.  

It could, in coming months further endanger chances of a revival in the tourism industry. The Central Bank Governor has suggested currency swaps as a means of overcoming the exchange crisis.

Presently only the Chinese government has offerd a billion dollar swap. We cannot but recall, that China has been this country’s long-term friend going back to the era of the Rubber-Rice Pact in 1953. At a time when Lanka was facing a chronic food shortage and currency crisis, China agreed to barter 270,000 tons of rice in exchange for 50,000 tons of Lankan rubber - on terms that were very advantageous to our country.

Perhaps as the Central Bank Govenor has suggested, similar currency swaps may help us tide over the exchange crisis.