Economy at breaking point, job losses feared

Sri Lankan corporates have seen an over 50 per cent to 70 per cent drop in their total potential output over the past two months owing to the worst political and socio economic crisis the country has witnessed since independence. This is after the authorities failed to resuscitate the economy that went through a gruelling pandemic and failed economic policies.

Economists say that from biscuit to basket manufacturers the situation seems to be the same with businesses and companies operating at only 30 per cent to 50 per cent of their potential output. This works out to 15 per cent of the country’s GDP. The lack of raw material imports and shortage of electricity and the failure to run generators are killing these businesses. In less than a month the country will face permanent blackouts and escalating fuel prices amid the more critical shortages in food and medicine, analysts warned.

Over the next four weeks the country will run out of Indian credit. The wild protests all over the country have allowed for productivity drops and massive hits on tourism. More of the same could descend the country into anarchy, economists say blaming the short-sighted economic policies and the wrong decisions over the past year.

“Without diesel the whole economy will be at a standstill. The impact this has created in the ground level is still not seen in the larger firms, but the future of the situation is uncertain,” an exporter said.

For the last two weeks over Rs. 1 billion from the turnover was wiped out of the tile industry. “There is no electricity for our manufacturing and the generators that back up the electricity in the factories don’t have fuel to operate. It is a dire situation,” Mahendra Jayasekera, Managing Director Lanka Tiles PLC told the Business Times.

He said to lessen the impact his company is trying to retain the foreign markets. “We are close to inking a joint venture with an Indian party in this regard.” He stressed the importance of arresting the escalation of the current political turmoil saying that all stakeholders must come together for a solution and add value to the country.

Those in the vehicle industry said that earnings have been wiped out in billions since the ban on imports.

Officials in the agriculture industry said that since last week it costs Rs. 42,000 for a 50 kilogramme bag of urea fertiliser as opposed to its earlier price of Rs. 4200. This is because after the government allowed urea importers to bring it down the prices had to be increased due to the highly depreciated exchange rate. “Now we need to buy the fertiliser at the spot market rate, and we have valued it at the depreciated rupee rate,” an importer said.

The country is now dealing with shortages and soaring inflation, after steeply devaluing its currency last month ahead of talks with the International Monetary Fund over a bailout. Amid this unmanageable situation, Dr. P. Nandalal Weerasinghe was appointed Central Bank (CB) Governor who stepped down in October 2020 as deputy governor. Dr. Weerasinghe came into the hot seat early this week with blessings from all stakeholders in the industry in this crucial juncture while CB Deputy Governor Mahinda Siriwardana was appointed as the Treasury Secretary.

“Both these gentlemen make a good team. The new CB governor has an enormous task and both these gentlemen have done a big service by the nation by accepting these two positions at this critical time. Their priority should be to build confidence in the country’s economy,” Dr. W.A. Wijewardena, Economist and former CB Deputy Governor told the Business Times.

Meanwhile at a joint press conference on Friday, 22 associations warned that their industries, which collectively earn about US$16.7 billion each year through merchandise and services exports, would come to a standstill if the current situation continues. Furthermore, they added, the livelihoods of more than 4.2 million workers – or half of Sri Lanka’s entire working population – will be badly affected.