A Pathfinder Perspective
On December 17, 2021, Fitch downgraded Sri Lanka’s rating to “CC”, the lowest rating prior to default. With external reserves at around $1.6 billion and almost $1 billion in debt-service payments coming due in January 2022 (and $7 billion during the coming year), the country faces a very real possibility of a sovereign debt default. If this were to happen, what would be the consequences for the economy, the poor, and society?
We can get an idea by looking at the experience of other countries that defaulted recently. Last year (2020) saw an unusually large number of countries defaulting on their sovereign debt. One of them, Lebanon—a country with sharp divisions along religious lines, a history of civil war, and an economy dependent on tourism and remittances—provides telling lessons for what might happen should Sri Lanka default.
A country defaults when it fails to meet the service payment on its sovereign debt. In the case of Lebanon (and almost every other sovereign default), the immediate consequence was that the country could no longer borrow abroad. In particular, it could not finance its current account deficit, which (like Sri Lanka’s) has always been high. A recent World Bank report documents how this resulted in a massive compression of imports (40 percent) that, in turn, triggered a sharp decline in economic activity. In one year, Lebanon’s GDP declined by 20 percent—one of the steepest drops in history. The exchange rate depreciated 129 percent. The pass-through effects of the currency depreciation meant that inflation has been accelerating: the 12-month inflation rate, which was 10 percent in January 2020, reached 158 percent in March 2021.
The economic slowdown and spike in inflation disproportionately hurt the poor and vulnerable. With food inflation at 254 percent in 2020 and poorer households spending about a third of their consumption on food, people are suffering. They stand in long lines for food, fuel and pharmaceuticals. Phone surveys in late 2020 showed that some 40 percent of households reported difficulties in obtaining food and other basic needs. About one in five manufacturing firms have closed and the remaining ones are operating at an average of 35 percent capacity. The unemployment rate, already high in Lebanon, has risen to 40 percent.
Most troubling is that the harsh economic conditions have led to violence in the streets. Eerily reminiscent of the civil war, armed clashes have broken out among sectarian militias. Beirut is seeing the worst violence in decades. Soon after the default, the government fell and was unable to reconstitute a coalition for 13 months.
To be sure, Sri Lanka is not Lebanon. And Lebanon’s problems were confounded by the August 2020 explosion in the Port of Beirut that killed 218 people. Yet, the many similarities in both countries’ circumstances before 2020 and Lebanon’s horrifying experience post-default point to one conclusion: Sri Lanka should avoid a sovereign debt default at all cost.
The Pathfinder Foundation invited Prof. Shanta Devarajan who was the World Bank’s Chief Economist in a number of regions to write this article as a sequel to the two previous ones titled ” Pulling back from the precipice: A Pathfinder perspective” & “Sri Lanka has no choice but to restructure external debt ” can view on https://pathfinderfoundation.org/ Readers’ comments via email to firstname.lastname@example.org are welcome.
Shanta Devarajan is Professor of the Practice of International Development at Georgetown University, U.S.A. He was the Chief Economist of South Asia, Africa and the Middle East and North Africa at the World Bank.
Govt. stubborn on organic manure from China
According to media reports, it is evident that the Government is hell-bent on importing organic manure from the same company that supplied the first shipment, rejected by the Plant Quarantine officials of the Department of Agriculture (DOA). We are aware that US$ 6.9 million of Valuable Foreign Exchange (VFE) has been paid to this company (when the country is hard pressed for foreign currency) as compensation for the manure rejected due to obvious reasons viz. contamination with harmful microorganisms.
This VFE thus paid as compensation could otherwise have been used to import the much-needed chemical fertiliser. for which the farmers are rightfully clamouring. It was also reported that the Minister of Agriculture is planning to get a new SLSI Standard established, to facilitate this importation.
First things first, and it will be best for the authorities in the Ministry of Agriculture, and the Government, to sit for a while and study the Plant Protection Act No.35 of 1999, without losing time – better late than never. According to provisions and regulations under this Act, commercial quantities of organic manure cannot be imported to Sri Lanka. Only small samples of such materials can be allowed by the Director General of Agriculture, who is the implementing authority for the Plant Protection Act, and such samples can be used only for laboratory research work and cannot be added to the land.
As a retired officer, who worked in the Ministry of Agriculture, I am aware that no amendments have since been brought to the Plant Protection Act to change the provisions referred to above, and the regulations thereon. Furthermore, it is doubtful whether such amendments can ever be brought, since plant quarantine is an issue that cannot be compromised on the whims and fancies of Governments, and is subject to international covenants/agreements, as health issues pertaining to plant, animal and human life are involved.
Whatever standard that the SLSI establishes for organic manure imports, as per the request of the Minister of Agriculture, will have to comply with the aforesaid provisions of the Plant Protection Act. The so-called fresh shipment, if it is called organic fertiliser/manure, will necessarily contain a concoction of microorganisms, coming in bulk from a foreign environment to that of ours, and this itself could be disastrous, That is exactly why Plant Quarantine Services, the world over ( including Sri Lanka), are so strict in adhering to the relevant regulations. ( In this regard, we are all aware of the havoc created by the tiny Corona virus that, in fact, originated in China.)
In the event a fresh shipment comes, and if the Plant Quarantine officials act in the same manner as they acted when the first shipment came, strictly on scientific principles and in keeping with the regulations, the new shipment should get rejected if the material is really organic manure. So once again are we going to pay a massive compensation and lose VFE once more at this critical juncture; when we are in dire need of the same, to meet basic requirements? It is felt the Government should even at this late stage reconsider its policy on importing commercial quantities of organic manure/fertiliser, which no farmers ever wanted, and hence stop it forthwith, without getting this country into a further muddle.
The best is to produce organic manure/fertiliser on-farms as much as possible, due to the hassle of transporting over large distances, the way it was practiced by some farmers earlier, too, and use it as a soil re-conditioner; along with chemical fertiliser, which will give the much-needed plant nutrients in appreciable quantities, to achieve the required yield levels which will be sufficient to meet the national targets. Organic farming per se has been and can be practiced in Sri Lanka in niches over the years; it is nothing new and is known to give low/moderate yields at high cost, for special markets. Organic farming can never cater to our total national need, and the Government needs to understand this fact and reconsider its policy.
A.B. EDGAR PERERA
Retired Director/Agricultural Development
Ministry of Agriculture
Power Cuts: Engineers kept in the dark
The above news item says even senior engineers of the CEB were kept in the dark about the power cut on Thursday, 13th Jan, despite Minister Gamini Lokuge assuring the country of uninterrupted supply. This gives the impression that there is no proper coordination among the engineers within the bCEB and the Ministry for Power. Added to this catastrophic situation, now enters another player, the Public Utilities Commission of Sri Lanka [PUCSL] making matters worse, where it insists approval for power cuts, according to a schedule, should be obtained from them.
The present power cut may be that the CEB has given the correct picture to PUCSL, and the information to the Minister may be by a section of engineers who play politics. The Minister should take the advice and information from the General Manager, and he should be held responsible for any false or incorrect information. It must also be said that there could be unexpected or unforeseen failures, which could alter the plans, and in such circumstances the GM, CEB could be excused. It is very unfortunate there is no unity among the engineers in the CEB, which has caused this unpleasant situation, embarrassing the Minister, the government, and placing consumers in a state of despair.
This difference in opinions among engineers in the CEB, reminds me of a similar situation in the 1980s, when the hydro reservoirs were running dry due to a severe drought. One section of engineers, to please the Minister, advocated running the turbines, expecting rains any time; while the other section advocated a power cut, saying it is dangerous and makes matters worse as the turbines could be damaged with dead wood and other objects dragging in with the flow.
This matter was brought before the Ministry, and the then Secretary to the Ministry for Power and Energy, the late James H Lanerolle, advised the Minister to approve a power cut which was turned down. Not being satisfied and being national minded, and in keeping with the responsibilities placed on him by the President who appoints Secretaries to Ministries to advise and guide Ministers, with the permission of the Minister made representations to the then President J.R.Jayewardene. A meeting with the President was arranged with engineers of both parties. On giving a patient hearing and understanding the gravity, the President turned to the Secretary and said [I can yet remember clearly as I too attended this meeting] “James, carry out your decision to shed power”. This should be a lesson to the present Secretaries of Ministries, not to play politics, and serve the President who had appointed them for the purpose mentioned above.
If there was no PUCSL to interfere, then the CEB would have briefed the Minister and the Secretary to the Ministry, and taken a correct decision. As the CEB has to serve two masters – PUCSL and Ministry – the two factions of engineers in the CEB act differently, one seeking PUCSL and the other the Minister.
I recall here the plea made by former Minister for Power, Dallas Alahapperuma, to President Gotabaya Rajapaksa, to remove PUCSL from interfering with the CEB, which the President on understanding the difficulties of the Minister to carry out his duties efficiently, safeguarding the government, rightly agreed and issued instructions accordingly. Unfortunately, Prime Minister Mahinda Rajapaksa, who was also the Finance Minister, overruled the President’s order and allowed the same procedure to follow.
It will be advisable for the present Minister for Finance, Basil Rajapaksa, to review, under the present confusing situation, which has brought Minister Lokuge to a questionable situation, and also the public having no faith in the promises made by government
G. A. D. SIRIMAL
Beginning of all things auspicious
Happy Thai Pongal!
Cosmic phenomena have baffled mankind since the beginning of time. ‘Sun worshipping’ or ‘Heliolatry’ was one of the most widespread forms of worship in ancient times. Historical evidence suggests that sun-worship was practised not only by Indians but by Africans, Egyptians, Chinese and Indonesians. In fact, a remnant of sun-worship, one time-tested ritual survives to-date. Thai Pongal, celebrated today by Tamils the world over irrespective of region, caste or creed, is the only form of Sun worship in existence today.
Thai Pongal is the Hindu version of Thanksgiving, performed by offering the first portion of the harvest to the Sun God, Surya. The festival has more than just religious significance. Especially in the tropics, where the sun shines throughout the year, it is an abundant source of power. Consequently, for millennia the sun has been the driving force of agriculture. In fact, in the tropics any cultivation thrives on just sunlight and rain. In short the tropics owe its plenitude to the sun.
Thai Pongal marks the Indic solstice when the sun enters the 10th house of the Indian zodiac Capricorn. The ‘Thai’ in ‘Thai Pongal’ represents the month of January (the 10th month of the Tamil Calendar), which marks the beginning of the harvesting season for Hindus. ‘Pongal’, rice from the first harvest, cooked in milk and sweetened with jaggery, is an offering to the Sun God, Surya. Pongal also translates to ‘boiling over’ or ‘overflow’.
Thai Pongal is celebrated with great enthusiasm and eagerness by Tamils the world over. Indicative of the bumper harvest, celebrations are more pronounced in the tropics. Unlike in Sri Lanka, in Tamil Nadu, where Thai Pongal is said to have originated, it is celebrated for four days. The first day, January 14 this year, marks the beginning of multiple festivals, characterised by a scurry of activities, just as before Sinhala and Tamil New Year. Houses and yards are cleaned and trash from the previous year is burnt. In fact, so much burning takes place that Tamil Nadu pilots have complained of navigation difficulties due to smoke! The burning of trash is also figurative. It signifies unburdening of past year’s mental encumbrances and the expression of gratitude.
On the morning of the first day of celebrations Hindu women decorate the floor of their houses with Kolam, intricate patterns made from coloured rice flour. Rather than mere artistic expression or decoration, Kolam symbolises happiness and prosperity. Kolam is also used to demarcate the sacred area where the Pongal is prepared. Milk is heated until it boils over and rice and jaggery are added afterwards. The boiling over of milk symbolises abundance. Prepared within the parameters of the Kolam, in a clay pot using fire wood, Pongal is offered first to the senior most members of the family on banana leaves, after the prayers.
‘Mattu Pongal’, the third day of celebrations is dedicated to paying respect to cattle. Much like the Sun, cows are an integral part of tropical agriculture, not to mention Hindu culture. The cows work the fields year round, helping the farmer reap a plentiful harvest, by pulling the plough. In fact, before the advent of commerce, much of the early Hindu economy was based on milk trade. During the festive season cattle are garlanded, kumkum applied on their foreheads, horns painted and fed a mixture of jaggery, honey, banana and other fruits, referred to as venn pongal.
On the first three days most Hindus restrict themselves to a vegetarian diet. But on the fourth day, hill country Tamils of Sri Lanka start eating meat. The third day is spent visiting relatives. Bull fights, referred to as Jallikattu, are the main attraction in India on the second, third and fourth days. These take place out in the open and is considered an extremely dangerous and gruesome sport. Consequently, those who participate are considered gallant. The season consists of many other games and festivities such as bullock cart races, harvesting dances, music and festivities at temples.
Thai Pongal signifies prosperity and abundance in the new year. Hindus reap their first harvest in the month of ‘Thai’. As such, it is a financially beneficial and prosperous month. Hindus make wedding plans, plan to buy new property and assets and start new jobs during this month. The Tamil saying ‘Thai piranthal wali pirakkum’ means ‘with the beginning of January a new pathway is also paved’. This is the essence of Thai Pongal, which marks the beginning of all things auspicious for the Hindus.
A Good Guide to the Omicron Variant
NGO to move SC against acquittal and discharge of first accused
Rebirth in Buddhism
‘Dates have the highest sugar content to fight Coronavirus’
Sunday Island 27 December – Headlines
7-billion-rupee diamond heist; Madush splls the beans before being shot
News7 days ago
Sirisena remains defiant; SLPP-SLFP ties deteriorate
News6 days ago
Female suspect dies after allegedly jumping from CID fifth floor
Sports4 days ago
Wellalage grabs four for none as Sri Lanka cruise to crushing win
Sports7 days ago
With Hasaranga out, SL pray Chameera pulls through
News5 days ago
Welikada killings: Prisons Chief sentenced to death, IP acquitted
Sports3 days ago
Mendis to open in Zimbabwe ODIs
Features3 days ago
A nation caught in the 20-Trap
News3 days ago
Easter Sunday carnage cannot be blamed on Muslim extremists alone – Cardinal