Daunting challenges
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As I watched from my home-office window, Aldoris, the choon-paan karaya in his modified tuk-tuk accompanied by his unmistakable tune, driving down the lane, I reflected on a number of developments that garnered the government’s attention this week.Adding to the new developments are the persistently ‘ongoing’ ones like protests by farmers across the country over the ban on chemical fertiliser and teachers over salary anomalies and demands for a phone allowance as they have to spend their own money to provide online classes, a must these days as schools are closed due to the COVID-19 pandemic.
What were the main issues this week? The government easily defeated a no confidence motion against Energy Minister Udaya Gammanpila over ‘arbitrary’ fuel price increases, with the opposition only able to muster 61 votes against the ruling alliance’s 152 votes.
If that was the positive news for the government, the negative developments were a Laugfs Gas decision to suspend gas imports against the government’s failure to allow it a price hike in view of rising global gas prices which could lead to a shortage of LNG (liquefied natural gas); the growing shortage of US dollars in the market which has affected even essential imports like fuel oil; and rating agency Moody’s announcement that it plans to review the rating of Sri Lanka’s creditworthiness, a move that annoyed the Government, prompting the Finance Ministry to say that this merits a review of
Sri Lanka’s relationship with credit rating agencies.
According to Moody’s, Sri Lanka is currently pegged at ‘Caa1’ foreign currency long-term issuer and senior unsecured debt ratings. The ‘Caa1’ rating is judged to be of poor standing and subject to very high credit risk; it’s among the lowest of the credit rating definitions. A sovereign credit rating is an independent assessment of the creditworthiness of a country.
The government is well aware that a downgrade in the rating could create uncertainty among investors who have faith in Sri Lankan International Sovereign Bonds (ISBs) and other investments.
As these developments swept across my mind and I looked forward to discussing this with one of my friends, the phone rang – and as if my prayers were answered – it was my jolly-mood economist friend, Sammiya (short for Samson). Sammiya and I have long conversations on economic matters and I was glad to receive a call from him.
“Hi…hi, thanks for calling. What’s up?” I asked.
“Well there are many developments but the Moody’s rating agency announcement could be a major problem to the authorities,” he said.
“You’re right. If the Sri Lanka credit rating is further downgraded it would affect sentiment among foreign investors in ISBs and other government securities,” I said.
“Would it be correct to say that investors will demand a higher interest rate to invest in these securities since Sri Lanka could become a high (financial) risk country due to its growing foreign debt repayments and sparse foreign reserves which totalled $3.6 billion in June 2021 compared to $8 billion some years back?” asked Sammiya.
“Absolutely,” I said and ended the conversation after discussing some trends in vegetable prices via data from the Central Bank.
While typing my column on this week’s topic, my attention was drawn to the conversation under the margosa tree. Kussi Amma Sera had brought a mug of tea and Aldoris’s ‘maalu paan’ for my breakfast and then walked towards the margosa tree with a plate filled with ‘maalu paan’.
“Mokakda Laugfs Gas ekka thiyena prashne. Egollo gas wikunana eka navaththala-da (What is the problem with Laugfs Gas? Have they stopped selling gas?” asked Kussi Amma Sera.
“Egollo kiyanawa aanduwa denne-ne kiyala mila wedi-karanna. Paadui kiyala (They say that the government has not allowed the company to increase gas prices and they are making losses),” noted Serapina.
“Meka harima prashnayak-ne. Eka athakin, companiyata paadu widinna be. Anik athin, janathavata mila ihala yaamakata moona denna be. Ekai aanduwa me adahasata virudda (It’s a real problem. On one hand, the company cannot make a loss while on the other hand, the people cannot afford a price hike and the government is resisting an increase for this reason),” said Mabel Rasthiyadu.
“Aanduwata prashna godak. Rata-salli hingayakuth thiyanawa-ne. Mama kalpana karanne, eka kohomada wenne kiyala, ape meda peradiga inna sahodara sahodariyo digatama salli evana-kota (The government is facing many problems. There also seems to be a shortage of foreign currency. I wonder why, when our brothers and sisters working in the Middle East are regularly sending money),” added Kussi Amma Sera.
While, as stated earlier, protests are mounting against the government on many fronts like the chemical fertiliser ban, the proposed Gen. Sir John Kotelawala National Defence University Bill which opponents say promotes private university education and impacts on free education, another development that drew my attention this week is the rising cost of living.
Glancing through the Central Bank’s weekly statistics, I came across the prices of a variety of vegetables and rice during the week ending July 16, 2021 most of which have risen from their year-ago comparison. In the retail market in Pettah, per kg of samba was trading at Rs. 150 compared to Rs. 98 a year ago. Red kekulu rice was selling at Rs. 115 compared to
Rs. 93 a year ago.
Cabbage was priced at Rs. 137 vs Rs. 110; snake gourd at
Rs. 160 vs Rs. 116; local red onions at Rs. 296 vs Rs. 200; imported dried chillie Rs. 530 vs Rs. 420. Meanwhile some food items have also reduced in price like eggs (white) selling at Rs. 17.10 vs Rs. 20 a year ago; lime Rs.130 vs Rs. 360 and local potatoes trading at Rs. 196 vs Rs. 229.
The country’s foreign reserves are in a precarious state with banks ‘rationing’ letters of credit (LCs) often, deciding to open LCs for their best customers, while others have to wait in line till there are enough dollars in the inter-bank market.
The government is due to repay a $1 billion ISB which matures on Tuesday (July 27). The Central Bank has asked banks to find their own foreign currency resources to lend to customers and not rely on the Central Bank for foreign exchange replenishment; such is the economic crisis that the country is facing today.
PS: I had wound up my column before Kussi Amma Sera brought in my second mug of tea, smiling: “Sir, liyala ivarada (Sir, have you finished)?” I smiled back my acknowledgement and closed the computer.