Financial mess and painful solutions

The country is facing the worst financial crisis ever, already declared unable to pay the loan instalments borrowed from multiple sources, the claim amount to accepting bankruptcy. The country is discussing with the International Monetary Fund (IMF) and expecting help to recover. With the agreement with the IMF, other debt holders will reduce their demands. But prior to assistance basic adjustments to economy and administration are required. Regular discussions are conducted between two parties, showing how much IMF is interested and the details they go into.

The situation, a result of country’s expenditure exceeding income since independence except for two years. Fund shortages were covered with loans, also by printing money. Most development projects were carried out with foreign loans but failed to yield expected results. But the loans need to be repaid, settled with more loans resulting in a mountain of loans. 

Gotabaya Rajapaksa elected under this background proved to be completely ignorant of financial matters. He started with a massive reduction of taxes and absorbed 60,000 unemployed graduates into the overloaded state service. He fought the Corona epidemic as another war and purchased vaccinations early, when early prices were high, and became among the first countries to have vaccinated the population. Also, the epidemic forced the country to be locked down for almost two years, with no tourists.

With foreign exchange shortage the President stopped import of inorganic fertiliser and output from Maha cultivation lowered by one third. Meanwhile the Central Bank spent over five billion Dollars attempting to sustain the Dollar around Rs.203. When the Dollar was finally released, it shot up to around Rs. 380.

With the devaluation of the Rupee most small and large organisations are forced to lay off workers. Price increases of steel and cement have stopped or delayed constructions. With price increases of every consumer item, feeding even the small children is an issue. 

With 12-hour electricity power-cuts in February, also petrol and gas shortages affecting all, Aragalaya, the revolt against Gotabaya started, forced Gotabaya to leave and Ranil Wickramasinghe took over.

The basic issue

The country’s critical issue is the shortage of foreign exchange for the import of essential items. Highest share is the import of oil and coal for power generation, where nearly 60% of electricity is generated. CEB attempted to hide that solar and wind power were cheaper, even when their own 110 MW wind power plant produced electricity at around Rs. 6 a unit. Why didn’t they continue to develop additional wind power plants? If power were generated through solar and wind, the import of coal and oil could be reduced with no FE issues. 

Meanwhile, the Auditor General’s report to Parliament in February 2022 disclosed that by 2019 there were 1,374 prospective investors having paid a fee, capable of producing 4,015 MW of electricity, awaiting CEB acceptance. As a result, in 2018 no more solar, wind, bioenergy and small hydro power plants were allowed, but respective governments nor the opposition failed to even discuss the issue. Even today the Energy Minister seems to be ignorant of true facts.

Ranil addressed basic issues

With Ranil taking over, the Presidency managed to get foreign help. Indian funds helped oil imports and cooking gas with World Bank funds. But prices of all were raised. QR code eliminated the petrol queues and increased gas supply removed queues.

Education

Free education commenced by CWW Kannangara was overturned by SWRD Bandaranaike in 1957 into Sinhala only, leading to crashing of education standards without employment opportunities. This created the JVP, which led to riots in 1971 and many riots thereafter. Riots in 1987/89 and school closures resulted in the spread of private schools in the English medium. These children locally join private universities or move abroad afterwards. 

Those entering private universities after two or three years move to foreign universities. Most of them rarely come back to Sri Lanka. The children’s expenditure in university fees and living expenses are met by parents, leading to illegal sale of foreign exchange.

With no employment opportunities politicians recruited youngsters from their electorates into organisations under them, irrespective of vacancies, increasing salary costs. Others are forced to go abroad for employment, women as housemaids and men as labourers in building construction. Meanwhile, most nurses in Arab countries are from the Philippines and shop salesmen are recruited from India due to their English knowledge.

Under an agreement with the USA opportunities exist for local nurses to get employment in the US. But out of 425 nurses who had applied, only three nurses passed the language proficiency test. Also, agreements exist between governments of Japan, Korea and Israel for trained workers. But sending is low due to language proficiency and needed skills.

For the country to advance, the education needs to be in English medium with emphasis on English, writing skills and IT. But converting teachers to English medium will be difficult. University courses that cannot yield employable graduates need to be disbanded. It was revealed that nearly 45% of the monks in universities disrobed after university.

IT sector

Meanwhile, the local IT sector is facing an inability to fill vacancies due to lack of IT and English knowledge of students. Our leading University at Peradeniya expects to commence IT education only in the coming year. Peradeniya for generations with Sinhala, Pali, Sanskrit and history producing unemployable graduates.

Our IT sector has set a target to earn $ 5 billion annually, from its current level of $ 1 billion in exports by 2025. But large numbers employed in the IT sector are leaving the country at an increasing rate. A job site topjobs.lk, reveals around 300 vacancies for jobs from senior developers, senior software engineers and others. Thus, the Government urgently needs to convert A Level classes to English medium along with IT as a subject, and also encourage private Universities by recognising them. 

Vocational training

Young school leavers need to be directed towards employable skills with vocational training.  The Department of Technical Education and Training with the main training center at Maradana was in existence for nearly 100 years, with branches countrywide, and failed to make an impact on the school leavers.

Meanwhile, creating new opportunities for youth in the growing fast-food sector, the first vocational training kitchen was established a few weeks ago with help from USAID at the Kuliyapitiya Technical College. Supported by Gamma Pizzakraft Lanka, the owner of Pizza Hut in Sri Lanka with a $ 1.3 million grant. The project expects to build vocational training kitchens at 28 Technical Education and Training centres across Sri Lanka, expected to train 2,100 youth annually.

Road construction

By the mid 1990’s our roads were in an extremely poor state. Chandrika Bandaranaike wished for a highway to Katunayake airport. The road was expected to run parallel to existing Negombo road, a few hundred meters towards the landside, expected to cost around Rs. 5 billion, but involved acquisition of land and demolition of houses on the route. When owners protested Chandrika said: “I will shift the road to marshes,” and moved over to the current route. Construction was delayed and completed costing around Rs. 55 billion.

After the southern expressway, every main and minor roads were asphalted (carpeted) with funds obtained as loans. Some contracts were awarded with political involvement. The Government introduced duty-free vehicle imports, resulting in cars, three-wheelers and motorcycle numbers increasing many fold.

Local apples

The maiden harvest of a green apple plantation cultivated on two acres in Galgamuwa was presented to President Ranil Wickremesinghe a few days ago. The President tasted the samples. But on TV apples looked small. The cultivator told the President that the apple seeds were imported and blended with a local fruit masan. But a local apple to compete with imports needs to be of high quality. The issue faced by our Bibile green oranges competing with imported oranges is an example.

But possibility is shown by TJC mango, a popular variety, available in supermarkets during season, currently cultivated over thousands of acres in the dry zone and exported to a number of countries. TJC mango was developed in early 2000 by Tom Ellawala, a former tea planter and Juan Carlos, an agricultural expert from FAO, a result of research conducted over a few years. If our agricultural experts get involved developing an apple variety, creating an acceptable product will not be difficult. 

Paddy cultivation after organic fertiliser

With the introduction of organic fertiliser under Gotabaya, paddy cultivation failed. When the farmers wished to cultivate last Yala season, politically involved persons conducted protest marches, opposition leader Sajith Premadasa also led protests, demanding chemical fertiliser and attacking the government. But practically majority farmers have cultivated their fields, but selling their paddy became an issue. Paddy Marketing Board (PMB) purchased the initial stocks but lacked the funds to pay the farmers.

PMB existed for a long time. During the Sirimavo Bandaranaike regime in early 1970’s a series of concrete paddy silos were constructed around the country, for storage and milling of paddy. The writer was in charge of construction of a silos complex in Hasalaka. When visited a few years ago, the mill had been abandoned and people had encroached into the compound. The similar storage facility in Polonnaruwa is currently occupied by a garment company.

Meanwhile, a flour mill with concrete storage silos by the Colombo Port’s Vijaya Quay built during late 1960’s is currently used by Serendib Flour Mills. Then constructed under SEC Chairman Dr. A.N.S. Kulasinghe for the Flour Milling Corporation. It is clear that being unable to maintain multiple paddy silos was a result of inefficiency of PMB. Or is it that storing paddy in gunny bags makes misappropriation easy.

Reduction of petrol and gas prices

Over the past few weeks petrol prices were reduced by Rs. 100 in three stages. In addition, gas prices too, were reduced, but the way is questionable. Litro called tenders for supply of gas with an $ 80 million loan from the World Bank. But accepted a tender for $ 127 a ton overlooking the $ 97 bid. Based on the award imports continue at the originally agreed price over the last few months. But the Litro Chairman reduced retail prices claiming world market prices had come down.

Early this year petrol and gas were in short supply resulting in long queues, also prices were high. With the introduction of QR code, the petrol queues disappeared, but high prices remained. Citizens got used to high petrol prices by reduced travels, also ensuring multiple tasks during a single trip. For gas, people were forced to move over to firewood. Even when gas became available, housewives continued to use firewood, saving the gas for emergencies. 

The high prices of petrol and gas enabled the country to save valuable foreign exchange. Reducing prices will make the Minister of Power popular, but the citizens will move back to old ways resulting in higher consumption and imports.

Meanwhile, renewable energy suppliers who deliver cheapest electricity with no foreign exchange involvement, complain they were not paid for over a year for the electricity they supplied. Also, building contractors were forced to stop work as their bills were not settled. It would have been better instead of reducing prices of petrol and gas, the money was used to pay electricity suppliers and the contractors. When all this happened what were the Cabinet members doing?

Ceylon Government Railway (CGR)

The railway opened the Colombo - Kandy line in 1858, to assist European coffee planters to transport their production for export, was extended to over 1,500 km with time. The golden age of Railways is considered the period from 1955 to 1970 under the General Manager B.D. Rampala.

But today the income from railway ticket sales is insufficient to purchase diesel for the engines. How did we come here? During British rule Government staff were expected to live within 10 miles. The limit was increased in stages, finally removed. 

Today some government staff travel daily from Matara, Kurunegala, Kandy etc. with season tickets costing only a pittance. The charges were not revised over decades. In addition, Government staff enjoy three railway warrants to travel anywhere free with their families.

Railway staff are a special lot. An engine driver driving a train from Colombo to Jaffna is not allowed to drive more than eight hours and will get down at Anuradhapura (around six hours) along with the guard. They are put up in the circuit bungalow, given free food and accommodation, and will return after a minimum six-hours rest. They are entitled to overtime payment from eight hours leaving Colombo until coming back to Colombo. 

Railway has a number of luxury trains supplied from India with air-conditioned first, second also third-class compartments, 200 seats in each. But unused due to shortage of drivers and guards with over 600 vacancies each. Unless and until many issues are resolved, the Railway cannot be expected to break even.

Railway is not the only institute whose staff enjoy special benefits. CEB, Petroleum Corporation, Water Board and the Port are a special lot whose employees get a 25% salary increase every three years. In addition, their income taxes are paid by the organisation.

Excessive staff in government service

The country’s highest expenditure is the salary payment of government staff around 1.8 million. These numbers arose with politicians pushing their supporters into organisations under them. Armed forces had to increase their staff to fight the war. But after the war ended recruitment continued, especially during the Gotabaya regime, former Permanent Secretary to the Ministry of Defence. 

Organisations such as Railway who are short of drivers and guards, also other positions which require training. If applications are called from current employees in government these vacancies could be filled.

 A newspaper reported there are over 4,000 medically unfit persons in the Police force, who are excused from most work. There may be many similar people in various departments.

Ranil to the rescue

Ranil Wickramasinghe took over the presidency at the most difficult period of the country. He solved the petrol and gas shortage, there are signs of consumer item prices coming down, but not to former levels. With the Maha harvest expected in February, rice and corn shortages will ease, reducing egg and chicken prices. 

But the President is under pressure from the IMF to take unpopular corrective steps. At an early discussion with the IMF, Ranil agreed to reach an income of 2% over expenditure by 2025. Thus, the budget as well as planning will aim to achieve the target.

The President informed at a meeting, with regard to taxation he wished to tax only persons earning over Rs. 200,000 per month. But when the expected tax income was calculated, the income fell below the target agreed with the IMF and was forced to lower to Rs. 100,000 per month. Crucial discussion with Sri Lanka’s creditors is scheduled for early November. During this meeting, Sri Lanka’s debt restructuring is to be discussed at length.

The President’s next budget speech expected soon is bound to shock the citizens. Only way to bring some calmness among the public is by announcing reduction of privileges to Ministers and MPs as various personal allowances, security staff, vehicles, numerous Secretaries and their vehicles. If the Indian luxury trains currently idling are used on long distance daily runs, the politicians could use them and their massive petrol allowances could be reduced.

The highest expenditure is in the payment of salaries of government staff. The actions President agreed with the IMF for the reduction of employee numbers and other policy changes are bound to shock citizens, but reduction of MP’s benefits will give them some consolation. 

The country’s financial crisis is due to corrupt politicians, excessive government staff and over one million three-wheelers. In addition, paddy farmers getting field preparation and harvesting done with machinery, expect high prices for their paddy. Unless these issues are addressed, coming out of the crisis will not be easy.