Editorial

And so, the country has reached its nadir. The Prime Minister says it is the worst economic crisis faced by this island nation since the 1869 coffee blight. So then, it is not even the worst since Independence as is commonly said.

When the World Food Programme (WFP) launches a mobile phone app appealing to people around the globe to provide a Sri Lankan child with a meal for 80 US cents, and this country is now being compared to one of those famine-prone states of yesteryear Africa, it speaks for itself. And are there no consequences at all for those responsible for dragging this nation and its people to such a plight? Seemingly not.

For a left-of-centre coalition that rode to office opposing any reforms to state-owned enterprises (SOEs), they have been forced to come full circle, due to sheer necessity. They are now looking for foreign partners across the board.

The IMF is almost certain to recommend a ‘haircut’ to these SOEs. The Government will have to ensure structural reforms apart from addressing a host of other issues ranging from rising inflation, revenue collection through far-reaching tax reforms, and the restoration of debt sustainability to appease the country’s many creditors. These reforms are certain to meet with continued trade union action and opposition political parties weighing in to gain political capital aiming for electoral fortunes at a coming election.

And yet, such ‘haircuts’ are inevitable for any future Government which will have these same headaches to cope with. For the first time, the IMF has also referred to “reducing corruption vulnerabilities”.

Today, the ordinary citizen is called upon to pay for the corruption, and the inefficiency, of the many overcrowded, monolith SOEs and the vastly bloated and unmanageable public sector.

Back during the last days of the brief 2001-2004 Government, a Cabinet paper was mooted towards a partial policy shift to remedy the Ceylon Petroleum Corporation’s (CPC) inefficient distribution system. When Indian Oil (Lanka IOC) was invited in 2003 to take a share of the fuel distribution in the country, an open tender was also called for an international trader to take further CPC sheds, minimising and not entirely abolishing its role in the business. A major Chinese oil trading company won the tender ‘fair and square’ and there was no need for ‘sutras’ (pricing formulas) in a competitive marketplace. Consumers, like in many other countries, will simply look at the price at one shed and go to the next station if the price is cheaper. Consumer was king, not the CPC. But the incoming ‘socialist’ regime of 2004 abandoned the proposal and went back to its merry ways of fixing unviable prices for petroleum products.

Lessons of the past have hopefully been learnt and the current Government is now desperately seeking international traders to import and distribute petroleum products, almost going back to the pre-nationalisation years of the 1960s. The selected firm or firms should be able to provide dollar credit when oil prices are high and repay their loans when prices are moderate. Given the risks faced by these firms in such an environment, market prices will be the norm and the CPC will have to compete or perish.

IOC is the only other player in the fuel market with CPC. Its pricing policy is guiding CPC’s pricing policy and asking for a further 200 sheds to increase its footprint in Sri Lanka. Meanwhile, the Delhi Government is actively promoting – through non-transparent negotiations on behalf of one billionaire businessman – to price one unit of power from a 500 megawatt renewable energy project in Sri Lanka at seven and a half US cents per Kilowatt Hour (KWH) when the going price is 5 US cents/KWH, or less. The company will realise a minimum surplus profit of USD 25 million a year in perpetuity in addition to more than the adequate return it will earn to recover its investment costs at a projected competitive price of 5 US cents/KWH.

Without such a competitive price for renewable power, the poor consumer will have to endlessly stomach the brunt of the ‘neighbourhood first’ policy.

Parts of the political establishment in Delhi, particularly its Ministry of External Affairs is focused on getting the best deal for itself out of the misery of Sri Lanka’s crisis. It cares two hoots for the northern Sri Lankan fisherfolk whose livelihoods have been deprived by south Indian fishermen brazenly raping the marine resources in Sri Lankan waters from the seas off Mannar in the north-west to Mullaitivu in the north-east. The Sri Lankan fishermen, now without diesel or kerosene for their boats, are muttering in frustration as neither Colombo nor Delhi, nor their northern elected representatives, intervene on their behalf.

A high-level official Indian delegation that was in Colombo recently appeared to dictate terms to Sri Lanka’s current political leadership about what should be done, and not be done. Clearly exploiting the pitiful plight of the Government they were asking for more Indian ‘projects’ in the country and implicitly if not explicitly calling for a downgrading of China’s influence not just in the North but everywhere in the island.

Without fuel, Sri Lanka will perish. The country previously faced oil price shocks to the economy in 2000, 2008 and 2011-2014. On the first two occasions, the Government was forced to seek IMF help to shore up rapidly falling foreign reserves. The war in Ukraine has sent prices soaring again this year. The economy has gone into a tail-spin and is grinding to a halt.

Everything is already moving in slow motion and exporters are sounding grim warnings. The Government, notwithstanding the possible objections of control-oriented Central Bank bureaucrats, must discuss with exporters to find ways to expeditiously bring in export earnings and sell in turn to importers to relieve the enormous pressure for essential imports. Exporters rather than commercial banks, or other intermediaries, must be permitted to fully realise their hard-earned profits.

It is good to recognise that the recovery cannot be limited to an over-reliance on India or the IMF or the US government. It is important to strike a balance and reach out to West Asia and other sources for gas, oil and other commercial and investment needs. The exploitation of our people by the state through SOEs and crony capitalists hand-in-glove with politicians must end sooner than later.