Ocean of Uncertainty
View(s):An ‘Ocean of Uncertainty’! This was not a term coined by me to explain the state of affairs in a land that got a welcome nod from Lonely Planet as the best place in the world to visit but one given by Arthika, my nonsensical economist friend, during a conversation earlier in the week.
We were discussing anything and everything under the weather when he came up with this “beauty”; not bad for a guy who eternally talks gibberish on economics.
“I say … what we see happening today is an ‘Ocean of Uncertainty’ … meaning a sea of uncertainty in the country; everyone is swimming in the opposite direction. The right side of Government doesn’t know what the left side is doing and add the pressure on the local currency and pressure on debt payments, in the next three years plus rising fuel costs and confusion in the political arena … yes there is an element of chaos,” he says, surprisingly making sense in his arguments.
Probably surprising himself too, he goes on to say: “There is a lot of confusion in the running of the Government. The decision by the President to re-constitute the board of directors of three key institutions without any discussion with the line Ministers is an example of the chaos taking place in governance. With such moves, investment by local companies and foreign companies is likely to take a backseat due to such inconsistencies in the administration.”
I couldn’t agree more with his views and listening to Kussi Amma Sera’s conversation with comrade-in-arms Serapina and down-the-lane gossip Mabel Rasthiyadu strengthened these thoughts.
“Apey pitarata wedakarana lamai ahanawa dollar-eka wadiwunoth, eyalata hondai neda kiyala (Our workers in West Asia are asking whether the dollar rising is good for them)?” she asked Serapina. “Eka hari. Habai anith peththen balana-kota, apey wiyadama Lankawey wediwenawa (That’s right, but on the other hand, our living costs in Sri Lanka are going up),” Serapina responds.
Mabel Rasthiyadu, then interrupts the conversation, saying: “Naththal lang-wenakota, thava badu mila wediwai (As Christmas nears, prices of goods are further likely to go up).”
The economy is going through ups and downs. On the fiscal side, the Government is trying its utmost to reduce the burden to the budget deficit by passing on fuel prices as they increase overseas and attempting to keep the budget on track though with an election year looming in 2019, it would be hard to keep to budget targets and increase revenue while curbing unnecessary spending. Central Bank Governor Dr. Indrajit Coomaraswamy’s repeated hope is that economic fundamentals and disciplined spending will prevail despite the political pressure. The Governor, speaking at an investment forum on Tuesday, was quoted as saying that policymakers should stay the course despite the onset of elections next year. “If discipline is not maintained, then all bets are off,” he had warned.
At a discussion on the economy organised by the Sunday Times Business Club last week, the following points were highlighted by a group of eminent panellists:
- There are bigger challenges this year with revenues low and GDP under 5 per cent.
- There has been more revenue consolidation rather than focus on expenditure.
- Sri Lanka has to make debt payments of US$4 billion per year for the next three years.
- The Government has over the past three years stuck rigidly to tackling the budget deficit.
- There have been improvements on the fiscal side and also improvements in exports.
- Among the challenges: Weak growth; six quarters of growth have been lower than 4 per cent; vulnerable to external shocks.
- The threat to the economy is more to do with external debt payments.
- Foreign exchange reserves are now at four months of imports; danger signals if it falls below three months of imports.
- Gradual depreciation of the rupee is inevitable.
- Investors will factor political stability in 2019. They will wait and see the political risks.
Perhaps, the most striking comment at the discussion and connects with today’s discussion in the column, is that there is no economic crisis (as yet) but there is a ‘crisis of confidence’. It was stated that the public is not convinced about the fundamentals in the economy. The moment public confidence erodes in governance and the Government’s management of the economy, the problems begin!
One example is the positive news that ‘headline’ inflation had slowed to 0.9 per cent in September, the lowest since January 2016, from 2.5 per cent in August 2018 on a year-on-year basis. The decline in the food category particularly that of vegetables, coconuts, green chillies and fresh fish prices has contributed to the significant deceleration in headline inflation, official data by the Central Bank showed.
But despite this good news, consumers are worried and wonder how to cope with the cost of living as their buying power has not changed, according to a consumer rights group. “Even though the prices of food items have decreased people are unable to cope with their expenses,” a spokesman for the National Movement for Consumer Rights Protection was quoted as saying in a news report.
Consumer spending is on the decline and this is showing amongst all the white goods manufacturers and distributors which are likely to show negative results on the bottom line in their year-to-September 2018 accounts. The coming festive season – Christmas and the New Year – is also likely to be filled with great offers, discounts and amazing credit card offers as companies tap the wallets of reluctant consumers.
The cheque economy is also at crisis point. At the branch of a local bank, a manager showed a long-standing customer a bundle of returned cheques, saying “these are genuine businesses and loyal customers and despite delayed payments or returned cheques, we cannot refuse credit”.
The uncertainty, according to a host of senior managers and CEOs I spoke to, is essentially because politics is intertwined with business and the economy.
Economic and trade policies are connected to the politics of the ruling party and meant to boost that party’s standing at the next election. Thus, there is, unfortunately, no separation of the economy, trade and investment flows without political considerations. “If business is allowed to run with smooth policies and consistent ones, it does not matter if politicians are fighting, the systems will run without a fuss,” noted a top CEO.
Separation of these functions in a democracy is the biggest challenge facing Sri Lanka. Amidst the gloom, there was a silver lining: Sri Lanka being designated as the topmost destination to visit by the renowned travel company Lonely Planet in its list of 10 best places with Germany in second place. In fact, tourism is doing well and with this new accolade, the winter season looks promising for local hoteliers.
Meanwhile, under the Margosa tree, the three musketeers – Kussi Amma Sera, Serapina and Mabel Rasthiyadu continued their chat over a cup of morning tea, laughing away at someone’s joke. Life is not all that complicated and confused, it seems.