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Consumers helpless, as prices soar

04 Sep 2021

  • Short-term plan necessary to eliminate essential food shortage: Dr. Wijewardena
  • ‘Numerous causes for hike in inflation; August rate expected to increase further’
  • Govt.’s strategies failed to boost country’s economy; MMT backfired: Dhananath
  • Govt. takes measures to address shortages while foreign inflows added to reserves
By Yoshitha Perera While the economic catastrophe that has gripped most countries in the face of the Covid-19 pandemic has also left its mark on Sri Lanka, the effectiveness of the current economic policies and strategies in place has been called into question. Furthermore, the situation seems to be worsening with the weakening of the rupee, the rising cost of living, and the country displaying signs of an impending food shortage. Importers and economists claim that apart from global price hikes, excessive government intervention, the dollar crisis, and the depreciation of the rupee have contributed to deficiencies in essential food in the local market, and warned that negligence on part of the authorities could lead to a massive supply crisis in the near future. Meanwhile, citizens are suffering with the skyrocketing cost of living. Further price increases and higher inflation rates predicted According to the National Consumer Price Index (NCPI) published by the Department of Census and Statistics (DCS) in the third week of August, Sri Lanka’s national inflation was 6.8% in July 2021 – an increase from the 6.1% recorded in June on a Year-on-Year (YoY) basis. As per data shared by the DCS, the NCPI for all items for July increased to 146.6 from 145.7 in June 2021. It also noted that a monthly change of 0.63% was observed due to the increases in the prices of food and non-food items. While forecasting that inflation may rise for the last week of August, former Central Bank of Sri Lanka (CBSL) Deputy Governor Dr. W.A. Wijewardena cited numerous reasons for the drastic increase in the national inflation rate within just a month. He said the price increases of essential commodities was mainly due to two reasons: The large amount of money printed by the CBSL and the present dollar shortage in the market. “The Central Bank has printed large amounts of money and allowed the money supply to increase by Rs. 2.7 trillion (Rs. 2,700 billion) during the 19-month period starting January 2020,” he added. Dr. Wijewardena noted that government borrowings from the banking sector have increased to Rs. 3.1 trillion during the same period, adding: “There is a huge increase in money supply – about 35%. Thus, naturally, prices of the essential commodities will go up.” Explaining the second reason, Dr. Wijewardena said the current dollar shortage and decline in foreign reserves in the country have affected the importation of essential commodities. “Sri Lanka is unable to continue with the importation of essential food items and other commodities, and as a result, there is a food shortage in the market while the prices are going up. However, these situations have not been reflected in any of the indices published so far,” he pointed out. Dr. Wijewardena further warned that the prices of essential food commodities may increase within the upcoming months and as a result, there would be a rise in the cost of living. “It is a situation where we are facing a serious economic crisis in the country and a serious shortage of essential goods,” he added. Responding to The Sunday Morning’s query on how these issues could be resolved, he said that in the prevailing situation, a short-term plan is necessary, with the main focus being on eliminating the essential food shortage in the market. “To resolve these situations, we have to allow imports to come into the country; yet, we don’t have enough foreign exchange to continue. However, if the country is able to finalise the swap facility with China soon, we should be able to import goods worth $ 1.5 billion from China, which would reduce the current shortage in the market,” he explained. Referring to a medium to long-term plan, Dr. Wijewardena stated that Sri Lanka would have to seek an agreement with the International Monetary Fund (IMF) in the long run to obtain funding in order to stabilise the country. Speaking to The Sunday Morning, Advocata Institute Chief Operating Officer (COO) Dhananath Fernando said that when implementing the Modern Monetary Theory (MMT) policy model, the Government thought that it would affect inflation. But what they failed to realise is that, he said, in a country like Sri Lanka, before that happens, it would appear as a currency crisis or as Balance of Payment (BOP) crisis, which is what we are seeing at the moment. “For example, during the lockdown, the Government provided Rs. 2,000 to those in the most vulnerable section in society, and these people mostly spent that on essential goods; as we import most of the essential goods, this money is spent on imports. While some people are trying to blame global price increases for this situation, it is our strategy that has failed,” he averred. In the beginning of 2021, top economists warned that money printing, being a feature of MMT, could backfire with unfortunate consequences. Fernando said that not only are global commodity prices increasing, but at the same time, the Sri Lankan rupee has depreciated further, adding: “Even though the Central Bank is trying to artificially set the dollar price at Rs. 220, there is still no foreign exchange to purchase any imports.” He opined that due to the dollar shortage, which further contributes to the increase in dollar prices, importers are trying to retain their dollars. “Now, importers cannot secure dollars from the bank for their next consignment, so they are trying to keep a higher margin for the future. If a person is both an exporter and importer, that person can survive with the difference from exports. But importers don’t have an incentive to import, because they cannot open Letters of Credit (LCs) and are also unable to secure dollars at this moment,” Fernando added. Recalling the Government’s programme on establishing a self-sufficient economy that was conducted a year ago, Fernando said that it is clear that those strategies are not assisting to boost the country’s economy. “We are not defending anyone’s ideology, but we have to be practical. When there are food shortages, it is very difficult to grow the economy. When people are standing in a queue, it means they are wasting a lot of their productive time,” he noted. Government’s response Responding to the claims made by various parties on the increasing cost of living and inflation, State Minister of Co-operative Services, Marketing Development, and Consumer Protection Lasantha Alagiyawanna said the current laws are insufficient to protect consumers. He said the Government was looking to increase the fine levied against those who sell at unfair prices, as a measure to control the situation. “The existing rules to protect consumers are not adequate. Therefore, we will present the first reading to Parliament during the next session to increase the fine,” he said. Alagiyawanna noted that the Consumer Affairs Authority (CAA) had so far carried out 1,000 raids with regard to locating sugar stocks and 4,000 raids with regard to rice. “There is a food shortage in the goods for which the Government has imposed control prices. A control price is set to protect the consumer. The President had to publish a gazette notification last week for essential food items as a solution to this arbitrary control by a few people in the private sector,” he said. He further said the Government had also taken steps to secure sufficient stocks of essential goods through imports, and added that in July, the Government decided to import 2,500 metric tonnes (MT) of sugar and dhal, each, on a monthly basis. “Sugar will be imported from India and dhal will be imported from Australia using the reserves of the Co-operative Development Fund (ODF),” he noted. The State Minister further added that in the second week of August, the Government decided to immediately import 6,000 MT of rice from Pakistan. Meanwhile, releasing a media statement, Commissioner General of Essential Services Maj. Gen. N.D.S.P. Niwuhella said that 29,000 MT of hoarded sugar found in warehouses was confiscated by the Government after investigations were carried out last week. The Government plans to sell the consignment of sugar to the public through state and private traders’ outlets at a controlled price.‍ The import duty of Rs. 50 per kg of sugar was reduced to 25 cents per kg from 14 October 2020 to provide relief to the consumers. The volume of sugar stored in the country at that time was 88,878 MT. According to the CAA, 584,000 MT of sugar was imported between 14 October 2020 and 30 June 2021. The monthly demand for sugar in the country is around 35,000 MT. However, data from the CAA revealed that sugar imports exceeded the annual sugar requirement between the period of 14 October 2020 and 30 June 2020. An attempt has been made in the recent past to create an artificial shortage of sugar in the country and to sell sugar at a very high price, causing great inconvenience to the consumer. As per the powers vested with him in terms of Section 2 of the Public Security Ordinance, President Gotabaya Rajapaksa declared emergency regulations on essential food supply, formulated as per Section 5, with effect from midnight on 30 August by enforcing directives under Section 2 of the Ordinance. Accordingly, the President took measures to appoint a Commissioner General of Essential Services and gave him the authority to co-ordinate the supply of paddy, rice, sugar, and other consumer goods that are essential to maintain the livelihoods of people. The Commissioner General of Essential Services said that steps were taken to confiscate the hoarded sugar stocks by conducting raids in order to safeguard the interests of consumers and then release these stocks to the market under a fixed price. The details of the seized sugar stocks on 1 September 2021 are as follows:
Company  Address  Amount (MT)
Pyramid Wilmar Company Muthurajawela   6,200
Global Trading Company  809/5, Negombo Road, Mabola, Wattala  4,800 
Global Trading Company 242, Uswetakeiyawa, Wattala 4,100
Wilson Trading Company  Warehouse No. 4 14,000
R.G. Stores  Hunupitiya Road, Kiribathgoda  800
Total 29,900
(Source: President’s Media Division) On Thursday (2), the Government issued gazette notifications declaring maximum retail prices (MRPs) of rice and sugar with immediate effect. The gazette notifications were issued by order of CAA Chairman Maj. Gen. (Retd.) Shantha Dissanayake, under Section 20(5) of the Consumer Affairs Authority Act, No. 9 of 2003. The MRP of keeri samba was declared as Rs. 125 per kg, white/red samba – steamed/boiled (excluding suduru samba) as Rs. 103 per kg, white/red nadu – steamed/boiled (excluding mottai karuppan and attakari) as Rs. 98 per kg, and white/red raw rice as Rs. 95 per kg. The MRP of white sugar was declared as Rs. 122 per kg (unpacketed) and Rs. 125 per kg (packeted), while the MRP of brown or red sugar was listed as Rs. 125 per kg (unpacketed) and Rs. 128 per kg (packeted). Meanwhile, State Minister of Money, Capital Market, and State Enterprise Reforms Ajith Nivard Cabraal stated that the IMF’s $ 800 million Special Drawing Rights (SDR) allocation and China Development Bank’s (CDB) $ 350 million loan would improve liquidity and stabilise the foreign reserves of the country. According to reports, Sri Lanka received $ 787 million from the IMF and $ 150 m from Bangladesh as a swap facility last Wednesday (1). Meanwhile, the country is set to receive RMB 2 billion from the CDB. Sharing a Twitter post, he urged the importers and exporters to use the foreign exchange they have with the expectation of a further depreciation of the rupee. He said: “The Central Bank of Sri Lanka has issued enough dollars and the Government has ensured that there is no possibility of a shortage of essential commodities.” Commodity prices There is a sharp increase in certain essential food commodities this year compared to the prices shared by the DCS last year during the same period. As such, due to the ongoing food shortage in the market, sugar is selling at a price of Rs. 220, regardless of the price list of the DCS. Data on the price comparison of certain essential commodities is as follows:
Food item Avg. price in August 2020 Avg. price in August 2021
Sugar (per kg) Rs. 135.27 Rs. 165.00
Potato (per kg) Local – Rs. 221.80 Imported – Rs. 140.43 Rs. 253.08 Rs. 186.92
Dhal (per kg) Rs. 167.76 Rs. 229.02
Tin fish (per tin) Rs. 292.62 Rs. 358.37
Red onions (per kg) Rs. 205.76 Rs. 322.17
Cowpea (per kg) Rs. 397.00 Rs. 650.98
Green gram (per kg) Rs. 341.72 Rs. 828.15
Gram (per kg) Rs. 240.51 Rs. 314.00
Sprats (per kg) Rs. 696.00 Rs. 926.32
Chicken – fresh (per kg) Rs. 560.00 Rs. 666.36
Broiler chicken (per kg) Rs. 430.00 Rs. 540.00
Bread (per loaf) Rs. 60.00 Rs. 65.00
(Source: Department of Census and Statistics)


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