Sri Lanka

Note: This is the first in a series of articles on the economic and social crisis in Sri Lanka in the aftermath of Covid-19 by journalist Tushar Dhara who was in the country to report on the events there first hand.

As New Year’s Eve rolled in on December 31, people in Sri Lanka thought the worst was over. After two years of Covid-19 induced economic disruption and lockdowns, partygoers in Colombo prepared to throng the Galle Face Greens and visit restaurants and nightclubs to welcome a new year. There was lots of hope but little did they imagine the economic and political crisis that would unfold in 2022.

“It came as a complete shock and surprise,” Andre Fernando – the chairman and managing director of MAC Holdings, a logistics and exports firm in Colombo – said. “There was a lot of pre-warning on WhatsApp and social media about the lack of food and fuel in Beirut and that Sri Lanka was also supposed to go through it, but we thought it was opposition politicians playing a game,” Fernando told me in an interview in Colombo in May.

MAC Holding’s core freight and logistics business was unable to meet its overseas dollar commitments because of a shortage of foreign exchange at Sri Lanka’s banks. Further, productivity was down because employees were hard pressed finding food and fuel, besides coping with debilitating power cuts.

That was in May. Despite hyper inflation and shortages, supermarket shelves had some food and people had to wait outside petrol pumps for only 3-4 hours.

Sri Lanka’s economy has now completely collapsed. The country has only $25 million in forex reserves, barely enough import cover imports for a few days. Its currency has depreciated 80% in the last four months making food and medicine even more expensive. Energy minister Kanchana Wijesekera has indicated that oil tankers are not delivering fuel to Sri Lanka because of “banking reasons”. Fuel prices were hiked on June 26 by LKR 50 for petrol and LKR 60 for diesel, the third hike since April. Petrol will now cost LKR 470 per litre. A friend of mine in Colombo told me he had to wait in line for 12 hours last week to get his car filled. There are reports of people dying in fuel station queues.

However, the biggest danger for the 22 million population is acute hunger and starvation.

COVID Response Watch LogoTwo years of the Covid-19 pandemic and the impact of the Ukraine war on food, fertilizer and fuel prices have wreaked economic mayhem on the global economy, particularly in emerging markets in Asia, Africa and Latin America. From Yemen to Zimbabwe and Tunisia to Ecuador, people are paying more for food and living costs and eating fewer meals. Sri Lanka is the most extreme case of economic distress.

I met Afzhal in Colombo when both of us found ourselves sheltering in a shop from a drizzle . The 30-year old works as an administrator in a school in Colombo and supports a family of three on LKR 30,000 a month, of which nearly two-thirds was spent on food. Afzhal also has to pay for his son’s education, transport and medical expenditure. The Covid-19 pandemic induced lockdowns in Sri Lanka that disrupted schools and colleges, and after two years of uncertainty Afzhal felt that the country was finally turning a corner. But then the economy started unraveling.

“Prices of rice, vegetables and milk are rising, and there are shortages of food, fuel and medicine and power cuts,” he said. As the price of cooking gas cylinders rose Afzhal started using an induction stove for cooking.

In June the United Nations released a statement asking for an immediate $47.2 million for live saving assistance. It said that nearly 22% of the population needs assistance as food production is 40% to 50% lower than last year and seed and fertilizer shortages threaten the next harvest cycle. “Prices have jumped significantly since the end of 2021, forcing families to resort to skipping meals, eating less expensive foods, or limiting portion sizes,” the statement added.

Even before the Covid-19 Pandemic nearly 8.2% of the population – 1.7 million people – experienced moderate food insecurity, which is defined as insufficient money for a healthy diet. Nearly 1% of the population experienced severe food insecurity. In the 1950s, with a population of 7 million the country imported most of its food. By 2020, Sri Lanka’s population had increased three-fold and the nation had achieved self sufficiency in rice and many other foods. For instance, it produced 82% of vegetables, 81% of milk, 79% of roots and tubers and 98% of meat. Many of those gains would have been erased due to the economic and political crisis.

Sri Lanka’s problems started as a balance of payments crisis in the government debt and foreign exchange markets. High inflation, a reduction in domestic food production, increase in fertilizer prices and currency depreciation have turned it into a generalized economic malaise. The origins of the crisis lie in the structural transformations of the Sri Lankan economy over the past decade. After a nearly three decade civil war, the Sri Lankan economy embarked on a debt-fuelled growth binge financed by international debt. The money was used largely for construction, real estate, tourist infrastructure and speculative activities. At the same time export industries like tea and apparel stagnated. For a small country like Sri Lanka it is critical to have dollars to pay for imports, and the country was increasingly reliant on tourism and remittances for its foreign exchange earnings.

In 2019 the Easter Sunday bombings decimated tourism. Hopes for revival were dashed by the onset of Covid-19 in 2020 as international trade and tourist arrivals ground to a halt as country. Sri Lanka’s tea and garments exports were badly hit. In November 2019 the President Gotabaya Rajapaksha regime announced sweeping tax cuts which gutted revenue. In response the Central Bank printed money. In April 2021 the government banned the import of fertilizers and agrochemicals. The “organics by diktat” decision reduced rice and tea yields. Rice is the main staple while Sri Lankan tea brings in valuable foreign exchange.

Consumer price inflation, which was 4% year-on-year in May 2020, shot up to 39.1% in May 2022, an increase of nearly 1,000 percent. Food, at 57.4%, and transport , at 91.5%, are in hyperinflation territory. The Advocata Institute’s Bath-Curry indicator, a food price tracker that plots the price of a basic meal of rice and curry, was at LKR 1938.15 in May 2022 for a family of four, up 58% from LKR 1222.58 in October 2021. There are reports of malnutrition and starvation.

A survey conducted by the World Food Programme in Sri Lanka between December 2020 and February 2021 found that 85% of respondents were affected by the Covid-19 pandemic. Nearly 77% reported an impact on incomes, while crop cultivation and harvesting were affected by stay at home measures, inability to purchase inputs and poor demand. Half of the households were found to be moderately (36%) or severely (14%) food insecure.

The war in Ukraine has added to global food insecurity. The World Bank estimates that maize and wheat prices on 1 June 2022 were 42% and 60% higher compared to January 2021. In the first four months of 2022 almost 90% of EMs experienced food price inflation greater than 5%. Argentina, Ecuador and Lebanon are among nations that have defaulted on their external debt in the past two years, with fears of more to come.

Ahilan Kadirgamar, who teaches Sociology at Jaffna University told me that his household has started to use a firewood stove for cooking. “We still have the gas stove, which is used for heating food, but the main cooking has moved to a firewood stove because of the unavailability of cooking gas,” he told me when we met in Colombo. “People like us, of our background will be able to get by, somehow. But what happens to people who cannot afford the price rise?”

Tushar Dhara is a journalist and researcher writing on both national and international affairs


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