The entire country is now aware that a dreadful situation has emerged due to the severe and unbearable shortage of foreign exchange.
For a number of reasons, such as prolonged weak management, procrastination, political manipulations, miscalculations, and wrong or contradictory advice, have created the current turmoil.
The single biggest negative repercussion of the mistakes by these decision-makers is directed towards the unsuspecting masses who suffer tremendously in a number of queues. Adding salt to the wound, the ongoing power cuts disrupt the day-to-day lives of almost the entire citizenry, including small and medium-sized businesses, amassing substantial losses.
When the incumbent President took over office in 2019, the tourism industry, which contributed approximately US $4 billion in the previous year, was slowly heading towards recovery. Also, the expectation was that the tourism industry’s performance would reach a high point by the end of 2020.
Unfortunately, the entire world was forced into chaos due to the unparalleled negative impact of the Covid-19 pandemic that broke out in late 2019.
Expected momentum
The world’s tourism, which came to a standstill by early 2020, has not regained the expected momentum as yet, although a slow recovery can be witnessed. A loss of nearly US $8 billion in two years was way too hostile for a small economy like Sri Lanka’s.
The two top foreign exchange earners, the apparel industry and expatriate remittances, were hugely affected in the initial stages of the pandemic.
However, the apparel industry recovered faster than anticipated and their performances were creditable by the end of 2020. Nevertheless, the revenue through expatriate remittances was not recuperated as anticipated. Hence, during the entire 2020 and a part of 2021, overall foreign exchange earnings were far below expectations.
It is no secret that the timely actions by the Government and the efforts of the medical fraternity, the tri-forces, the police department personnel, and the entire Government machinery worked together to bring the pandemic under control. However, the cost of the effort was far too much for the country’s limited resources, which led to the current crisis.
Had the Government ignored the dire situation during the pandemic period, the repercussions would have been much worse, although anti-Government elements mercilessly downplay the entire scenario.
The extremely justifiable public outcry about the severe shortages of fuel, LP gas, milk powder, and other essentials and also prolonged power cuts that started over a month ago has now come to a boiling point.
Contradictory public statements of Government Ministers and criticism from inside the Government have enormously aggravated the already rotten situation.
The all-party conference called by the President was attended by some political parties, yet two politically important Opposition parties absconded, stating that the exercise was a hoax. Although there were misunderstandings and differences of opinion among the parties, the effort was hailed by most neutral observers.
Collective agreement
President Rajapaksa once again invited those who dodged to attend the next session for the sake of the people. However, the result of the endeavour is yet to come. If all these parties could come to a collective agreement on the next best moves, it would help to come out of the current crisis.
The country needs a short-term solution to the foreign currency shortage. The ground reality is that, apart from external loans, only three main sectors can provide the cushion the country desperately requires: expatriate remittances, apparel, and tourism.
The largest contributor of foreign exchange, expatriate remittances, suffered heavily due to the Central Bank’s decision to hold on to a fixed-rate regime. The expat workers sought informal money transfer systems (Undial and Havala) to obtain the maximum value for their money.
Fortunately, however, the export performance of the country is a consolation at this crucial point where the most urgent requirement is foreign exchange. The sector earned over US $12 billion for the country through merchandise exports in 2021, while the year 2022 also commenced with a positive note year-on-year with US $1.06 billion, a 13.4 percent increase. The prediction and the goal are to bring in US $20 billion for the year 2022.
The tourism industry is showing clear signs of recovering rapidly, but not fast enough to adequately assist at this point in time. According to the data from SLTDA, a total of over 178,000 tourist arrivals were recorded, with a revenue of US $582 million. Although the number is impressive and creditable, the amount received is a fraction of the real need.
It is clearly evident that there is a division among economists and other subject experts on almost every economic issue. More regretfully, the irony is that some of the views aired publicly by these experts are visibly politically motivated.
Economic matters
Also, there are way too many experts who try to advise the Government through television talk shows, social media, and other platforms, confusing the masses that do not have specialised knowledge on economic matters.
Some of them completely ignore the ground realities affecting the issues affecting the general public and their day-to-day lives. They analyse the situation and make proposals based on theories and econometrics.
The economic council appointed by President Rajapaksa came under criticism from a faction of the public due to the seemingly inadequate subject knowledge of the majority of members.
The explanation from the Government was that the council members were appointed for their heavy public interaction, with which they could advise the public on the hardships.
However, in another positive move, the President also appointed an advisory panel consisting of some of the most successful business magnates in the country, along with several economists.
These successful corporate figures who run their operations with hundreds of thousands of staff and with the utmost efficiency can immensely contribute to solving the ongoing crisis.
Regrettably, some retired economists believe that statistics and theories are adequate to resolve critical economic situations when innovative thinking from the private sector can be enormously helpful in this situation.
Except for political parties that are vying for power and are fishing in troubled waters, economists in general and the entire business fraternity are confident that the country can come out of the current economic crisis.
Almost all of them collectively agree on the most urgent and most important criteria, such as curbing State expenditure, improving export performance, drawing foreign investments, encouraging local industrialists, and so forth.
However, most of these solutions and suggestions are mid-term or long-term. But, Sri Lanka at this moment needs immediate solutions to overcome the foreign exchange shortage that is creating mayhem in the country.
Uncontrollable level
If an immediate solution to the shortage of foreign currency is not found, the turmoil can be aggravated to a disastrous and uncontrollable level.
As proposed by many intellectuals and professionals, the best remedy is to work with the International Monetary Fund (IMF) to seek their assistance. There is no doubt that there are pros and cons to the process. The IMF is perhaps the only entity that can provide assistance to Sri Lanka to come out of the ongoing financial crunch.
However, despite the commendable objectives, they will attach various conditions to economic policies that will not be friendly to the general public and certainly not to the politicians. The general opinion is that they will intervene too much in the internal affairs of the country.
If it is decided to provide financial assistance, the IMF will not go easy on subsidies, relief packages to the masses, wastage, or inefficiency of the State machinery. While the former will create hazards for the public, the latter will be challenged by politicians and trade unions.
Whatever action the Government is planning at this moment is crucially important to the whole country. The All-Party Conference and the discussions with the Tamil National Alliance can be useful at this juncture as the world has to see that the country has both political and ethnic consensus. A reasonable solution will be a cinch if all factions are genuine without political inclinations.