The year has begun in severe economic hardships, unavailability of essentials and uncertainty on how these would be resolved. Will the months ahead be ones when the acute economic problems will be resolved? Relief package The Government has recognised the people’s plight and come up with a wide ranging relief package costing Rs. 229 billion. [...]


Will severe hardships and economic crises persist this year too?


The year has begun in severe economic hardships, unavailability of essentials and uncertainty on how these would be resolved. Will the months ahead be ones when the acute economic problems will be resolved?

Relief package

The Government has recognised the people’s plight and come up with a wide ranging relief package costing Rs. 229 billion. Salaries of public servants and pensioners have been increased by Rs. 5000 and Samurdhi beneficiaries would get an additional one thousand rupees monthly. Farmers who have been affected adversely by the fertiliser shortage are to be given relief.These handouts would not relieve the hardships of the multitude of the poor who are deprived of essentials.

Financial implications

The financial implications of the additional public expenditure is a matter of concern. It appears to be based on the disastrous Modern Monetary Theory (MMT) that the Government could print money without any adverse impacts on inflation and increased import expenditure.

Increased reserves

The good news from the Central Bank Governor is that the reserves that had fallen to US$ 1.58 billion at the end of November had risen to US$ 3.1 billion at end December and will remain around that level as well.There was no mention of how the reserves that were down to US$ 1.6 billion in November increased. In all probability, we have obtained a currency swap equivalent to US$ 1.5 million in Yuan that could be converted to US dollars, if necessary.


The Agriculture Director General has assured us that there will be no shortage of food this year. According to him the drop in paddy production in the Maha season can be supplemented with rice stocks in theYala season. There is also an assurance that farmers would be provided with fertiliser.


The current gas shortage we are told will be resolved in three weeks’ time with the arrival of new gas supplies.

India and China

While we hope that these improvements will materialise, there are lines of credit from India and China that will improve the import situation.The Indian credit lines are likely to ensure adequate supplies of food, pharmaceuticals and oil. The Chinese credit would enable intermediate imports needed for export industries. Furthermore, it is believed that the currency swap in Yuan could be converted to US dollars, if needed. This requires to be clarified. It is unfortunate that there is no transparency regarding the external financial situation of the country.

Debt repayment

Finance Minister Basil Rajapaksa has assured the country that we will meet all the country’s debt repayment obligations this year. Perhaps the Minister is aware that further foreign assistance from friendly countries are likely.


Although, the Finance Minister ruled out the possibility of an IMF bailout, he indicated that there are discussions with the IMF.Perhaps the Finance Minister’s optimism about an improvement in the external finances are owing to on-going negotiations with the IMF to obtain emergency assistance without any conditions attached.

IMF assistance

The reluctance of the Government to obtain IMF assistance is owing to him posing conditions such as fiscal consolidation, eliminating losses of state enterprises by reforms and restrictions on public expenditure.


These are essential conditions for the country’s economic recovery. However, seeking emergency assistance to overcome the current difficulties will not impose such conditions. Hopefully the country will obtain such assistance and mitigate the current economic difficulties and reduce anxieties.

Emergency Assistance

We have to initially ask International Monetary Fund (IMF)’s emergency assistance under the Rapid Financing Instrument of the IMF. Perhaps negotiations have begun with the IMF to obtain emergency assistance under its Rapid Financing Instrument (RFI).

Rapid Financing Instrument (RFI)

The Rapid Financing Instrument (RFI) provides rapid financial assistance to all member countries facing an urgent balance of payments need. It can be used in a wide range of circumstances to support diverse needs of member countries. It provides support for urgent balance of payments needs. This is our immediate requirement.

Other expectations

Indications are that the good export performance of last year would gain momentum this year. Last year’s export earnings of about US$ 15 billion are likely to gain momentum to increase export earnings to about US$ 20 billion. This could lessen the balance of trade deficit that is likely to continue to widen due to an increase in imports this year owing to both increased imports and higher international prices.


However, there is a severe threat. The European Union (EU) could impose economic sanctions for violations of human rights. This would be a severe setback to the economy and particularly the external finances.

Hope and expectations

The hope and expectations at the beginning of the year is that the severe shortages of essentials would diminish and fade away. Hopefully, the hard times will diminish during the course of the year with the expectations of the Government.

In spite of these glad tidings, there is much skepticism of recovering from the current severe hardships people are facing in obtaining bare essentials either because of their unavailability or soaring prices. Most vegetables are beyond the affordability of poor people while children are denied milk.


The country may tide over the current difficulties by assistance from India, China and emergency assistance from the IMF. These are essential palliatives. However, they are debt that have to be repaid. They do not resolve the fundamental weaknesses and disequilibria in the economy. A well thought out medium term programme within a long term perspective plan is needed.

Political factors

However, the political structure, political culture and social milieu are not conducive to such a resolution of the economic issues that now requires deep surgery. The country may overcome the current crisis with foreign assistance. The issue is not from whom we will get assistance to meet our immediate needs, the need is to adopt a programme of economic reforms that would resolve the fundamental weaknesses of the economy and enable the stabilisation and growth of the economy. Is this possible in the country’s political context?

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