How the dollar crisis and import restrictions choke a nation

Given the ban imposed on importing 305 items the construction industry has been hit hard

• This situation has aggravated due to the short-sighted decisions taken by the present and previous governments
• The construction sector directly contributes 6.5% of the Gross Domestic Product (GDP) 
• 10553 people left the country during the last month and this could land a huge blow on the future of the country  
• A VIP who has a 65% monopoly in the tile business created a mafia  
• There is also a mafia present in the cement industry in the country

As a result of the ongoing dollar crisis many local industries are at risk of shutting down with around 5 million people being vulnerable to losing employment. Around 1.5 million have lost direct and indirect livelihoods with the shutting down of local industries. Even though the Government indicates that the dollar crisis is the reason behind the economic downfall local industry owners maintain that there are other reasons for this issue such as the inability to import raw materials to maintain several industries.   

This situation has aggravated due to the short-sighted decisions taken by the present and previous governments. Local industry owners said that the recent temporary ban imposed on importing 305 items fueled this worsening situation. Commenting on this issue Susantha Liyanarachchi, who holds the posts of Sri Lanka National Construction Association Chairman and Sri Lanka United Entrepreneurs Association Deputy Chairman, said that the depreciation of the rupee resulted in this crisis; further worsening the economic, political, power and food crisis. “All industries are in chaos. Around one million people employed in the construction industry have faced a crisis while 3.5 million employees of the construction field have lost their income. Around 4.5 million employees are connected to local industries and altogether around 8 million people are facing a severe crisis,” Liyanarachchi said.  

The construction sector directly contributes 6.5% of the Gross Domestic Product (GDP). Local industries contribute 52% of the GDP. According to Liyanarachchi this crisis has taken its toll on the economy resulting in a brain drain. 10553 people left the country during the last month and this could land a huge blow on the future of the country. The Government tries to blame Covid-19 for this economic crisis, but that is untrue. Covid-19 affected almost every country in the world resulting in an economic downfall. But those countries had economic policies to rise up. Sri Lanka had no such plan to revive its economy. Instead a national list MP was removed and appointed as the Head of the Central Bank and the economy was manipulated by the politicians. According to Liyanarachchi this type of a situation only calls for an economic downfall.   

Undiyal/Hawala systems

The present economic downfall was created due to such actions. However the authorities and the politicians are yet to grasp the situation at hand. “When foreign reserves were at 150-200 million US$ we informed former Central Bank Governor Ajith Nivard Cabraal to prevent dollars from leaving the country through methods such as Undiyal and Hawala. But our requests fell on deaf ears. The rupee was held steady at 203 giving more power to Undiyal. 
The economy shrank as a result. The authorities did not have long-term economic plans, but had 24-hour plans. Basil Rajapaksa, Ajith Nivard Cabraal, Finance Ministry Secretary and several Central Bank officers should be held accountable for the economic downfall. We have proven this claim with facts. 

They say that we had to incur a loss of 1382 million rupees due to the compensation paid to the Chinese fertilizer vessel and that amount will be charged from officials. A cabinet minister and a state minister were aware of this fertilizer deal. They should be responsible for that,” said Liyanarachchi. People are made to starve and claims are being made that there is no foreign reserves to import essential food items. But there are dollars in the hands of a few. Those who were engaged in scams- such as sugar scam and garlic scam- are yet to pay taxes and this has a direct impact on the economic downturn. “Where are the dollars they earned? We need to investigate on that. Why cant we obtain those dollars to import essential items,” questioned Liyanarahchi.   

“Money transactions such as the Undiyal/Hawala systems should be banned to retain dollars in banks. But instead they are banning imports and a number of industries have been destroyed. There is no glue, marker pens or tissues. These things may look trivial, but they are essential for local industries. Banning such imports lands a huge blow on industries. Undiyal and Hawala systems are now legalized. People who are abroad still use them to do transactions. The Government has failed to put an end to such systems of doing transactions. The Central Bank Governor issued a gazette to stop these systems and requested to unearth hidden dollars. Only items imported through the customs were allowed and items imported using the Undiyal method were restricted. But no change took place. Change in the leadership did no good to the country,” he added.  

The apparel industry cannot import buttons and threads

Given the ban imposed on importing 305 items the construction industry has been hit hard. Tiles and plumbing accessories are not allowed to be imported. A VIP who has a 65% monopoly in the tile business created a mafia. It was done with state patronage during the Covid-19; creating a tile shortage in the country. Sri Lanka needs 30 million square feet of tiles per year and only 20 million are manufactured in the country and the rest has to be imported. “But we did not get tiles despite making deposits and we got our money only six months later. We made a special request to the president recently due to the ban of importing tiles. Extraordinary gazette no 2293/23 was issued on August 23, 2022 giving solutions to some of our problems. But the apparel industry cannot import buttons and threads. A pair of shoes has gone up to 8000-9000 rupees. When asked for a solution the Controller General of the Immigration and Emigration imposed a new law allowing the import of raw materials which are used to produce exports. We informed the secretary to the president and are awaiting a satisfactory response.” he added.  

There is also a mafia present in the cement industry in the country. Cement production is sufficient for local requirements. In addition cement is in surplus and some vendors still tried to increase prices. Liyanarachchi queried as to why cement must be imported when there is a surplus of it? The dollars spent for this cause can be used for something else, he pointed out. According to Liyanarachchi the failure on part of the authorities to realise this situation is a huge issue. “They have failed to prevent the wasting of money when it is crucial to retain such funds. Those who receive commissions are the ones not allowing such measures to be taken,” he affirmed.  

Rupees 670 million was spent on importing hair products, rubber balls and plastic bottles in 2020. It is sad to note that the Government has made people suffer due to the economic burden. “We have halted operations in the construction sector by 70% in order to save money. According to the budget the state expenditure surpasses the revenue and the gap is balanced with loans obtained locally or internationally or by selling resources. With more and more debts piling up people have to suffer even more. The economy cannot be revived while we still have these corrupt public officers,” Liyanarachchi said.   

"When foreign reserves were at 150-200 million US$ we informed former Central Bank Governor Ajith Nivard Cabraal to prevent dollars from leaving the country through methods such as Undiyal and Hawala. But our requests fell on deaf ears. The rupee was held steady at 203 giving more power to Undiyal” - Susantha Liyanarachchi

Restrictions during a crisis

Attempts made to contact the Central Bank officials to inquire about the issues highlighted by Liyanarachchi regarding the financial crisis in the country proved futile. However recently CBSL Governor Dr. Nandalal Weerasinghe said that the country should decide on whether to import fuel and gas or TVs and radios from the dollars it obtains. “The available foreign reserves will be used to import essential items,” he said adding that the temporary ban imposed on 305 items was done while being aware of the effect it would have on local industries. “This step was taken to safeguard the available resources and these restrictions will be removed once the country overcomes the crisis to a certain extent,” Dr. Weerasinghe.