We in Sri Lanka, are not the only people saddled with inflation. The social impact of food price crisis, is a common feature, not only in the developing world, but also of the developed world. Inflation is hitting hard most of the nations of the world, at least since the pandemic.
by Victor Cherubim
It is no truism (not tourism) that Sri Lanka has hit the headlines in the media since 18 January 2022, when against all odds of Credit Rating Agencies and doubters, we were able not to default on our obligations. Of course, we had a price to pay. The word went round that our people are all starving. Far from it, we have managed to use our ingenuity to survive with two meals a day instead of three, thereby reducing our waistlines, eating nourishing vegetables and fruits, with less bowls of rice, and saving on our usual milk teas.
However, on the opposite side, we have seen our Central Bank has a habit of exaggerating our growth forecasts, while the Government plans to raise $1.5 billion by offering high value properties in Colombo to foreign investors. But is struggling to attract much interest, perhaps, due to inducement.
The Government’s decision to use its scarce available foreign currency reserves to calm nerves abroad and pay off overseas Bond holders, is noteworthy. It may have conveyed an important message overseas, that “our word, is our bond.” It certainly has not addressed the candle shortage for people visiting churches, neither has it helped the power outages and the dark nights,but, it has shown the world that we can adapt, with less, in the short term.
The Social Impact of inflation
We in Sri Lanka, are not the only people saddled with inflation. The social impact of food price crisis, is a common feature, not only in the developing world, but also of the developed world. Inflation is hitting hard most of the nations of the world, at least since the pandemic.
In UK the inflation is today at 5.4% and pessimists maintain it could be heading above 7%. The Bank of England is moving out of “emergency” mode and in December 2021 put up the Bank Rate from 0.1% to 0.25% and who knows, it might increase it again marginally, this coming Thursday 27 January, 2022.
We are bound in Sri Lanka to ask ourselves: “why has our Central Bank, in Colombo, become worse at controlling inflation over many years. Is it because of Quantitative Easing QE); is it because of international debt pressure; is it because we change our goal posts so often and keep printing more currency, without thinking of the long term, but only as an expedient measure, short term?”
As a layman, in the first place, it just may be because our Central Bank does not control inflation. As things stand and hard choices have to be made, what a surprise, with people unable to live with food prices shooting up, cost of living spiralling, we are slowly but surely getting fed up with our “technocrats” living in the ivory tower of our Central Bank.
People are desperately demanding our politicians to get back in on the act. One of the demands that people want their politicians to start to look at, is to get prices of essential goods capped or threaten with capping, if it has not already been instigated?
Poverty reduction is no longer the topic of discussion; it is reversal of fortune not only for the poor, but for all the needy. Children born during this time are going to be malnourished, marriageable couples are being forced to delay marriage. But the greatest impact, has fallen on the weak, the vulnerable, the sick, the aged and the old, because of the lower levels of access to health care.
These reversals of fortune are going to set back Sri Lanka at least 3 years, but if we plan ahead, we will rebound with more energy, more fitness, with mindfulness, in the months and years to come.
How can our Government help?
If not already started, the Government can employ a contractionary monetary plan and policy, to fight inflation by reducing money supply over a short timeframe. Of course, it is easier said, than done. But, how much more can the poor take on their shoulders? Of course, our problem is that we are in a habit of exaggerating everything, and the world discounts us. Let us for a change, underestimate our growth forecasts.
Sri Lanka we are told earned $4 billion from tourism in 2019, with a drop of around 90% due to the pandemic, as well as rising global fuel costs.
Let us not put all the blame on either the Government or our people. We know gas cylinder prices have almost doubled. Ordinary citizens weaned on gas cookers, are slowly, but surely getting used to firewood, as I can well remember in my younger days. It is no crime to scale down and be ready to scale up with the rebound of the economy. Earlier, it was three meals a day, now many survive and can afford only two meals a day. It is no doubt a struggle to make ends meet, having to tighten their belts, at the same time have a healthier
diet,without unnecessary waste. We hear of people bartering, bargaining, buying very limited quantities. We hear of long queues outside most food shops for essential items. With people used to milk powder, as prices have risen as much as 12.5%, milk tea, is a luxury now.
We know the Opposition Party, SJB in Sri Lanka is only able to organise street protests. But street protests do not put food on the table. Public anger too, cannot do much either.
What is inflation?
Inflation is the disease of our times. Inflation occurs when an economy grows due to increased spending, without an accompanying increase in production of goods and service. When this happens prices rise, currency within an economy, is worth less and won’t buy as much as it would before. When a currency is worth less, its exchange rate weakens, in comparison to other currencies.
However, this depends on whether other currencies are also inflationary less than Sri Lanka.
If, as is the case today, other currencies like the US Dollar inflation is trending 7%, UK at 5.4%. Both are also inflating at a fast rate. The only hope is if Sri Lanka Rupee will be able to control its staggering rate of inflation. Then, wage and price control may trigger a recession with job loss.
Another way, is reducing money supply within the economy and increasing interest rates. Over time, as the economy picks up, perhaps, through tourism and foreign exchange transactions, control is regained?
The above are economists’ opinion. My layman’s suggestion, is to open the market short term, for Sri Lankan diaspora to buy properties in Sri Lanka, if they have Sri Lankan nationality, with special inducements, like interest holiday to attract foreign currency, for term investment of at least five years. This to say the least, will bring in foreign currency,
create employment in the building and/or other trades and ease foreign exchange strangulation.
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