Sri Lanka’s financial crisis: Strategies for coping and thriving

People struggle to make ends meet due to rising costs of living and high taxes

Understanding the challenges

Several factors have contributed to Sri Lanka’s economic woes, including:

• High levels of debt: The country’s foreign debt burden has ballooned in recent years, making it difficult to meet financial obligations.
• Rising inflation: The cost of essential goods and services has steadily increased, outpacing wage growth and eroding purchasing power.
• Currency depreciation: The Sri Lankan rupee has weakened significantly against major currencies, making imports more expensive.
• Reduced tourism: The COVID-19 pandemic dealt a severe blow to Sri Lanka’s vital tourism industry, a major source of foreign income.

Strategies for businesses

Businesses in Sri Lanka are facing a tough environment, but there are steps they can take to adapt and survive:

• Focus on cost-cutting: Businesses can look for ways to reduce expenses, such as renegotiating supplier contracts, streamlining operations, and investing in energy-efficient technologies.

“Focus on cost-cutting” emphasises the importance of reducing expenses as a key strategy for businesses to navigate the current economic difficulties. It suggests that businesses should prioritise finding ways to spend less money in their daily operations and overall financial planning.

Here’s a breakdown of the meaning in different contexts:

• Renegotiating contracts: Seeking better deals with suppliers or service providers.
• Streamlining operations: Eliminating unnecessary processes, consolidating resources, and improving efficiency.
• Investing in cost-saving technologies: Adopting automation, energy-efficient systems, and digital tools to optimise operations.
• Reducing overhead costs: Minimising rent, travel expenses, and other non-essential spending.
• For the overall economic situation: It suggests that prioritising cost-cutting might be a dominant strategy across different sectors in the country. This could lead to: 
• Slower growth: Businesses might focus on cost-cutting instead of investments or expansion.
• Job losses: Reduced spending may lead to layoffs or hiring freezes.
• Reduced public services: Government agencies might tighten budgets and limit services.

Therefore, “Focus on cost-cutting” highlights a potential response to the economic challenges but also carries potential consequences beyond individual businesses.

• Diversify revenue streams: Exploring new markets and product lines can help businesses spread their risk and reduce dependence on any single source of income.
• Embrace technology: Adopting digital tools and automation can improve efficiency and productivity, helping businesses to do more with less.

Here are some examples of how businesses can embrace technology to cut costs:

Cloud computing:

• Migrating to the cloud can save money on hardware, software, and IT infrastructure. Cloud-based services are typically pay-as-you-go, so businesses only pay for what they use.
• For example, a small business could use a cloud-based accounting system instead of purchasing and maintaining its own accounting software.

Automation:

• Automating tasks can save businesses time and money. For example, a customer service team could use a chatbot to answer basic questions, freeing up human agents to handle more complex inquiries.
• Another example is using automated software to generate reports, eliminating the need for manual data entry.

Data analytics:

• Businesses can use data analytics to identify areas where they can save money. For example, a retail store could use data analytics to track inventory levels and sales trends that can help them to reduce waste and improve operational efficiency.
• Businesses can also use data analytics to target their marketing and advertising efforts more effectively and save money on marketing spend.

Machine learning:

• Machine learning could be used to improve forecasting and decision-making that leads to cost savings. For example, a manufacturing company could use machine learning to predict when equipment is likely to fail and avoid costly repairs.
• Machine learning can also be used to personalise customer experiences leading to increased customer satisfaction and loyalty, and reduce churn and save money on customer acquisition costs.

Collaboration tools:

• Collaboration tools help businesses to improve communication and productivity thereby saving time and money. For example, a team of employees could use a video conferencing tool to collaborate on a project, even if they are not located in the same place.
• Collaboration tools also help businesses reduce travel costs, as employees can communicate and collaborate remotely.

These are a few examples of how businesses can embrace technology to cut costs. There are many other ways that technology can be used to improve efficiency and productivity that lead to cost savings.

It is important to note that embracing technology is not a one-size-fits-all solution for cost-cutting. Businesses need to carefully consider their specific needs and budget before investing in any new technology. However, when used strategically, technology can be a powerful tool to help businesses save money and improve their bottom line.

• Seek Government support: The Sri Lankan Government has introduced several initiatives to support businesses during the crisis, such as loan programs and tax breaks.

Strategies for individuals

Individuals in Sri Lanka can also take steps to manage their finances during this challenging time:

• Prioritise essential needs: Focus on spending on essential items such as food, shelter, and healthcare.

The phrase “Prioritise essential needs” emphasises the importance of focusing on spending on the most crucial items for survival and well-being. This means allocating limited resources carefully to ensure basic necessities are met before considering non-essential purchases.

Here are some typical examples of essential needs for Sri Lankans to prioritise, considering the current economic situation:

Food: Securing sufficient nutritious food to maintain health and energy should be the top priority. This may involve buying staples like rice, lentils, and vegetables in bulk, and opting for more affordable protein sources like beans and fish. 

• Shelter: Having a safe and secure place to live is essential. If renting, prioritise rent payments and focus on affordable, shared accommodations if necessary. Owning a home, consider renegotiating mortgages or seeking Government assistance programs if facing difficulties.
• Healthcare: Access to basic healthcare, including essential medications and doctor consultations, should not be compromised. Utilise Government hospitals and affordable clinics when possible. 
• Education: Prioritise education for children, ensuring they can continue attending school or accessing alternative learning methods if financial constraints limit options. 
• Transportation: Focus on affordable and essential transportation for work, education, and healthcare needs. Consider public transportation, carpooling, or cycling if possible.

Remember, these are just general examples, and specific needs may vary depending on individual circumstances, family size, and location.

Here are some additional tips for prioritising essential needs in Sri Lanka:

Create a budget: Track income and expenses to understand where your money goes and identify areas where you can cut back.

• Compare prices: Shop around for the best deals on essential items. Utilise local markets and Government-subsidised stores whenever possible.
• Cook at home: Eating out could be expensive. Prepare meals at home using affordable ingredients to save money.
• Seek Government assistance: The Sri Lankan Government offers various programs to assist low-income individuals and families during difficult times. Explore eligibility for these programs to ease the financial burden.
• Communicate with family and friends: Open communication with your loved ones can help identify shared needs and find ways to support each other through challenging times.

By prioritising essential needs and adopting mindful spending habits, individuals in Sri Lanka can navigate the current economic crisis and work towards financial stability. Remember, focusing on what truly matters can contribute to building resilience and well-being even in challenging circumstances.

• Reduce debt: If possible, try to pay down debt or consolidate high-interest loans.

“Reduce debt” emphasises the importance of minimising outstanding loans and liabilities to improve financial stability and manage monthly expenses more effectively. This requires strategic actions to lessen the burden of existing debt and prevent further accumulation.

Here are some typical examples of “reducing debt” suitable for Sri Lankans:

1. Prioritise high-interest loans: Focus on paying off loans with the highest interest rates first. These typically include credit card debt, personal loans, and payday loans. High-interest rates accumulate quickly, hindering financial progress. 

2. Negotiate debt consolidation: Talk to your lenders about consolidating multiple smaller loans into a single loan with a lower interest rate. This can simplify your payments and potentially reduce the overall interest paid. 

3. Utilise Government assistance: Certain Government programs in Sri Lanka might offer debt relief initiatives or financial assistance for low-income individuals struggling with debt. Explore eligibility for such programs.

4. Implement alternative payment plans: Negotiate with lenders to extend repayment periods or arrange smaller, more manageable monthly payments. This can provide temporary relief and prevent defaulting on loans.

5. Refinance loans: If interest rates have fallen since you acquired a loan, consider refinancing to a lower rate that can reduce your monthly payments and total interest paid.

6. Avoid new debt: Resist the urge to take  additional loans during this challenging financial period. Prioritise saving and living within your means to avoid further debt accumulation.

7. Sell non-essential assets: Consider selling belongings you no longer need or use to generate cash and pay down debt. This could be a temporary measure to free up some financial resources.

8. Increase income: Explore ways to increase your income through freelancing, side hustles, or finding a higher-paying job. Additional income can be used to make larger debt payments.

9. Seek financial counseling: Non-profit organisations or Government agencies in Sri Lanka might offer financial counseling services. These professionals can provide personalised guidance and strategies for managing debt effectively.

Remember, reducing debt is a gradual process requiring discipline and commitment. Celebrate small victories along the way and stay motivated by focusing on the long-term benefits of achieving financial freedom.

By implementing these strategies and seeking support when needed, individuals in Sri Lanka can take control of their debt and navigate the current economic difficulties with greater financial stability and peace of mind.

Strategies for senior citizens

Senior citizens in Sri Lanka are particularly vulnerable to the effects of the economic crisis, as they may have fixed incomes that do not keep up with inflation. Here are some steps they can take to protect their finances:

• Review spending habits: Look for ways to cut back on non-essential expenses.

“Review spending habits” for senior citizens emphasises the importance of analysing and adjusting their spending patterns to ensure their financial well-being and make the most of their limited income. This involves actively reviewing past expenses, identifying areas for savings, and implementing practical strategies to optimise their budget.

Here are some examples of reviewing spending habits for senior citizens in Sri Lanka:

1. Track expenses: Maintaining a record of daily, weekly, or monthly expenses for a reasonable period helps identify spending patterns and potential areas for cutbacks. Utilise a simple notebook, spreadsheet, or mobile app to track expenses easily. 

2. Categorise expenses: Divide expenses into essential categories like food, housing, healthcare, utilities, and transportation. This categorisation helps visualise where the bulk of the money goes and prioritise essential spending.

3. Identify non-essential costs: Analyse each category and identify non-essential expenses that can be reduced or eliminated. This could include subscriptions, entertainment expenditures, impulse purchases, or dining out frequently.

4. Negotiate bills: Contact service providers like phone or internet companies to negotiate lower rates or seek senior citizen discounts offered by some businesses.

5. Utilise cost-saving measures: Explore Government-subsidised options for essential needs like food and healthcare. Attend free community events or utilise public libraries for entertainment instead of paid options.

6. Cook at home: Prepare meals at home using affordable ingredients like lentils, vegetables, and local fish to save significantly compared to eating out or relying on processed foods.

7. Consider alternative transportation: Utilise public transportation like buses or trains for essential travel instead of relying on taxis or private vehicles. Walking or cycling for short distances could further reduce transportation costs.

8. Barter or share resources: Consider bartering skills or homemade goods with neighbours or friends for items you need. Sharing resources like gardening tools or household supplies with trusted individuals can reduce individual expenses.

9. Seek family support: Open communication with family members could help identify shared needs and explore ways to support each other financially. Consider living arrangements or shared meal plans to optimise resources.

 Utilise senior citizen assistance programs: Explore Government programs or non-profit organisations offering financial assistance, subsidised services, or social support specifically for senior citizens in Sri Lanka. Seniors in Sri Lanka are eligible for a number of Government benefits, such as pension payments and subsidised healthcare.

Remember, reviewing spending habits is an ongoing process, not a one-time event. Regularly reassess your budget, adapt to changing circumstances, and do not hesitate to seek help from family, friends, or community resources when needed.

By actively reviewing and adjusting their spending habits, senior citizens in Sri Lanka can navigate the economic crisis with greater financial security and maintain a good quality of life.

For senior citizens in Sri Lanka facing the current economic crisis, “Talk to family and friends” emphasises the importance of open communication and social support as valuable resources for coping with financial difficulties and maintaining emotional well-being.

Here are some examples of how talking to family and friends can benefit senior citizens in Sri Lanka:

10.Sharing concerns and seeking advice: Openly discussing financial worries and challenges with trusted family members or friends can provide emotional support and potentially lead to helpful advice or suggestions based on their own experiences.

11.Exploring support options: Family and friends might be aware of Government assistance programs, subsidised services, or local charities specifically catering to senior citizens facing financial hardship.

12.Identifying shared needs and resources: Discussing needs with loved ones can help identify areas where resources can be shared or combined, like shared meal plans, childcare arrangements, or transportation.

13.Reducing social isolation: Social interaction and emotional support from family and friends can combat feelings of loneliness and isolation often associated with financial difficulties, especially for senior citizens living alone.

14.Planning and decision-making: Talking through options and challenges with loved ones can provide different perspectives and aid in making informed decisions regarding living arrangements, financial management, or seeking additional support.

15.Fostering a sense of community: Regular communication and shared activities with family and friends can create a sense of belonging and community that can be crucial for mental and emotional well-being during challenging times.

Here are some additional tips for effective communication:

• Choose a trusted and supportive confidante with whom you feel comfortable sharing your concerns.
• Be specific about your challenges and needs, but avoid dwelling on negativity.
• Focus on finding solutions and exploring options together.
• Express appreciation for any support or advice offered.
• Do not hesitate to seek professional help if needed, such as financial counseling or mental health services.

Remember, talking to family and friends is not a sign of weakness, but a display of strength and willingness to seek support during difficult times. Open communication and strong social connections can be invaluable assets for senior citizens in Sri Lanka navigating the economic crisis and maintaining a good quality of life.

The Sri Lankan Government is also taking steps to address the crisis, such as by seeking International Monetary Fund assistance and restructuring debt. However, it is likely to take some time before the economy recovers.

It is important to note that the economic crisis is a complex issue with no easy solutions. The strategies mentioned above are just a starting point, and it is likely that more will need to be done to help Sri Lanka recover.

(The writer is Managing Partner at A.G. Sarma&Co., (CA) Chartered Accountant, and Tax and Management Consultant. He can be reached via email: [email protected].)