Sri Lanka: Land of shortage and million tragedies

Acute shortage of cooking gas leaves consumers languish in long queues in Colombo and almost in every major town.

Sri Lanka today is a land of acute shortages.  Hundreds, if not thousands throng at the sales agents at the rumours of the impending, and often elusive, arrival of supplies of cooking gas.  Long queues of people wait in desperation only to find, supplies, if ever come, could cater only to a fraction of them.  Cement and building materials are near extinct and the shortage had crippled the livelihood of a vast construction sector workforce, and the dreams of married couples who save up to build a house.

An overnight ban on chemical fertilizer has devastated the agricultural sector, and the paddy and vegetable farmers, who even in the best of times, earned a bare minimum are falling back to poverty in en masse.  Sri Lankan farmers, who account for a quarter of the workforce, contributed barely 6-7% to the GDP, according to the Central Bank statistics. In other words, an average farmer earned barely one fourth, if the GDP per capita is evenly distributed. Instead of increasing efficiency and introducing new technologies adopted elsewhere, the government had effectively driven them fifty years back to the world before the Green revolution.

This is also a land of collective tragedies of its most vulnerable. Those who have lived on the fringes of poverty are the worst affected by moronic policies of a government and a president, who was voted to power in overwhelming numbers by a vast majority of those in their social-economic background. They did so glued to anti-minority dog -whistling, exclusivist ideologies and concocted conspiracy theories. Now the reality is proved to be starkly different and grimmer. 

It is commonsense, and any independent data set would find, that there is a drastic increase in the country’s poverty rate.  Though it is tempting to blame the pandemic, the key driver is the demagogic policies of the government. 

It is commonsense, and any independent data set would find, that there is a drastic increase in the country’s poverty rate.  Though it is tempting to blame the pandemic, the key driver is the demagogic policies of the government. 

This is also a land of daily ritualistic humiliation and despondency. Everyday staples, from Rice to Dhal are rationed and cigarettes are hoarded. The local jokers who had been nostalgic about a bygone era of similar economic mismanagement, Sirimavo Bandaranaike’s government in 1970-77 and others who had been lionizing equally moronic despots far afar from Venezuela to Zimbabwe, now can have a taste of their glorified falsehood. But, the economic crisis in Sri Lanka is deepening with every passing day, and like their peers in those forsaken foreign lands, the political leaders in Sri Lanka are clinging to their own fallacies. 

How can we get out of this rot?

The primary cause for the country’s economic woes is a crippling foreign exchange crisis. The foreign reserves stood less than US$ 2.5 billion in September, with nearly US$ 4 billion foreign loan and interest payments due next year, foreign reserves are a net negative.

To be fair by the government, it was not solely responsible for the foreign exchange crisis which had been brewing for years, though the reckless borrowing for projects with limited economic return during Mahinda Rajapaksa regime in 2005-2014 contributed to the soaring foreign debt- though, Mahinda Rajapaksa himself is the only leader who made a conscious effort to revamp Sri Lanka’s infrastructure landscape.

However, the incumbent in the office, Gotabaya Rajapaksa is a different kettle of fish, and proved to be an epic disaster. His economic policies and extensive tax exemptions resulted in a major loss of the government revenue for a country in which Government revenue as a share of GDP is still well below not even in the standard of the lower-middle-income peers, but even in comparison to low-income states.

His government is seeking similar pie in the sky remedies to the foreign exchange crisis, but in truth it is procrastinating the crisis until it explodes itself, bringing the whole economic system down.
Pinning hopes on tourist earning, at a time the global tourism is unlikely to recover for several years to come, and new Covid-19 variants are making a comeback in Europe and America is a reckless gamble. 

Sri Lanka is not in a position to borrow from the financial market after the country’s credit ratings are downgraded to junk.  Currency swaps have been a temporary solution.  Legitimate foreign investors are not willing to bet on a country that is more likely to go on the path of Venezuela under the current policies.  Only those who would come are rogues, who have a history of exploitation in poorly governed states.

This is also a land of daily ritualistic humiliation and despondency. Everyday staples, from Rice to Dhal are rationed and cigarettes are hoarded. The local jokers who had been nostalgic about a bygone era of similar economic mismanagement

Sri Lanka’s only logical option to avert a complete economic collapse is going to a debt restructuring programme under the IMF.  That would result in Sri Lanka adopting a realistic exchange rate, and which, by extension, may end the shortage and hoarding of imported essential supplies and building materials. Until the country’s debt is restructured, there exists an overwhelming uncertainty that would keep away potential investors.

The governments intended short term remedies are causing more damage. For instance, a Central Bank directive for the exporters to exchange their foreign currency to Rupees within 180 days would only see the exporters parking their funds in overseas banks, especially given the lopsided exchange rate at home. Ill-defined solutions are adding to the crisis.

However political considerations and inflated egos of the presidency and his coterie are blinding the government from reality. They defend their misplaced policies, and at times, gloat as if running to the ground the local agricultural sector is a crowning achievement.  This unprecedented detachment from reality, whether it is by conviction or feign, is a crime upon its people.

Follow @RangaJayasuriya on Twitter