Defenders of the government and its economic policies might rush to reject the contents of this editorial commentary with their own argument but the facts speak for itself: Sri Lanka’s private sector is in a grave crisis and heading for a recession.

“If not sooner, than later,” one business analyst warned, as many heads of companies and analysts told us this week. “On the edge of a recession” was how a business leader described the situation.

High inflation, high interest costs and high cost of production and running a business which includes galloping fuel and energy costs are all contributing to one of the worst-ever nightmares faced by the business community. Like it or not, the situation is resulting in some companies offering VRS’s (Voluntary Retirement Schemes) to their workers while others are giving it some thought.

Wage levels are either frozen or “thankfully we gave the increments in January and need not worry now,” said the business leader, adding quickly: ‘My next worry is what do I do next January when the increment is due?”

Forget the wage hike of Rs 5,000 per month as demanded by the JVP! Not that it’s an unreasonable request given galloping inflation. The point however is that most companies are struggling and barely keeping their heads above water. In such a situation, trying to cough up millions of rupees to meet an additional wage is out of the question, most CEOs will tell you.

In some companies, top management are being offered attractive ‘quit’ packages while in other firms it’s the lower ranks. Inflation is a silent killer, a stock broker said the other day. Why? “Because it hits you across the board. As an individual, it raises your daily costs and at the end of the month, what you earn is not enough. As a company it hits your costs and in a situation where you can’t raise the cost of your product – because it won’t sell because people don’t have money, what do you do?,” he said.

Indeed many companies, particularly the Fast Moving Consumer Goods (FMCG) companies, are having huge stockpiles of unsold goods with consumer buying waning.

Buying sentiment is low as people struggle for their basic needs and how to manage it within their income levels. When there is no buying, stocks rise and these stocks are piling up on borrowed money (from the banks). Rescheduling debt is a common occurrence these days and banks are obliging given the common crisis faced.

Energy is another killer cost. In some companies the new CEB rates from March-April 2008 means an additional 30 to 50 percent to the energy bill. Should they pass these costs to the consumer which in the normal course of business is what many would do? Not in the current situation where consumption is falling and anything non-essential is not needed.

A mix of external (high fuel and food costs) and internal (cost of war, rising taxes, maintenance of government) is being attributed to the current crisis. Economists say a reduction in government spending will ease the burden in terms of reducing direct and indirect taxes on the people but the government puts the blame on the external factor – fuel and food.

Exporters complain that the exchange rate should be a freer float and that the rupee should not be artificially kept down as it impacts on earnings. A newer situation is that most foreign suppliers are quoting or selling in Euro as the US dollar is falling and the European currency is gaining. Imports are also getting costlier.

In most companies, owners and senior management are explaining the problems to staff and initiating cost cutting measures in all areas of the workplace. In the future, don’t rule out even voluntary wage cuts – where staff volunteer to cut salaries to help ease the crisis – as the situation is seen worsening than improving.

One popular FMCG company said its first half performance this year was good while the second half sales are flat. “Nothing is moving … except for the debt rising and recoveries falling,” a senior executive said.

Year-on-year consumer goods are rising by 40 percent. Forget the statistics or those Consumer Index figures! Any item you go looking for in the market has risen by at least 40 percent from the same period last year.

In a day and age where caring for staff – as much as caring for the consumer – is becoming the norm rather than the rule, companies are facing a huge dilemma. How do you cut costs, offer a VRS or seek support for a voluntary wage cut when people are struggling to make ends meet and only a wage hike would save their day?

One veteran industrialist who has seen the ups and down of the country’s private sector for the past three to four decades, said: “This is the worst ever period I have ever seen.”

Indeed, there is no hiding the fact that it’s one of the worst- ever crisis facing the business community who can only grin and bear and face an uncertain future, hope for better times or pray to the Gods!