Adverse effects of Sri Lanka’s multiple economic and social disasters

By Dr. Manoj Samarathunga
manoj.thm@mgt.rjt.ac.lk

Sri Lanka is stepping into an unprecedented era with lots of variables in the economic and social equations getting unbalanced. Shortages of essential commodities and services keep the general public away from both home and work. Recent incidents reported from Mirihana and from other parts of the country signify the unrest of the general public and the need of urgent economic, social and political reforms. The present perspective article sheds light on some key economically sensitive areas of the country and suggest plausible recommendations to overcome the present catastrophe, which we all suffer.

Shortage of essential items

During the recent months, the general public has been lining up to purchase gas, fuel, milk powder, medicine, rice, etc. Additionally, some goods were sold in limited quantities to the people. Some of the commodities, mentioned above, are used as inputs in certain industries. For instance, sugar is a must ingredient for making candy and bakery items. Without milk powder, even a roadside hotel finds it hard to satisfy its customers. Atop that, continuous gas supply is essential as far as domestic and industrial well-being is concerned. The shortage of essential items disrupts the day-to-day routine of the working class, thus increasing the stress among the general public. Further, it interrupts the micro and small-scale businesses on which millions of self-employed people are relying on.

Sri Lanka can be self-sufficient in milk powder, sugar, rice, and lentils. The only lacking part is entrepreneurship as well as state support. With proper guidance and assistance, it is not hard to make Sri Lanka self-sufficient in a few years.

Power Outage

Sri Lanka has never witnessed a power outage of this magnitude in its recent history. Continuous power supply is a primary responsibility of any government and in certain developed countries annual power outages are calculated in seconds. Power outages have a detrimental effect on the agriculture, industrial and the service sector as most of the equipment nowadays operate with electricity. The industrial sector is the leading contributor to Sri Lanka’s economy and with the power outage, the production hours in a factory goes down tremendously. Keeping a power generator is also not an option as there is no fuel to run the generators.

Although there are ample alternative energy sources available in Sri Lanka, the true contribution of alternative energy to the main electricity supply remains very low. Although the potential to produce Solar power and Wind power is tremendous in Sri Lanka, government mediation to promote the alternative energy has been insufficient. Wave power is another option that we can focus on. Wave power is typically produced by floating turbine platforms or buoys that rise and fall with the swells. However, to the writer’s knowledge there is no single Wave power station in Sri Lanka.

Money printing

According to various public sources, the Central Bank of Sri Lanka has printed some billions of moneys during the last few months and have pumped them into the economy. Clearly, the Central Bank has been taking ridiculous decisions with respect to money printing. A very high officer at the Central Bank recently mentioned during an interview with a weekend newspaper “money printing does not cause inflation” challenging the founding principles in the economic books. Inflation is a direct result of excessive money printing without increasing the domestic production and foreign reserve. Thus, money printing has to stopped immediately.

Cost of International Loans and unfocussed huge scale investments

During the recent years, Sri Lanka has obtained more loans from China moving away from international donor agencies including the International Monetary Fund (IMF), World Bank (WB), Asian Development Bank (ADB) etc. Unlike other international loans, the Chinese loans are easy to obtain with low or no conditions to agree upon. Also, China provides the loans real fast compared to other international funds although the interest rate is ridiculously high. However, when it comes to the international loans provided by IMF, WB, ADB or other agencies, they impose many conditions to restructure certain underperforming sectors in the country and it takes a while for any government to obtain loans from them. However, unlike the high interests of the Chinese loans, the interest rates of the loans provided by IMF, WB, ADB are very low.

Sri Lanka also failed in investing the international loans effectively. For instance, investments worth billions of US dollars were made in the Hambantota District and the net economic returns are nowhere nearby. Additionally, Sri Lanka nowadays obtain loans only to cover its revenue expenses that does not contribute back to the economy directly. This has to be stopped immediately and Sri Lanka must go for a proper debt management plan with the support of international donors.

Nationalism discourse

Sri Lankan voters are highly sensitive to the nationalism discourse and therefore, almost all the politicians give a high priority in their promotional campaign to promote the ethno-religious nationalism. The unnecessary promotion of nationalism discourse disrupts the social harmony and as a result minority groups are discriminated at the public face. Occasional break-outs of violent and discriminatory religious and nationalism movements keep both local and foreign investors away from Sri Lankan shores hindering the true economic benefits that we would have earned.

In economics, the vicious circle of power is associated with four main variables that are inter-dependent: low production, low income, low savings and low investment. However, in Sri Lankan context we can also consider including “Social and Economic crisis” into this cycle.

Disruptions to the dollar earning industries including tourism, information technology, and industrial sectors due to power cuts, tense among the general public due to non-availability of essential items, closure of micro, small and mid-scale industries, unfocussed investments, and ethno-religious nationalism are few key variables that makes Sri Lanka’s economy unstable. I have not touched on the effect of organic agriculture, bribery and corruption, deforestation, human rights violations and other factors in this article. However, despite the individual efforts made by the people and organisations of Sri Lanka, multiple social and economic crises that we all face today will convert Sri Lanka from a developing country to an ever-developing country if we cannot break this chain.

Dr. Samarathunga is a Senior Lecturer attached to the Faculty of Management Studies, Rajarata University of Sri Lanka, Mihintale. He is also the President of Sri Lanka Research Community.