Economy in the Doldrums

By Ruwan R. Rathnayaka

It appears that the coming weeks and months probably the years too are going to be remarkably critical for Sri Lanka. The gross official reserves seem to have fallen to dramatic levels during the last weeks and seemingly not many are in the know the seriousness of the status of Sri Lanka’s foreign exchange reserves. Also it is interesting to note that the situation is similar (or worse) to the one that prevailed during Sirima Bandaranaike’s regime. Of course at that time imports were few and far between and hence it’s not even meaningful compared to today’s import-dependent economy with the one that prevailed at that time.

President Mahinda Rajapakse chairing a meeting of economists. File photo.

The recent approach of the government to the International Monetary Fund (IMF), for a rescue package of US$ 1.9 billion is a clear indication of scraping the bottom. Interestingly at the time dupes at high positions in the government who chased IMF out of Sri Lanka only a couple of years ago, never ever envisaged that they will ever be going on bended knees knocking on the doors of IMF so soon. Now that Sri Lanka’s creditworthiness is downgraded from bad to worse, obtaining a reasonable loan from any international giver would be something beyond thoughts.
Conceivably it’s not pertinent to blame the Central Bank solitarily. Though it is supposed to give independent opinion/ advice on the economic situation, unfortunately it’s headed by a political appointee whose only task seems to be justifying every stupid act of the swindlers at the helm of the government. His knowledge of economics or rather lack of it was clearly demonstrated many a time in the recent past. In the latest talks the central bank governor has had with the media it was very evident that he doesn’t know whether he was coming or going. People who can make money out of shady pyramid scams are not the best to run a country’s epicentre of economy. Since its inception the central bank of Sri Lanka has been kept under the direction and guidance of capable, qualified, eminent, renowned and reputed economists· of the country to provide economic advice to the government.
Moreover, Sri Lanka has supposedly recorded the highest inflation rate in the south Asian region in 2008 and is not far from the top in the whole world. Prices of goods and services including essential supplies have risen dramatically exemplifying that the central bank has lost its control completely. In order to diverge the blame they went to the extent of changing the Colombo Consumer Price Index (CCPI); a good lure for the ordinary masses to toss down for some more months thus evading the responsibility.
Furthermore, from the betel seller down the street to the top blue-chip business everything has plunged dramatically. Production plants are being shut down line by line. Employees are being retrenched by the hundreds and thousands. Local and foreign business firms doing contracts with the government bodies such as the Road Development Authority don’t get paid regularly and also the story is similar with the local bodies such as councils, Pradeshiya Sabhas and so on. Some local bodies too are considering trimming their work force as a first step. Motor parts businesses in Panchikawatte and elsewhere in the island are shuddering. Even the wayside boutique owners are grumbling. Almost all big and small businesses are sailing through the toughest tides they have ever perceived.
This phenomenon is rapidly engulfing the country both urban and rural areas pretty fast. There is an appalling deficiency of liquid cash in the market which has created utter pandemonium in the system. The whole country is fast guzzling into a totally insentient state of affairs. Of course it’s not clear as to why the Central Bank Chief or any other authority doesn’t talk on the realities on the ground situation. All these things lead to believe that the treasury has no funds to cater to budgeted projects and that has caused grave starvation of the business sector; the main cause being the horrific monetary management style of the government. Of course with the added effect of the world economic crunch the situation has worsened but the grave trade and industry catastrophe Sri Lanka is heading towards is undoubtedly one of its own creations.
Though the central bank governor and the government are riding on excuses such as the war and the world economic crisis the effect of them is a fraction of the moneys they exhausted in the last couple of years on futile ventures such as Mihin Air, Oil Hedging deal, purchase of fighter jets at exorbitant prices etc. For instance, if Mihin Air did not come into being the country would have had in its reserves over five times what they are now begging from the IMF. Amidst all these grave tribulations one minister close to the president attempted to purchase a five star hotel in Colombo at a ridiculously high price to locate the head office for one of the government institutions under his purview. If not for the timely revelation of the media this deal would have got the unquestionable cabinet sanction. Of course the following week the man who exposed it in the media sacrificed his life to the government thugs.
Nevertheless, if and when the rescue package of US$ 1.9 billion from IMF is received, neither the government nor its supposed to be economic advisor the central bank could use it in the development process in order to reap some benefit. It’s very unlikely that it will so happen despite various claims of building reserves, but instead it will go into day to day consumption. This is no different to what happened, when the government received several other loan packages from various consortiums and local and international lending bodies in the last couple of years. In many instances loans were taken to repay installments of previous loans.
All these shortsighted deeds on the part of the government and its central bank only lead to believe that a hyperinflation situation is on the cards. It is time that all Sri Lankans should pray to alleviate the country from heading towards protests, remonstrations, violence, bloodshed and robberies like in other countries going through similar circumstances. Also it’s time that all citizens implore better brains to get involved in the process of governance.