Columns

The human tragedies of this year’s floods, landslides and other natural disasters are immeasurable. This year’s floods that destroyed more than 200 lives and thousands of dwellings and last year’s prolonged drought had economic costs and severe economic repercussions.

These natural disasters had adverse consequences on the economy much beyond their direct impact on agricultural production. The trade balance was adversely affected owing to decreased agricultural exports, on the one hand, and increased imports of food and fuel, on the other. They affected the balance of payments adversely, increased public expenditure for drought relief and flood damage, strained public finances and slowed economic growth.

Drought 2016
Last year’s drought reduced agricultural output and increased import expenditure on food. The sparse rainfall reduced hydroelectricity generation to low levels necessitating larger fuel imports for thermal generation. Oil imports rose in the later months of 2016 and the first quarter of this year. The trade gap of US$ 9.2 billion in 2016 continued to widen in the first few months of this year partly due to increased fuel imports. However the high rainfall in the hills from May could reduce oil imports in the next half of this year.

Agriculture
According to the Central Bank, agricultural output declined by 4.2 percent last year mainly due to the drought decreasing the output of all the main crops. Paddy production fell by 8.3 percent, tea by 11.0 percent and rubber by 10.7 percent. However, the decrease in agriculture output was not due to the drought alone. Scarcity of fertilizer and herbicides also contributed to the fall in tea production. Coconut production that fell only by 1.5 percent last year is likely to experience bigger drops in 2017 and 2018 due to the impact of the drought.

The lower agricultural production depressed GDP growth, increased food imports and decreased agricultural exports.
In 2016 agricultural exports decreased by 6.3 percent and tea exports fell by 5.3 percent. The decrease in tea export earnings was also due to the disruption of Middle Eastern markets. The reduced demand was also due to the decline in oil exports revenues.

Floods
This year’s floods have had a devastating impact on lives and livelihoods that are more significant than the economic costs. No value can be put on the loss of more than 200 lives and hardships to hundreds of thousands of people. The reconstruction of the damaged houses, buildings and infrastructure would be immense. A preliminary estimate of Rs 200 billion is likely to be exceeded.

Heavy rainfall has reduced tea plucking and rubber tapping. Furthermore, the coconut triangle and the North Central, East and North are still to experience the monsoon. Therefore a recovery of agricultural output this year is unlikely.

Positive features
In these adverse conditions, a few positive developments have emerged. The foreign assistance from many countries and the support from the public and civil society organisations have helped alleviate the suffering of the flood stricken population and reduced government expenditure.
The onset of the monsoon this year would enable a good harvest, especially of paddy, provided the monsoon extends to the North Central, Eastern and Northern provinces. As for now there are drought conditions in these areas.

The rainfall in the central hills would increase hydropower generation and reduce imports of fuel. However fuel imports have increased in the first few months and a decrease in fuel imports could be expected only in the second half of the year. Hopefully tea production would increase and the tea export surplus would increase export earnings to reduce the trade deficit somewhat.

Growth in 2017
This year’s economic growth would also slow down owing to the effects of last year’s drought and this year’s floods and drought in parts of the country. The World Bank estimates this year’s economic growth to be less than the Central Bank’s estimate of 5 percent. However, the final outturn depends on the performance of the industrial and services sectors that dominate the economy.

Pertinent issues
Three pertinent issues emerge from this discussion. First: the need to prevent or mitigate these occurrences. Prevention of disasters is better than disaster management. Second: the economic consequences would not have been as adverse, had the other sectors of the economy been robust. Third: the preoccupation with floods should not divert the Government’s attention from the urgent need for a coherent and certain economic policy and implementation of reforms.

Prevention
The floods and landslides are considered natural or environmental disasters that have to be faced by the country. This is only a half truth. Quite apart from global climate change, the environmental disasters we have just faced are in fact partly brought about by human activity. Preventive measures that could have avoided them have not been implemented.

The denuding of the forest cover that has fallen sharply to 24 percent has been a significant factor in causing droughts. Despite pronouncements, regulations and surveillance squads, forest felling continues with political patronage. Construction in high risk areas is responsible for an increase in landslides. Illegal settlements in high flood risk areas have endangered thousands of lives. Measures to implement regulations to minimise these are imperative.

River diversions
Even prior to independence, a blue print to divert the rivers in the South so as to prevent annual flooding and provide irrigation to the South had been prepared. Yet no post-independent government took measures to implement such a programme of diverting rivers in the South, much in the manner of the Mahaweli diversion. Consequently we have had to face these human disasters time and again. A programme to divert these rivers, not only to prevent floods, but also to harness the waters productively, has to be implemented immediately.

Economic diversification
All things considered, the drought followed by floods has been serious setbacks to the economy. Had the economy been more diversified and other sectors more productive, the impact of these natural disasters would have been much less. The lack of a robust manufacturing sector meant that the setback of the natural disasters had a larger adverse impact than if manufacturing contributed more to exports and the economy. In fact, manufacturing grew by less than 2 percent last year and manufactured exports declined.

Economic programme
The preoccupation with the floods should not divert the Government’s attention from the urgent need to come out with an agreed coherent and pragmatic economic programme. If the preoccupation with the floods diverts the Government’s attention away from the implementation of a programme of economic development, the current economic crisis could worsen.