Policy juggle in the economic high-wire act

Sri Lanka’s agriculture policy needs a serious revisit. For a nation rich in land and irrigation, it is criminal we have had to resort to food imports for several decades

By Ajith Perera

The Sri Lankan economy is at present on a high-wire act. One step out of line by its protagonists then a nation and its people will tumble into an unknown from where it will be a difficult return. For its part, the leadership has hitherto chosen a closed approach, founded on Modern Monetary Theory. Imports including some essentials and raw materials have been hit with restrictions, and money growth in terms of cash infusion has progressed at unprecedented levels. Their outcomes, which are still unravelling, have necessitated course corrections but the Government haughtily maintains progress is on track despite unforeseen difficulties. Time will stand testimony to what might have been, and what might not.

Regardless, as espoused by various learned quarters, time is short and we cannot afford to spend recklessly on witch hunts as to where the blame can lay for this current quandary. Sri Lanka’s leaders must do away with such foolhardy practices at this very critical and late stage. It is time for every sector and segment to play its part, and support a collective leadership to drive critical change and reform to resuscitate our nation and economy.

Whilst we wait on our leadership to band together for the greater good of the nation and its people, it is also opportune for civil society to highlight factors that are essential to safeguard and grow the domestic economy.

No taste of paradise

Tourism is a critical segment to attract much-needed foreign exchange into the country, and revitalise entwined value chains that were impacted by the pandemic. There is considerable interest in Sri Lanka by segments of global travellers, and the focus falls largely away from the city and instead to our coastlines and central hills, with many small and medium scale businesses enjoying significant traffic.

But the hospitality sector is struggling to serve its patrons. Restaurant owners complain of acute shortages of raw materials due to import bans and slumping local production, which consequently drove prices five-fold. Then came the dearth of LP gas, which prompted some to drive hundreds of kilometres to obtain cylinders off the black market. Thereon, they must now contend with power cuts sometimes at peak traffic hours. “When we factor these disruptions, rising costs and price of our product, some tourists complain we are too expensive and it is not worth the spend,” they lament.

Notwithstanding the structural issues that plague our poorly-planned infrastructure, it bodes ill to invite tourists to our country and anticipate spending when we cannot offer them basic service. We cannot expect high-spending guests to visit a country that keeps them in the dark, and authorities need to make note. Money cannot be made or spent when one cannot see or flavour what’s around you. The quality of the product will determine the quantum of earnings.

Smuggler’s paradise instead

One aspect that often escapes attention in such a milieu is the impact of smuggling on economies. High price regimes with strict controls attract smugglers looking for substantial profits off aggrieved consumers. The tobacco industry offers the best example, with the Government losing over Rs. 27 billion in revenue last year, as the illicit cigarette share reached 21% of the market. Over 627 million illicit cigarettes were accounted for in 2021, and the real number is very likely far above that reported in a recent study published by RIU.

Rs. 27 billion in lost revenue must pose a serious challenge and concern for any government, as this is a significant quantum of funds that can be spent on critical aspects of development or expenditure. Cigarettes are amongst the most trafficked items in the world, and Sri Lanka is a hotspot for smugglers from all over the globe due to its high price for smokers. In addition to pricing policy, the leadership must put in place the necessary safeguards to prevent smugglers from turning this country into a haven of crime. Over the past four years, cigarette smuggling into Sri Lanka has grown over 50% annually posing a serious threat to our economy, health, law and order.

In a similar vein, many other products are reaching Sri Lanka’s shores through illegal means, and the Government needs to step up its monitoring to limit the damage done.

Grow our own food

Importantly, the Government must take progressive steps to ensure food security. The fertiliser debacle was a huge setback for the Government and livelihoods of farmers, which in turn impacted consumers and expenditure. Similar to infamous land reform, this was a retrograde step which was fortunately withdrawn before further damage was done.

Consequently, the Government had to spend heavily on imports, plus, offer compensation to families affected by the ensuing crisis. Shortages of essential food items – and medicines – still persist and could prove to be a breaking point for society burdened with rising cost of living. There is no homegrown solution to the economic crisis, but there can be for ensuring food security.

The Government through its agencies must win back the confidence of farmer communities and work on an accelerated program to devise homegrown solutions to the looming food crisis. It could do well to provide incentives or support to groups outside the agricultural fold to join in over the short-term to supplement production to ensure that Sri Lankans don’t go hungry as speculated by some.

Sri Lanka’s agriculture policy needs a serious revisit. For a nation rich in land and irrigation, it is criminal we have had to resort to food imports for several decades. This is down to bad planning and lack of coordination amongst local agents within the department. The pumpkin saga a few years ago lends ample evidence, when the country was laden with surplus stocks and no takers all due to bad planning.

The Government and its agencies need to take stock and identify critical elements of the economy and ensure their sustainable growth to protect the domestic economy and consumers, which in turn would enable it to save much-needed foreign exchange through reduced imports. Quality is of essence, and when the Government fails to set necessary benchmarks, the market inadvertently seeks imports and alternatives in order to serve its needs.