Steadying the ship
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With travel restrictions ending but social distancing advocated as the new Delta COVID-19 variant caused havoc in many countries, the down-the-lane trio was meeting more frequently.“Basil amathi kenek wuna-ne. Mama kalpana karanne ethuma kochcha avashyada kiyala Rajapaksa aanduwata (Basil became a minister. I wonder how important he is to the Rajapaksa regime),” said Serapina, sipping a mug of tea under the margosa tree.
“Harima veda-gath, ekai ethumawa Mudal Amathi karala thiyenne (Very important, that’s why he has been made the Minister of Finance),” said Mabel Rasthiyadu.
“Rajapaksa pavulawa navath wanna be. Than hath denak parlimenthuwe saha cabinet mandalaye innawa-ne. Chamal, Mahinda, Gotabaya, Basil, Namal, Shasheendra saha thava manthri kenek innawa nede kena wena kenek (The Rajapaka clan is unstoppable. They have a total of seven in Parliament and the Cabinet. There is Chamal, Mahinda, Gotabaya, Basil, Namal, Shasheendra and another MP who is a relative),” noted Kussi Amma Sera, adding that she felt the all-powerful Basil will make a sizable contribution to the affairs of the state.
While having my morning mug of tea on this bright Thursday, I reflected on Kussi Amma Sera’s statement that the Rajapaksas are unstoppable. The youngest of the Rajapaksa brothers, Basil has always had a powerful position in the government, earlier serving as Economic Development Minister under then President Mahinda Rajapaksa.
“Will he be able to cure the country of its many economic ills,” I asked myself, watching a TV news programme where one of his supporters said he had faith in Basil solving growing unrest over the fuel price hike and the fertiliser crisis.
At that moment the phone rang. It was Kalabala Silva, the often agitated academic. “I say… I was drawn to a news item on the web where the Central Bank says growth prospects are good this year. How can that be when we are in the midst of a terrible pandemic,” he asked.
“I tend to agree. There are many tough economic challenges this year, the biggest being the foreign exchange crisis that we are faced with. According to the latest data, as of end June 2021, the gross official reserves were estimated at US$4 billion which is equivalent to 2.7 months of imports compared to $8 billion and 6 months of imports some years ago,” I said.
“The Central Bank says the first quarter of 2021 (January-March) growth was better than expected and that 5 percent growth can be achieved. Can we believe these figures,” Kalabala asked once again.
“Well that remains to be seen whether we can or cannot achieve this growth rate. It’s also possible since last year’s growth was negative (-3.6 percent); any growth would be off a low base,” I said, after which we discussed many other issues and promised to touch base next week.
At Wednesday’s Monetary Board meeting of the Central Bank, it was decided to maintain interest rates at current levels – which have been unchanged for exactly a year (the last time it was changed in July 2020). This is good news for those seeking to invest in the economy with such favourable borrowing rates, while it was continuing bad news for those depending on interest income from deposits, particularly pensioners whose annual earnings have been cut by half.
While the forex reserves are at dangerously low levels, this doesn’t seem to worry the country’s chief spokespersons like State Minister Ajith Nivard Cabraal or Central Bank Governor Prof. W.D. Lakshman, both convinced that forex inflows from swap deals with China, India and Bangladesh can meet any urgent loan repayment commitments. On Thursday, the Central Bank ruled out any plan to seek support from the IMF.
The Central Bank said in a statement on Thursday that speculative behaviour and frontloading of imports had caused undue pressures in the domestic foreign exchange market. “Although the level of foreign reserves could experience some variations in the period ahead, such developments are expected to be temporary, with adequate financing strategies lined up to maintain reserves at sufficient levels and to meet all maturing debt servicing obligations of the Government on time,” it assured the public.
While the US dollar has been trading at Rs. 202-203 in the official inter-bank market, it was trading at Rs. 220 (buying) and Rs. 230 (selling) amongst licensed money exchange dealers.
The saving grace in the economy has been the increase in remittances by migrant workers despite troubled employment conditions abroad particularly in West Asia. The increase is also remarkable since less than 100,000 Sri Lankans went to work in West Asia last year compared to an average 200,000 per year.
While remittances rose by 5.8 percent, year-on-year, to US$7.1 billion in 2020, this figure rose by 18.2 percent, year-on-year, in January to May 2021 to $2.84 billion. The reason for the increased remittances, despite fewer jobs in West Asia, was migrant workers sending more money home to help families grappling with the pandemic or assist family members who had lost jobs. According to Central Bank data for 2020, 51.7 percent of the remittances came from Sri Lankans in West Asia, while the next big chunk came from Europe (19 percent) and the Far East Asia (Singapore, Malaysia and Korea included – 12.2 percent).
New Finance Minister Basil Rajapaksa will have his work cut out tackling the enormous challenges in the economy and one of his first tasks would be to ensure the smooth repayment of a $1 billion international sovereign bond due on July 27, for which funds have already been allocated by the Central Bank.
Another challenge is the looming withdrawal of the GSP+ concessions, with the government preparing a response to the European Union.
Taking a bite off a ‘malu paan’ and a sip from a second mug of tea, I closed my computer after finishing the column, wondering whether the Rajapaksa clan – similar to the ‘Magnificent Seven’, a 1960 American Western movie showing a group of citizens saving a town from a gang – would ride to success, saving the economy.