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Rising prices vs. stagnant income levels: Hard times ahead

04 Dec 2021

By Maneesha Dullewe Sri Lanka has recently been hit by a surging cost of living, with prices of commodities such as domestic gas cylinders, cement, wheat flour, bread, assorted bakery and canteen foods, tea, and vegetables increasing successively. In addition to the disruption of productivity and global supply chains that drove up prices of most exports, the country has been feeling the impact of a depreciating Sri Lankan rupee due to inflation. Heavy rains and subsequent flooding have compounded the situation by devastating vegetable cultivations across the island. This comes in a backdrop where growers and farmers fear a drop in crop yields in tea plantations and paddy fields due to the Government’s decision to stop importing chemical fertiliser earlier this year.  Against this backdrop, The Sunday Morning spoke to National Trade Union Centre (NTUC) Secretary Mahinda Jayasinghe, who said that it was not only prices of essential commodities that were on the rise, but also the prices of various other necessary goods ranging from feminine products to soap, indispensable for modern life. He noted: “As circumstances stand, we have a situation where people are unable to support themselves even for two weeks on their monthly pay.” At present, the minimum monthly wage for the private sector is at Rs. 16,000, which trade unions have called to be increased by a minimum of Rs. 10,000. However, Jayasinghe said that the NTUC was hoping to step up their campaigns, demanding a Rs. 10,000 wage increase in the near future, although he noted that, given the present price hikes, a wage increase of Rs. 10,000 would still leave much to be desired. Speaking to The Sunday Morning, Advocata Institute Chief Operations Officer (COO) Dhananath Fernando stated that several factors contributed to the steadily rising prices, including the price hike in the global commodity market following Covid-19-induced disruptions, and the excessive money printing by the Central Bank. Apart from the inflationary pressures resulting from these conditions, the adverse weather conditions and inconsistent government policies regarding fertiliser also contributed, and Fernando added that the prevailing dollar crisis also played a part. “While the price controls on gas and imported items have been lifted, there is still a price control of Rs. 203 per US dollar. When you have a shortage of dollars, people can’t open letters of credit (LCs),” he said. Given the restrictions surrounding opening LCs, especially for importers and exporters, costs incurred during the process are added to the final price of the goods, driving up the prices further. Income inequality The latest available data from the Department of Census and Statistics (DCS) (from the Household Income and Expenditure Survey [HIES] last conducted in 2019), reports the monthly expenditure of the average household as Rs. 95,392 for urban areas, Rs. 57,652 for rural areas, and Rs. 38,519 for the estate sector. Given the minimum monthly wage of approximately Rs. 25,000 for the public sector, Rs. 16,000 for the private sector, and the Rs. 1,000 daily wage for the estate sector, a family falling under these parameters would face significant economic difficulties, especially against a backdrop of the increasing cost of living. Accordingly, Fernando noted: “The low-income people in any sector will be the most affected, because generally, a larger portion of their salary is spent on food. So when the prices of food items increase, they have to basically remain hungry, meaning they will be on the frontline of those who are affected (by the rising cost of living).” Even the demographics that exist somewhat above the poverty line would find it difficult to subsist on their current wages, leading to a cycle of arrested productivity. He explained: “People have too many issues to worry about, which creates demotivation and productivity issues. If your basic needs are unfulfilled, you will be burdened with worry about these. This is time that could have been spent on other things like family and work, but now that time is being sacrificed elsewhere on something unnecessary.” Economic outlook While acknowledging this disparity, Fernando continued: “Of course people will feel the inflationary pressure. But if you increase the wages for the approximately 1.5 million state sector workers in Sri Lanka, the inflationary pressure will climb even more due to the resulting wage spiral, basically because the Government does not possess the money to increase these salaries. If they were to offer a wage increase, they have to borrow from the Central Bank, which means they have to print more money, leading to what is called an inflationary cycle. So, this is a very tricky situation. “For private sector salary increases, first you have to make profits to increase salaries, unless the Government gives a subsidy or a budgetary allowance. Even for this, the Government does not have money since 70% of their income goes towards interest payments on early borrowings. The rest is reserved for healthcare, education, capital repayment from debt servicing, etc. Even with the Budget presented, a large budget deficit was estimated. So ultimately, increasing public sector salaries would bring about a very difficult time for everyone.” Fernando reasoned that the interruptions in the dollar flow and declining remittances were primarily due to the ceiling imposed by the Central Bank. “No exporter or foreign worker would like to send their dollars through official channels, because they know they can get a higher price outside. So, this is one reason why the dollars are not flowing in,” he said. He said that without an influx of dollars, it would become increasingly difficult to import our essentials like fuel, which powers vehicles, electricity, water, etc., meaning that there is a potential for the supply of all essentials to be disrupted. He added that people would be compelled to spend more of their income on food items, since all these conditions would also contribute to food inflation. “People will have to cut down on non-food expenses such as education and healthcare,” he said. When queried regarding potential solutions to the prevailing situation, Fernando said: “In my view, it seems a little late already, unless we have some magic formula, since these reforms take time. These are also structural problems, not one-off ones.” Addressing these prevailing conditions, Labour Ministry Secretary M.P.D.U.K. Mapa Pathirana said that while the Labour Advisory Council had discussed demands by trade unions for wage hikes on behalf of private sector workers, there was no agreement regarding the matter as yet. “We still need to get data from the DCS regarding how much the cost of living increased. Furthermore, there needs to be a consultation process between employees and employers to increase wages,” he said.


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