Soaring cost of living and failed promises!

21 July 2021 01:17 am Views - 671

Vendors simply cannot employ extra staff due to rising costs and survival in their chosen businesses is no easy struggle either

 

• The public is greatly inconvenienced and complains of surviving in days to come
• When there are less imports the cost of materials within the country increases
• Farmers cannot harvest a crop due to the fertiliser issue

 

One of the most attractive promises of the incumbent Government was to reduce the high cost of living. But at present the rupee has depreciated and inflation has doubled; resulting in an exponential increase in prices of essential items. As such, the prices of items have been subject to an increase every other week and one of the reasons is the increase in prices of remaining stocks of raw materials required to manufacture items. The public is greatly inconvenienced and complains of surviving in days to come. Several protests have also been staged by opposition factions. Economic experts opine that right now the country should look at attracting capital inflows and investments if it is to recover from this aggravating crisis. 

Rupee depreciation and its impacts 

“The cost of manufacturing items would increase based on the cost of raw materials,” opined W. R Meewanage, Deputy Director – Pricing and Management at Consumer Affairs Authority. “This is mainly due to the depreciation of the rupee. For example for items such as soap, caustic soda is an imported raw material. However, since soap is now manufactured from remaining raw materials the cost would increase. We cannot take legal action because in that case there would be a shortage.” said Meewanage. 

The price ceilings of certain essential items are as follows : 

1 kg of full cream milk powder – Rs. 945
400g of full cream milk powder – Rs. 380 
1 kg of B onions (imported) – Rs. 150
Max. Retail price of 1 kg of Red – White Samba – Rs. 98
1 kg of Red – White Kekulu – Rs. 93 
1 kg of Red – White Nadu – Rs. 96 
He further said that there’s no price control on items such as sugar, biscuits, canned fish and dhal and that prices of vegetables and fruits depend on supply and demand. 

Failed strategies and ad hoc decision-making 

“The government has failed in its economic management strategies,” claimed People’s Liberation Front politburo member Wasantha Samarasinghe. “People are at the receiving end of ad hoc decision-making. This Government couldn’t even control the price of rice as promised. The cost of living has increased by 60-70%. We have a problem with regards to foreign reserves, depreciation of the rupee against the dollar, cutting down on imports etc. When there are less imports the cost of materials within the country increases. There’s no price control and no programme to bring down raw materials needed to manufacture items,” said Samarasinghe. 

He further said that a 12kg Litro has cylinder has been reduced to 9.5kg and the price is the same. “This Government is running on such fraudulent practices. During the Maha season the country gets 2/3rds of its rice production. But this time the Government is planning to import rice. Farmers cannot harvest a crop due to the fertiliser issue. So the Government is asking local farmers to feed on crops made from compost fertilisers while importing dhal from Australia, potatoes from another country etc. The prices of vegetables and fruits too will face a similar plight in the near future,” he added.

No shortcut to recovery 

“Sri Lanka is a small open economy and most of our daily activities depend on international trade from our energy demand to producing different types of goods and services to export,” opined Dr. Chandana Aluthge, Senior lecturer in Economics at the University of Colombo. “When the rupee depreciates the price of imports increase. The prices of raw materials and intermediate products also increase. With regards to exports, exporters can increase the prices because exports have to compete in the international market.

 

"“This Government couldn’t even control the price of rice as promised. The cost of living has increased by 60-70%. We have a problem with regards to foreign reserves, depreciation of the rupee against the dollar, cutting down on imports etc”-  People’s Liberation Front politburo member Wasantha Samarasinghe"

“When fuel prices increase we can expect transport cost to increase and the cost of all other products to increase. If you check the inflation rate it has doubled from 3% to 6%. Therefore it’s clear that the rupee depreciation ends up in inflation. Therefore the government is trying to keep the $ and LKR exchange rate at Rs. 200 per dollar. The Central Bank has adviced all banks to operate at this rate. Therefore dollars are disappearing from the market and banks don’t want to do transactions at this exchange rate,” he added.

When asked if reducing taxes would reduce the cost of prices Dr. Aluthge questioned how a Government would run without taxes? “This Government began by reducing taxes and borrowing heavily, printing money etc. The economy is coming out of a deep recession and therefore the tax income is less for the Government. Tourism-related industries and certain exports were affected due to COVID. Lower taxation would help to reduce costs, but the Government would be in trouble as it has to pay debts, salaries of workers and the expenditure is high,” explained Dr.Aluthge. Speaking on the recovery strategies, he said that there’s no shortcut to recover from the present situation. “The Government should have anticipated this more efficiently. Income from foreign workers and tourism related avenues declined. Therefore the Government should have considered alternatives to attract capital inflows, investments, negotiating with foreign entities such as IMF, World Bank etc. There are certain loans that the Government should pay on time, but the readiness of the Government is in question and the problem is aggravating. What is important right now is to ensure that steady foreign capital inflows, foreign direct investments and foreign portfolio investments are arriving. The Government needs to initiate action and immediately increase exports to the foreign markets. The Government should start negotiations; whether we like it or not as we need a steady flow of foreign reserves to build confidence of investors to attract them into the country,” he said. 

Low revenue could lead to social upheaval

Adding his comments on the matter Samagi Jana Balawegaya Parliamentarian and former State Minister of Finance Eran Wickramaratne opined that people stopped paying taxes even before this Government reduced it. “This is the biggest fiscal disaster of the recent decade. The country’s revenue plunged by 1/3rd.”

“Generally revenue is counted as a percentage of the Gross Domestic Product,” he explained. “When we took office it was 11% of the GDP and Sri Lanka should be closer to 20% of the GDP. Therefore we started a fiscal consolidation programme and signed up with the IMF. In a short period we managed to get it up to 13% but we thought we would be able to increase it to 15%. But when the Government changed, it plunged to 9% and this has created a major economic pressure on the Government. 

"“However, since soap is now manufactured from remaining raw materials the cost would increase. We cannot take legal action because in that case there would be a shortage”- 
W. R Meewanage, Deputy Director – Pricing and Management at Consumer Affairs Authority"

“The danger of having such low revenue is that it could lead to social upheaval. Because it’s with Government revenue that you cushion the weakest segments of society. Last year the depreciation of the rupee was because foreign exchange has been going down. A connected issue is with regards to the budget deficit. In 2019 it was 5% of the GDP and now it is 14% of the GDP. This is due to the wrong fiscal policy adapted by the Government where revenue just plunged. This happened during pre-COVID and COVID has aggravated the issue.” explained Wickramaratne. 
A few people also shared their views about the soaring cost of living. Here’s what they had to say : 

‘Difficult to manage from a daily income’- Christy

  “The price of a banana is Rs. 6, but the selling price is Rs. 10. Initially we were able to manage from a daily income, but now it’s difficult. The income is low and we have issues selling items on the pavement as well.” – A. Christy, fruit vendor

 

 

 

‘Managing amidst hardships’ - Munaf

“The daily income of selling tomatoes and chilies for example is Rs. 400-500. Initially I used to earn around Rs. 1500. I used to sell around 30 kilos of tomatoes, but now I hardly sell 5 kilos per day. We can’t expect people to buy from us every day. So we are managing amidst hardships.” – Mohamed Munaf, vegetable vendor

 

 

‘Issue with wholesale and retail markets’ - Thilak

“The cost of items is increasing every week. People also don’t have money to even purchase essential items. With price increases they tend to buy less quantities. We don’t have profits and our income is low. It’s difficult to pay workers and therefore I run the shop by myself. There’s an issue with the sale of rice. They are trying to bring an act to impose a fine of Rs. 100,000 on anybody who sells rice at a price higher than the maximum retail price. But before they bring acts they should analyse how the wholesale market functions. They should visit rice mills. If the wholesale price is low and the retail price is high then there’s a problem. If wholesale traders sell rice at the maximum retail price how can retail traders sell rice expecting profits?” – Thilak De Silva, retail shop owner 

‘We’re expecting relief’- Rosairo

“Unemployed people are facing greater difficulties due to high cost of living. We expect the Government to give some sort of relief.” – Jeyaraj Rosairo 

 

 

 

‘Public greatly inconvenienced’ - Ajith

“So far the Government hasn’t given any sort of relief. They say one thing to the media to save face and do something else. They will continue to increase prices and the public will be greatly inconvenienced. Have they thought how farmers could survive at this rate?” – Ajith Pushpakumara,
three-wheel driver 

 

‘Govt. doing its best’ - Sujeewa

“There’s absolutely no relief for people. Vegetable vendors increase prices depending on the crowd. The Government is doing its best to handle the prevailing situation, but it should think about the people as well.” – Sujeewa Abeykeerthi, government employee. 
Several attempts to contact Trade Minister Dr. Bandula Gunewardene to inquire about Government’s plan to provide relief to people proved futile.