The October rains have arrived and back-from-the-village Kussi Amma Sera was in conversation with Serapina and Mabel Rasthiyadu. “Dollar-eka naginawa, apita loku prasnayak wei-da (Will the rise of the dollar create lot of problems for us?)?” she asked, seated under the Margosa tree after the rains had taken a break and sunlight was attempting to [...]

Business Times

Rampaging dollar


The October rains have arrived and back-from-the-village Kussi Amma Sera was in conversation with Serapina and Mabel Rasthiyadu.
“Dollar-eka naginawa, apita loku prasnayak wei-da (Will the rise of the dollar create lot of problems for us?)?” she asked, seated under the Margosa tree after the rains had taken a break and sunlight was attempting to get through the clouds.

“Badu-mila wadiwela. Bus saha ko-chchi gastu wadiwela (Cost of goods has gone up, so have bus and train fares,” replied Mabel Rasthiyadu, while Serapina noted that “petrol wadivenakota, ischoole van gastuwa-th wadivenawa (when fuel prices rise, school van charges also increase)”.

I could hear them from my office window and when their conversation shifted to how irresistible Sri Lankan entertainer Ronnie Leitch had passed away while on tour in Australia, it brought back memories of our schoolboy days in the late-1960s in Dehiwela when Ronnie, even then, was a hot favourite with his comedy act and singing talent. He will be missed by many Sri Lankans.

As I reflected on the discussion on the rupee’s ding-dong battle with the dollar by the three “amba yahaluwas (mango friends)”, the phone rang. Know-all neighbour Haramanis of broken English fame, was on the line and coincidentally wanting to discuss the dollar, which has become an everyday favourite topic.

“I shay, dollar going up, problem for Lanka, no!” he said.
“Oh, yes, it could have an impact on prices and a ripple effect through rising fuel prices,” I said.
“Prime Minister and others also talking now to increase exports, otherwise we are doomed,” he added, preparing for a long conversation.
“Well, the fact that we need to increase exports has been said for over three decades now particularly after the slogan ‘export or perish’ became popular in the 1980s,” I said in response.

“So why can’t we increase exports,” he asked, after which we got into a long conversation on the economy, before winding up as I had other work.
The problem here is that while exports have picked up over the years, so have imports – by leaps and bounds. Export earnings are sufficient to meet only half the requirement of imports, apart from foreign exchange revenue from worker remittances, tourism and other services. Furthermore, if you take garment exports and tourism earnings, both have a huge import component. So the net gain is less than what the figures reveal.

Here are some Central Bank statistics that might interest you: Total export values in 2007 were US$ 7.6 billion; in 2014 – $11 billion; and in 2017 – 11.3 billion. Agriculture export earnings in 2007 were $2 billion; in 2014 – $2.8 billion; and in 2017 – $2.76 billion.

Industrial exports including garments in 2007 were $6 billion; in 2014 – $8 billion; and in 2017 – 8.5 billion. These earnings slipped to $7.9 billion in 2016.
As far as imports, are concerned, consumer goods (including sugar, dairy products and fruits) in 2007 cost $1.6 billion; in 2014 – $3.8 billion; and in 2017 – $4.5 billion. Other consumer goods: medicinal products in 2007 — $179 million; in 2014 – $380 million; and in 2017 – $520 million and vehicle imports in 2007 cost $244 million; in 2014 – $772 million; and in 2017 — $772 million.

There has been a sharp increase in vehicle imports in the past decade. The biggest spender of scarce foreign exchange has been fuel in 2007 at $2.5 billion; 2014 – $4.6 billion and dropping in 2017 to $3.4 billion. Total import costs were 2007 — $11.3 billion; 2014 – $19.4 billion and 2017 – $21 billion. Import values have almost doubled in a decade, while export earnings in the same period have not gained as much.

During this period, inflation or consumer prices measured by the CCPI (Colombo Consumer Price Index) in September 2007 was at 16.1 per cent; September 2014 — 3.5 per cent; 2015 – 1.1 per cent; 2016 – 4.2 per cent; 2017 – 7.1 per cent and (September) 2018 – 4.3 per cent.

To many of us, particularly housewives, inflation means little as the common grouse is that prices are rising all the time. Don’t argue with them as they do most of the marketing. Economists assert that inflation is measured by the percentage increase of goods from the previous years which means that the rate of increase in some years fell from the previous years; thus in some years inflation has fallen.

While Governments love to claim that inflation has fallen, it only means that the rate of increase has fallen, not prices themselves which are rising all the time. For example, inflation dropping to 4.3 per cent in September 2018 is from a base of 7.1 per cent in the previous year.

Housewives, who are most clued onto prices, will tell you, “Don’t believe statistics. They lie”. This is in a way similar to a debate on rising crime rates. At a recent discussion, two ministers had reportedly challenged the President’s assertions that the crime rate had increased, citing statistics to prove their point.

However, the President had responded that he believed the crime rate had increased despite what statistics say. The country’s precarious foreign exchange situation is where we have to borrow to pay for imports and also debt. In the past 12 to 18 months, the Central Bank (CB) has been selling bonds and Treasury bills in various ways to gain dollars and prop up reserves. CB intervention in the money markets to stabilise a free-fall of the rupee has been limited, allowing the dollar to rise with intervention only in small bursts. The other reason for limited intervention is as per IMF guidelines.
Anyway what is a stable rupee-dollar rate? Rs. 100, Rs.120, Rs.150, Rs. 160, Rs. 170 or Rs. 190? The dollar has passed many milestones and in all cases, panic buttons were triggered amongst the Sri Lankan consumer. Without a strong export base and current earnings enough to meet only half our import needs, the dollar is bound to rise to Rs. 190 or thereabouts within the next year. It’s anybody’s guess.
While the CB has brought in measures like restrictions on vehicle imports and non-essential items, to reduce foreign exchange usage on imports, whether this would sharply restrict consumer buying is a moot question. Yes, it would reduce consumption but will it be at noticeable or comfortable levels, is the issue. Furthermore, the next two months is a period for seasonal purchases and the import of essentials and non-essentials is unlikely to fall in line with the CB’s own comfort zone levels.
So where does that leave the economy? More vigorous intervention, pumping in dollars in the money markets, is not the best option because it means dipping into forex reserves and having to replenish them regularly with dollars borrowed from some other source. Increasing the export base is also a long term vision.
Thus, should we worry about a rising dollar? We certainly should because it impacts on prices. The Government’s fuel pricing policy is also generating a lot of criticism since so far it has increased prices; not in reverse (lowered prices) with a large percentage of the price hikes couched in taxes. With the dollar gaining overseas and oil prices rising, it’s unlikely that fuel prices will come down in the near term.
The Government keeps harping on the fact that the country needs to increase exports, which is the only way to resolve the crisis, to equate import values, which would then reduce pressure on the local currency. However, this kind of talk – during a time when the cost of living is rising and people have been asked to tighten their belts – is counter-productive and would anger the populace, rather than win their support.
Sri Lankans love to hate their politicians and the first line of attack is whether politicians are making sacrifices as much as ordinary citizens. The most likely answer – if there is a Business Times poll – would be a resounding “No”. Thus, however much the Government pleads with consumers to reduce spending on imported goods, it would only transform to anger if there is no visible reduction in the cost of maintaining politicians in legislative bodies. Another allegation is that a short-term moratorium on vehicle permits came after parliamentarians had made use of their permits.
“Balanna Mahattaya, manthrila vehicle permit hambuna-ta passe, anith ayata permit nathi kala. Meka puduma ratak (After the parliamentarians got their permits, they have been suspended for others. This is a strange country),” said Kussi Amma Sera, bringing in the morning tea.
I couldn’t agree more. As long as politicians live the high life and order million-dollar-worth chairs and doors for their chamber and pave their working environment with gold, Sri Lankans are not going to tighten their belts — rising dollar or not!

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