Trade and budget deficits
Prof. Sirimal Abeyratne’s (SA) write-up on Trade and Budget deficit which appeared in last week’s Business Times indicates that Sri Lanka has been experiencing a persistent trade deficit (TD). According to the Central Bank Annual reports the trade deficit in Sri Lanka, as indicated in the table, during the last five years, has continued to increase from US$7609 million in 2013 to $10,343 million in 2018.
A tea worker picks leaves at a local plantation. Tea has been the country's main agriculture export
Persistent increase in TD is primarily attributed to increase in imports without corresponding increase in export earnings. Reduction of imports is necessary to reduce TD although SA is of the opinion that curtailing the market with import control does not generate economic growth. This is not necessarily so as reduction in import expenditure indicates that a country is increasing its production which will provide at least some of the needs of the people. We annually import food worth around $20 billion and if this amount is reduced due to an increase in local food production, obviously it indicates a positive economic growth. This also applies to industrial goods. A decrease in imports also is an indication that unemployment has reduced. However, an increase in imports of capital goods raw materials, parts and components etc is an indication of an improvement of the economy..
Increase export earnings
SA in his write up correctly indicates that sluggish exports growth is not a sign of a healthy economy. Our annual exports have been fluctuating around $11 billion. As indicated in the table, exports in 2013 were $10,394 million and it has increased only to $11,690 million by 2018. The dire need to increase our export earnings to meet the severe financial crisis we are facing today has been emphasised by many. A number of strategies need to be considered in increasing export earnings.
Role of the plantations sector
Around 800,000 ha are cultivated with plantation crops tea, rubber, coconut etc and this sector, in the recent past, played a very important role in increasing our export earnings. However, production of these major export crops doesn’t show any substantial increase during the last five years. Tea production has been fluctuating around 300 million kg during this period and it is unlikely that tea exports will increase substantially in the near future. It is the same story in the rubber sector. In fact, the annual total rubber production has decreased from 130 million kg in 2013 to 83 million kg in 2018. Coconut production too has declined during the present decade. This appalling situation in the plantation sector can be attributed to many factors. A large number of crops other than tea, rubber and coconut cultivated in Sri Lanka have a high potential as export crops. Among these are spice crops such as cinnamon, tuberous crops, horticultural (fruit crops) and floricultural crops, medicinal herbs etc. Promoting the cultivation of these crops would enable us to increase export earnings.
Agro-industries
Agro-industries have a considerable positive impact on increasing export income, unemployment and rural poverty. A large number of crops cultivated in Sri Lanka, including rice, have considerable potential in various agro-industries. However, only rubber, coconut and a few fruit crops are used in industries. Crops such as cassava, horticultural and floricultural crops, medicinal herbs, cane, bamboo, sunflower, castor, ayurvedic herbs etc have considerable potential as export crops, but are not cultivated to any appreciable extent. The private sector can be involved in such projects for which appropriate technical assistance need to be given by the relevant public organisations. However, there appears to be no proper long-term plan to develop agro-industries, except for some ad-hoc projects. The Ministries of Industries and Agriculture should implement an effective Agro-Industrial Development Programme, in collaboration with the private sector, which undoubtedly would improve export income, employment opportunities and incomes in the rural areas.
Reducing imports
While we talk about strategies to increase exports, there appears to be not much emphasis on reducing imports, which will have an appreciable impact on reducing trade deficit. Imports have increased appreciably from $18,000 million in 2013 to around $22,000 million in 2018. Based on Central Bank reports expenditure on food and beverages in 2014 was Rs. 213,308 million and this has increased to Rs. 259,659 million in 2018. The expenditure in 2020 on food imports is likely to be even more due to the depreciation of the rupee and decrease in food production due to drought. 
Most of the food imported such as sugar, milk food, lentils, chillies, onion, maize etc involving nearly Rs. 250 billion annually, can be locally produced, thereby reducing expenditure on food imports. For example, nearly 16 per cent of food imports is spent on importing sugar, most of which can be locally produced. Sugar production in the country has not increased by any appreciable amounts during the present decade in spite of three sugar companies, Pelwatta, Sevanagala and Hingurana. The Kantale sugar factory remains closed over a long period, while a plan to cultivate sugarcane in Bibile remains shelved. There are crops such as coconut, kitul and palmyrah which can be used to manufacture sugar based substances such as jaggery and treacle, but there appears to be no effective strategy to promote the production of these crops.
With regard to milk production we have around 1 million cattle consisting of mostly indigenous cattle. Their productivity is low (1-3 litres/day) mainly due to the poor nature of the breeds and inadequate low quality feed supply. There appears to be no effective plan to improve the local breeds and supply of cattle feed. The dairy industry has a potential to contribute considerably to Sri Lanka’s economic development. But, instead of implementing an effective plan to develop the dairy industry in the country, the government imported around 20,000 cattle from New Zealand and Australia involving $73 million. There are reports to indicate that some of the previously imported cattle have a virus disease, and it may affect the local cattle. Importing cattle to improve the dairy industry in the country is a futile action. It is not going to increase milk production in the long run, unless there is an effective programme to upgrade local cattle breeds, promote cultivation of pasture grasses and effective veterinary services.
Although we say that we are self-sufficient in rice (a carbohydrate), a large amount of wheat flour (another carbohydrate) is imported at a cost of around Rs. 45 billion. Annual wheat consumption in the country has increased from 38 kg/per person to nearly 80 kg/per person. There are many tuberous crops such as innala, sweet potato, yams which can replace a part of the wheat flour we import thereby reducing expenditure imports.
Eppawela Apatite (EA), which was discovered a few decades ago still remains partly underutilised. EA can be used to manufacture phosphate fertilisers. But, we still grind the rock and use the ground apatite as a P fertiliser, while spending millions to import Single Superphosphate and Triple Super Phosphate, which can be manufactured from EA.
The expenditure on subsidiary crops such as chillies, green gram, ground nut, potato etc is millions of rupees. The average per hectare yields and the extent of these crops have not increased to any appreciable amount during the last decade. A few years ago, when Chamal Rajapaksa was the Minister of Agricultural Development in the cabinet of former President Mahinda Rajapaksa, he appointed an Advisory Panel to make proposals to develop the agricultural sector so that there is a quantitative and qualitative increase in crop production at a lower cost with no damage to the environment. During the last few years numerous programmes such as “AMA’, “Waga Sangramaya” and “Govi Sevana” were implemented. All these activities/programmes, appear to have not made any appreciable positive impact on the agricultural sector of the country indicated by increasing expenditure on food.
Science and Technology
During the last two decades, most of the South and South East Asian countries develop substantially by effective use of Science and Technology (S&T). However, in Sri Lanka, in spite of a number of scientific organisations which use a considerable amount of scarce financial resources, S&T has been used to a relatively very little extent to improve the economy of the country.
A primary objective of the use of S&T in a developing country such as Sri Lanka must be to conduct appropriate studies on the critical issues and advise the authorities on relevant action to be taken. S&T needs to be used to make use of locally available resources. Conducting research alone will not lead to economic development, unless the technologies developed by research are made use or commercialised. Organisations such as the Industrial Development Board, the Board of Investment etc need to coordinate with the relevant scientific organisations to attract investments on commercialisation of proven technologies.
In Sri Lanka, during the last two decades, perhaps a few thousands of research studies, involving billions of rupees worth of scarce resources, have been conducted. Findings of these research projects were presented at numerous conferences, seminars etc. It is important that we utilise these research findings to find solutions to the pressing problems of the country. But, there appears to be no effective system to achieve this. Instead, the authorities are concerned in conducting more and more seminars and symposia without any plan to effectively utilise the findings/conclusions.
Controlling non-essential imports and producing substitutes are essential to reduce the increasing trade deficit. In Sri Lanka we have been affected by persistent trade deficits over the years, but the relevant authorities appear to have miserably failed to implement effective strategies to ameliorate this situation, indicated by the continuous increase of the trade deficit during the last few years. Strategies to reduce trade deficit would involve implementation of effective short, medium and long term plans. The responsible organisations need to discuss these issues and take appropriate action. There has been rhetoric on reducing trade deficit. It is meaningful and effective actions that are necessary.
(The writer is a former Professor at Ruhuna and Rajarata universities. He can be reached at csweera@sltnet.lk).