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2021’s lessons in control

02 Jan 2022

It’s the end of another year, and time once again to watch people make that set of resolutions they’re unlikely to follow through on. But that’s the thing – New Year resolutions aren’t entirely about changing things, they’re also about identifying what needs to change. Now in the case of Sri Lanka, there are a lot of things we need to change. But let’s look at one aspect of change we should have learnt from the series of debacles that plagued the past year – control. First things first – 2021 was the year we saw the true extent of the pandemic’s fallout. With 2020 having starved us of our most prized sources of dollar inflows, the country’s sovereign debt management practices were revealed to be the unsustainable borrowing addiction that they are. Economists are almost unanimously sweating over the possibility of a national default, even while the Government maintains its cool stance and repeatedly assures that International Monetary Fund (IMF) assistance is too cumbersome to opt for. And yet, the fear of reaching a frightening dip in foreign reserves was followed by the Central Bank Governor’s reassurance that reserves had buoyed to reasonable levels – notwithstanding the technicalities (or actualities, depending on who you ask). And so we come back to the issue of control – amidst the pandemic-driven turbulence in various sectors over this past year, we saw the Government resorting to various regulations to try and control the situation, only to have these backfire in all sorts of ways. For one, the import restrictions imposed to curtail dollar outflows have also affected local exporters’ access to the raw materials they need. Similarly, the aggressive organic agriculture drive, which first set off alarm bells in the tea sector, has now possibly put us all at risk of a food shortage. But one of the most glaring mistakes among these control attempts were the price control measures imposed on various commodities, which were subsequently removed, only for prices to skyrocket almost immediately afterwards. Rice, sugar, milk powder, gas, fuel, cement – they all went through this rubberband effect that became a sadly predictable drama to watch. First, producers would demand a chance to increase prices, but authorities would shoot down their hopes and tell them to maintain rates. Then supplies would drop and consumers would be left in the lurch, until the price controls would finally be lifted. By then, demand would be so high that people would meekly accept the steep hike that followed. Right there is one of our most valuable lessons from 2021 – regulations should be used to guide markets, not control them. Resorting to strict price controls, especially at levels that are unsustainable for producers, will serve to create an artificial marketplace, making things all the more jarring when the time comes for a reality check. Preventing market forces from determining rates will either trigger a drop in supply, with goods only available on the black market at higher prices, as with the milk powder shortage, or result in a drop in quality, which is the harsh lesson we all learnt with gas cylinders. That’s not to say the free market should exist without controls entirely – the people also require some form of relief in these tough times – but these controls need to be within reasonable bounds, having considered all stakeholders involved. Our current shortsighted approach only serves to create artificial scarcity and reinforce a parallel economy, which is definitely not something we can afford at the moment. As we head into yet another year that is set to be dominated by the pandemic, more price hikes are inevitably in the cards. At the same time, local government polls will possibly be held this year, meaning that public opinion will become even more important when the relevant decisions are made. Let’s just hope the right people have learnt the right lessons from 2021.


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