Unfolding crisis

The economy has collapsed! That was how Ruwanputha, the young economist, pithily described Sri Lanka’s current dilemma. He is on the money with that statement. According to the unfolding situation this week, as crippling power cuts continue to bite the economy, factories were shutting down, small business owners were shaking their heads being hit by another bolt from the blues and motorists spent endless hours at the fuel stations to get their share of diesel or petrol.

While these unreal scenes of queues at fuel stations continued for many days, the country’s leadership which should have huddled together in a daily crisis-council-of-sorts to address this crisis, was nowhere to be seen.

Angers flared up at fuel stations with many motorists accusing the country’s leaders of mismanagement and not addressing these issues.

However, the first signs of much-needed authoritative decision-making came on Wednesday when President Gotabaya Rajapaksa, meeting with relevant ministers and officials, ordered that these power cuts should stop immediately and fuel supplies restored to end queues and electricity outages. According to the President’s Office, the power cuts were supposed to end by March 5 (yesterday). Writing this column on Thursday morning, as we faced another bleak day with 7.5 hours of power cuts, it remains to be seen whether the President’s decision is transformed into action at least by Sunday March 6.

Earlier this week, I got a call from a top businessman whose company produces a global product, much sought after in world markets (he didn’t want to be named or identified), saying he was shutting his factories as there was no fuel. “We are also looking at shifting our facilities overseas as there are no consistent policies here to do business,” he lamented.

The chief executive of another conglomerate, when asked how they were managing the fuel crisis, said they were scraping the barrel in terms of fuel. “I don’t know what will happen if this continues. As of now it’s a hand-to-mouth existence,” was how he described the crisis. Other sources said that at least two production companies were venturing abroad while others were contemplating similar action. It’s not only the fuel, power and foreign exchange crises that have triggered such action but also lopsided tax policies and rising costs which make it hard for a business to plan for the future when costs are unpredictable.

Mismanagement of the economy, at least in the case of the power and fuel crisis, has come to the fore. Consider this: Initially we had 5-hour power cuts, then it was reduced to three hours giving false hopes that the power cuts would reduce further. Then the very next day, the power cuts were increased to 7.5 hours! Furthermore, the contrasting public comments by ministers and officials on the fuel crisis and the power cuts added to the confusion. For example, the Energy Minister says one thing, the Power Minister says another thing and contradicts his own Ceylon Electricity Board, while the Public Utilities Commission (PUC) Chief joins this ‘jolly’ bandwagon by being the chief spokesperson for power cuts. This official is already treading on others’ toes: For example on Wednesday, he accused the Central Bank of misguiding the economy, saying the government should reschedule its debt obligations, a move frowned on by the Central Bank.

Furthermore, there are disagreements between Finance Minister Basil Rajapaksa and Central Bank Governor Ajit Nivard Cabraal on floating the rupee, increasing fuel prices and seeking financial assistance from the International Monetary Fund (IMF).

“With ministers and officials like this, the government doesn’t need any more friends,” noted Ruwanputha, adding: “The economy has been badly managed, unfortunately at a time when exports and tourism are picking up.”

“There doesn’t seem to be anyone in control at the moment. The economy is sliding and no one seems to care. Another minister was quoted as saying that apart from a ‘small’ issue of the lack of dollars, the economy is doing well,” I said.

“With statements like this, little wonder that the economy is plodding along,” he said.

Cabraal has complained that if his roadmap was followed we won’t be in such trouble – but has, for instance, his incentive scheme for foreign remittances worked? His plan to rope in more foreign currency from this source by offering Rs. 10 more per dollar remitted by Sri Lankan migrant workers has failed. In January 2022, remittances totalled US$ 259.2 million, a sharp 61.6 per cent drop from $675.3 million in the same month in 2021.

Though inflation has risen sharply, tourism and exports have been doing well. Sri Lanka’s apparel export earnings rose to $487.6 million in January 2022, the highest in five years, overtaking the $452 million recorded in January 2019, prior to the pandemic. Growth over January 2021 export earnings was 23 per cent. Tourist arrivals are also climbing with arrivals in January 2022 reaching 82,327 compared to 1,682 in January 2021 (the month when the airport reopened after being shut due to the pandemic).

The unfolding economic crisis resulted in a plea from the Ceylon Chamber of Commerce to resolve the foreign exchange and fuel crisis, which is badly hurting the business community, and seek IMF help.

“… the Ceylon Chamber of Commerce urges the Government of Sri Lanka to commence a process of engagement with the International Monetary Fund (IMF) without any further delay to obtain their technical advice in managing the debt servicing as well as boosting foreign reserves,” the chamber said in a statement this week.

On Wednesday, the IMF said that Sri Lanka faces mounting challenges, including public debt that has risen to unsustainable levels, low international reserves and persistently large financing needs in the coming years.

By the way, where is the trio? I couldn’t listen to their conversation under the margosa tree as they hadn’t met today.

“Oyage yaluwanta mokakda wune ada (What happened to your friends today),” I asked Kussi Amma Sera, as she brought my second mug of tea. “Gedara weda wedi wuna light kapala hinda (More work at home because of the power cuts),” she replied.

The power cuts have affected people and all sectors of the economy and at the rate mismanagement is taking place, Sri Lanka would require a magic wand to restore normalcy.