A call to arms?

High cost of living and festive seasons go hand in hand and the upcoming New Year looks set to becoming a particularly difficult one.

With the Central Bank downgrading the economic forecast from eight per cent to 7.2 per cent and a rapidly depreciating rupee adding to increasing imports, the month of April, when consumerism usually spikes, will be expected with a certain level of dread.

The Central Bank insisted that its decision was to curb the growing trade deficit that had doubled to over US$ 9 billion in 2011 on an expanding economy doing well in the time of peace, mostly on vehicle imports. Therefore it made sense for the bank to request financial and leasing companies to reduce loans for vehicle purchases and minimise credit growth in general.

With the US sanctions in Iran coming into the forefront in June, it would make sense for the Government to promote high fuel efficient and environmentally-friendly cars that have the capacity to outride a possible fuel shortage. Since oil in general can be expected to increase in price in the long-term as a finite resource, it would be a sensible investment for most consumers. Moreover, smaller fuel-efficient vehicles would be beneficial to most middle income families whose aspiration is to own a car.

Iran sanctions would also mean that Sri Lanka’s largest foreign exchange earning crop, tea, might be in for a rough time. Iran is the largest buyer of Ceylon Tea and if that market were to reduce and the industry find itself unable to compensate with new markets to expansion in other traditional markets, the result would be worrying. Since production costs and efficiency levels are well below their potential in Sri Lanka, the challenge grows tougher every day.

When one considers the Greek and Italy crisis that has spurred a larger Eurozone downturn, the popular policy decision has been austerity measures. At this point it would be prudent to ask whether Sri Lanka is capable of that and whether such sensible expenditure can be expected from the Government. Could it be possible for the State to concentrate only on urgent development projects that will have the most economic impact and perhaps put the rest on the backburner until better times arrive? There seems to be no indication of this, but worries over Sri Lanka stumbling into a “debt trap” have been voiced.

Energy costs are also a concern that was highlighted by the Central Bank and consumers should work harder to conserve power. In a tropical country windows can be opened and air conditioners shut down; there are a myriad of ways to reduce energy costs that would save the consumers billions since Ceylon Electricity Board debts are ultimately paid through public money obtained in the form of taxes. Yet it has been reported that Rs. 6 billion more has been demanded to complete the Upper Kotmale Project while repeated breakdowns have occurred at the Norochcholai Power Plant, resulting in severe losses. This is not optimum usage of resources and undermines the needs of the country.

When challenging times arrive, they are accompanied by opportunities. Yet these chances must be supported with sensible policies, best use of resources, efficiency and cooperation between the private and public sectors.