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Government’s price control measures are a total failure: Vijitha Herath

02 Oct 2021

  • Govt. should start state rice mills and bring in high-tech equipment
  • Printing money, obtaining loans, and reducing imports won’t resolve issues
  • Industries, businesses, and the public facing hardships due to govt. policies
  • Use of organic fertiliser is best, but cannot be implemented in 24 hours
  • Need long-lasting national economic policy that is not amended frequently
  • Measures needed to increase and diversify local production
By Asiri Fernando Sri Lanka continues to slide towards a crisis as the Government attempts to mitigate a looming food shortage while trying to constrain forex outflow. Policies enacted and retracted by the Government have complicated an already difficult situation. Many have called for a change in policies and practices and for the strengthening of transparency and accountability within the Government to better face the ongoing decline. Speaking to The Sunday Morning, Janatha Vimukthi Peramuna (JVP) parliamentarian Vijitha Herath said that a long-term national economic policy, tight control on state borrowing, and good governance measures were the need of the hour to avert further crises. Following are excerpts of the interview. What is your assessment of the current economic climate of Sri Lanka? As a country, we are in a very dangerous situation. Our inflation is over 6.8% and we are facing a serious debt crisis. The debt-to-GDP (gross domestic product) ratio is very high. Furthermore, rating agencies have given us a CCC- rating, and as such, foreign investors do not want to come to Sri Lanka. Also, our ability to obtain loan facilities are now limited due to the current situation and our ratings. The cost of living is continuing to increase due to inflation. It seems that the Government doesn’t have any remedies for these issues. Their solutions seem to be to continue to print money, obtain loans at high interest rates, and reduce imports. However, if they (Government) continue with such measures, the country will be exposed to even greater risks in the coming months. All sectors in the country are negatively affected due to these policies. Industries, businesses, and the public are facing significant hardships. This will lead to the bankruptcy of our economy. Price control measures taken by the Government have failed to deliver the anticipated outcomes. In your opinion, what could have been done differently? This approach of the Government has totally failed. For example, the Government gazetted the price of sugar at Rs. 85 per kilo, but the public couldn’t buy sugar at that price. Eight gazette notifications were issued on the price of rice, but what happened? Finally, the Government reversed the gazettes. The reason for this failure is that the Government did not announce a price control for rice at the proper time. For example, they issued a gazette on rice just after the Yala season yield was harvested. It should have been done before the harvest, so that the farmers could negotiate a good price for their crops. There must be a price control system, but it must be used in the proper way. The Government must inform the famers and the agriculture sector about price controls ahead of the harvest and build awareness, and follow it up with implementation. The problem is that the Government doesn’t care about the farming community; they need to give the famers’ issues due attention. The Ministries of Agriculture and Trade are pulling in different directions, and there is no consistent policy on this matter. Do you think the Government’s decision to enforce an immediate ban on the importation of chemical fertilisers will contribute to a food crisis in the future? Will the chemical fertiliser ban push more farming communities into poverty? Our (JVP) stance is that the use of organic fertilisers is the best way to go. However, it should not be implemented in 24 hours. It should be done in stages over time. If you look at page 39 of the President’s manifesto (“Vistas of Prosperity and Splendour” national policy framework), there is a clause that clearly says that within 10 years, the use of organic fertiliser must be increased – 10 years, not overnight. This rush is due to the lack of foreign currency. The Government decided to stop the importation of chemical fertilisers at the end of the Yala season and to introduce organic fertilisers by the Maha season. The period between both seasons is short. How can farmers produce organic fertiliser in the needed quantities within such a short time? They can’t. Even the Government couldn’t produce the required amount. And now, the farmers are facing even greater hardships than they did before. Finally, a decision was taken to import organic fertiliser from China, and we have learned that the samples tested positive for harmful bacteria, which is not good for our soil. These decisions affect the entire farming and agriculture community. It poses increased risks for them. It may also lead to a food crisis in the coming months. There was already a shortage, and the crisis could get worse within a few months, even though the Government decided to import rice to prevent a shortage. The farmers were already poor, and this will push them into poverty. Some farmers had prepared their land for cultivation but were unable to grow crops. What immediate action should the Government take to address the issues in the economy? Firstly, there must be a long-lasting national economic policy which should not be amended frequently. There should not be ad hoc reversals of policy. There is a need for short-term and long-term plans for recovery and growth. Similarly, there is a need to have a robust tax policy. The Government must take measures to increase and diversify local production. We must also incorporate value additions and use by-products. The Government must break the monopiles held by the private sector. They need to get involved in importing commodities, perhaps through state agencies. Also, if you look at the rice crisis that is ongoing, you can see that there is a rice mafia. The Government doesn’t have even one operational rice mill. That should change. The Government should start state rice mills and bring in high-technology equipment for it. They also need to put a stop to wasteful spending. There is a lot of state expenditure that is wasteful and that can be stopped. This, along with action against bribery and corruption, is the need of the hour. Lastly, the Government must stop making political appointments to state institutions. For instance, each time a new minister takes over the Petroleum Ministry or the Port, they hire persons who have helped them politically. This needs to stop. Sri Lanka has avoided an International Monetary Fund (IMF) bailout and adopted “homegrown” solutions to address debt repayment issues. In your opinion, what are the implications of this approach? We believe that it is better not to seek loans from the IMF. But the problem is that the Government has already obtained more loans from the World Bank (WB); not stopping there, the Government continues to borrow from Chinese banks and others at a higher rate (of interest). These deals come with added problems – when we can’t pay it back, we sell off local assets. Although the Government tries to tell the public they don’t want (assistance from) the IMF and that they are patriotic, their actions paint a different scene. Also, they are now selling off local assets. Parliament increased the Government’s borrowing limit by Rs. 400 billion. In your opinion, how can this provision be best used in the current economic climate? Our opinion is that the national borrowing limit should not be increased; it should be reduced. They took this decision, and with the majority control in Parliament, they can pass it. This move will negatively affect our economy. It will increase the debt burden. Eventually, we have to pay all of this back with interest. Already for 2021, we have to repay $ 6 billion, and next year will be the same. The country’s budget deficit will increase, which will be bad for the economy. In the current context, how important is the independence of the Central Bank and the office of the Auditor General? Both institutions must be independent. But this Government has weakened the independence of these institutions through their actions and constitutional changes. With the Audit Commission removed, the Government can continue to be wasteful and may increase their malpractices. How can they be audited now? There isn’t a way to do it. There needs to be a strong, independent audit system. The independence of the Central Bank of Sri Lanka (CBSL) is paramount. It is needed to ensure the stability of the monetary system, but it should also bring in good fiscal policy. But what is the CBSL doing now? They are printing money at the request of some high-ranking ministers. If the CBSL was an independent body, they wouldn’t do that. In your opinion, what can the State do to attract tangible foreign investments? Firstly, ensure stability in the country and show the investors that there is a stable economy. Secondly, when investors come, they should not be pressured for commissions or bribes. Such pressure will force them to look elsewhere. For example, many are going to Vietnam and Bangladesh. Additionally, there should be a transparent and streamlined system of taxation and customs regulation. The ease of doing business must improve and be transparent. Many public sector officials and professionals left the public service. Some even left in protest. What is your view on this trend? The main problem is the lack of confidence in the system and institutions. Many genuine and capable public officials who want to do a lot for the country left due to political interference. The independence of the office they hold must be guarded against influence and interference.

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