Columns

The Christmas season was celebrated in a manner not seen in the last few years. Despite the extravagant celebrations during the Christmas season, the country remains in an economic cri-sis with several uncertainties this year.

Economic growth

The economy contracted by eight percent in 2022. Although this estimate is lower than the con-traction in the previous year, it is a continued economic setback.

Although the economy is expected to stabilise and revive this year, it is projected to contract by three percent this year. However, the global recession this year casts doubts of such a revival.

We are told the worst is over. However, an economic recovery is uncertain owing to the global economic recession and the inability to obtain the International Monetary Fund (IMF) credit fa-cility.

Expectation

Much of the expectation for an economic revival this year depends on an improvement of the country’s external finances. Regrettably, the global recession is likely to impact heavily on the country’s exports and most likely on the expectation of a revival in tourism at the beginning of the year and the latter months. Remittances have increased and hopefully these would continue to be a good source of balance of payments support.

IMF facility

The biggest expectation for an economic revival rests with obtaining the Extended Credit Facili-ty of US$ 2.9 billion from the IMF. However, this assistance has been stalled last year owing to the precondition of achieving foreign debt sustainably. This inability to demonstrate foreign debt repayment sustainability continues to be a stumbling block to obtaining the IMF facility owing to China’s refusal to restructure its debt.

China

While it appears that other creditors are willing to take a “haircut” on their debt, China, which has lent about ten percent of the country’s debt of around US$ 5.1 billion, is not agreeable to an arrangement for foreign debt sustainably.

Other assistance

China has given other assistance generously during last year and is willing to give a further loan, but is in principle opposed to agreeing to a debt sustainability package. How this dilemma will be resolved remains uncertain.

Geopolitics

Hopefully, a solution to this impasse would be found early this year. The geopolitical and stra-tegic importance of Sri Lanka to world powers would undoubtedly resolve it in one way or the other. As indicated in earlier columns, geopolitical factors are likely to ensure a relief package to Sri Lanka.

Global Recession

This year’s global recession is likely to impact significantly on the Sri Lankan economy. The big-gest blow has been and will continue to be to the country’s manufactured exports. Already, in the last quarter of last year, export orders diminished and the robust manufactured exports dipped.

It is clear that this trend would continue as export orders for the first half of this year have de-clined. This is especially so for the country’s main export of apparel. It has also affected rubber goods and ceramics exports.

Tourism

Another expectation for an improvement in external finances is earnings from tourism. Tourist arrivals increased in the last quarter of 2022.

Earnings from tourism increased last year and will probably be about US$ two billion. This is expected to continue into the first few months of the year and would hopefully continue in the last quarter of 2023 to achieve earnings of around US$ three to four billion this year.

Recession

However, two factors mitigate these expectations. First, the global recession that would affect incomes in all countries would restrain tourist travel around the world. Second, although there was an increase in tourists, indications are that most were low spending tourists.

Many tourists from Russia and Ukraine were fleeing from the horrors of the war and conscrip-tion. Therefore, the earnings from tourism may not be as much as hoped for. Hoteliers are complaining of low earnings.

Chinese tourists

Tourists from China are highly significant. The Chinese economy is in dire straits and Chinese tourists are likely to decline. This is a serious setback to the country’s expected revival in tour-ism.

Caution

In encouraging tourism, it is vital to ensure that a new wave of COVID-19 is not introduced into the country. Reemergence of COVID-19 could be a serious setback for the country’s economic revival.

Remittances

Recent months witnessed an increase in remittances owing to the closer alignment of the offi-cial and unofficial rates of exchange. Hopefully, more inward remittances would be received officially to increase remittances to about US$ three to four billion this year.

Celebration

The manner in which the Christmas season was celebrated, particularly in the capital, indicated the huge divide in society. The rich and affluent indulged in their extravagant spending at hotels and restaurants, while the larger number were malnourished and hungry. This indicated a lack of recognition of the dire economic conditions the country was in and the lack of bare necessi-ties for a large proportion of the community.

Foreign assistance

The country has been receiving a fair amount of foreign assistance. Gifts of finances, food, fer-tiliser, fuel and relief for the poor from friendly countries and international agencies have alle-viated economic conditions. Hopefully this will continue throughout this year, especially as the country’s increasing poverty, hunger, malnutrition and starvation has to be ameliorated.

Rural Economy

In this economic context, it is vital for the rural economy to be uplifted. Regrettably, the coun-try’s food production has had a severe setback.

The forthcoming Maha paddy harvest is likely to be 30-40 percent lower owing to the unavaila-bility of fertiliser and agrochemicals. It is therefore vital that the Yala 2023 cultivation has ac-cess to sufficient quantities of fertiliser and agrochemicals in time. The efficiency of the agri-cultural services is vital for this.

Food crops

Apart from paddy production, it is of utmost importance to ensure the production of other food crops with their needs of fertiliser and agrochemicals.

Rural poverty

If there is a revival of food production it will not only improve the country’s overall economic situation and food availability, but also reduce poverty and malnourishment in the rural sector.

Conclusion

All things considered, there is a great deal of uncertainty about the revival of the economy this year. There are prospects of an improvement largely based on the expectation of international assistance in whatever form and sources. Meanwhile some improvement in the country’s agrarian economy could contribute towards the severe poverty and malnourishment in rural society.

Final Word

The President in his New Year message struck an optimistic note when he said that the worst was over and prospects of a revival were imminent. Everyone must hope his prediction will come to pass.