Pendulum swings
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Up-down, up-down like a yo-yo, the rupee has been swinging in recent times. Or is it like a pendulum? The currency has been on a roller-coaster ride since gaining to Rs. 290 to the US dollar on June 8. Thereafter, its trail has been mixed and on Wednesday it depreciated to Rs. 305 and on Thursday to Rs. 306.I was on the ball for today’s column, watching the pendulum swings of the rupee when the phone rang. It was Pedris Appo – short for Appuhamy – a retired agriculture expert now engaged in farming.
“The rupee seems to be topsy-turvy in recent times. Will its appreciation or depreciation have an impact on agriculture”, he asked.
“I don’t think so, except in the case of imported fertiliser where prices may vary according to the dollar parity rate. Then there are other imported inputs like fuel for the tractor or other farm-used vehicle which might be impacted,” I said.
“We are having hard times this rice producing season. Several farmers are complaining that the government-fixed price for rice purchases is too low and nowhere near our costs of production,” he said.
“I agree, there is a need to increase the selling price for farmers, as the gap between their selling price to the government and the price in the market is too wide. Farmers need a solution as their cost of production has gone up,” I said.
The impact of the US dollar is felt in every sphere of economic activity. The gains in the rupee a few weeks back were largely because there was a surplus of dollars in the market amid import restrictions. However, the situation changed last week due to the removal of import restrictions on 300 items resulting in demand for imports particularly for bathroom fittings and tiles. So demand is once again rising for imports and dollars, while the availability of dollars in the market is not enough to meet the demand.
“There are importers of bathroom fittings and tiles seeking dollars to resume their imports,” one money market dealer said. So far, of more than 4,000 imported items only 900 are restricted at the moment.
In potentially another crisis, the parliamentary opposition accused the authorities of another scam – like the bond scam – claiming that it was not right for the Central Bank to reduce interest rates by 2.5 per cent, a day after the Treasury bills were sold at high interest rate levels.
The Central Bank vigorously rejected the accusation saying these developments were within the due process parameters of the banking regulator.
Export earnings have also come down in recent times. According to the Central Bank’s latest data, earnings from merchandise exports declined by 12.6 per cent in April over April 2022, to US$849 million, recording the lowest earnings since April 2021.
However, workers’ remittances increased sharply to $454 million during April in comparison to $249 million in April 2022, a trend that has been evident and likely to continue for the rest of the year.
The data showed that the deficit in the merchandise trade account narrowed to $583 million in April from $728 million recorded in April 2022 due to a larger decline in imports, compared to the decline in exports.
However, the trade deficit showed an increasing trend on a monthly basis since February 2023. The cumulative deficit in the trade account from January to April 2023 was $1,444 million, a sizeable decline from $3,125 million recorded over the same period in 2022.
In another Central Bank report for activity in January-March 2023, textiles, garments and other made-up textile articles’ exports together accounted for 53.62 per cent of all industrial exports from Sri Lanka during the period under review.
Exports of all textile products totalled $1,273 million in January-March 2023, while Sri Lanka’s total industrial exports stood at $2,374.7 million in the first quarter of the current year.
In March 2023, all textile products exports from the nation declined by 10.2 per cent year-on-year to reach $417.2 million.
The Export Development Board in a separate report said that Sri Lanka’s merchandise exports decreased by 16.15 per cent to $814.1 million in April compared to April 2022. It is a 0.5 per cent decrease when compared to April 2021.
Just as I was fixated on and crunching these numbers, my attention was briefly diverted to the conversation under the margosa tree. “Paan wala mila adu-wela. Eka hondai (Bread prices have come down, which is good),” said Mabel Rasthiyadu.
“Apita balaporoththu wenna puluwan Aldoris-ge bakery nishpadana wala milath adu-wei kiyala. Ko ape Aldoris (Let’s hope that Aldoris’s prices of bakery products have also reduced. Where is he today (Thursday),” asked Serapina.
“Mama hithanne eya-ge lamainge iskola wedakata gihilla (I think he was going to attend to some school matters of his children),” noted Kussi Amma Sera.
The country’s economic crisis has triggered many issues, in particular the rupee vs dollar rate, economic growth which the Central Bank claims is improving, restrictions on imported items and, in particular, the problems faced by SMEs in settling bank loans.
The last issue – settling bank loans – was alluded to by the Sri Lanka Banks Association (SLBA) this week, urging policymakers to engage with commercial banks via the Central Bank to ensure a comprehensive and well-coordinated approach to alleviating the stress felt by the industrialists in loan default.
The SLBA said in a statement that the unusually high number of debt recovery (parate execution) actions within the first four months of 2023 are due to an accumulation of legal actions that were suspended as per the general moratorium granted since COVID-19 in 1Q 2020 (3 years) and to the tourism industry since the April 2019 attacks, where banks had to desist from debt recovery action/‘parate execution’.
“It is hoped that the lobbyists who appear to have been engaged by the troubled borrowers/businessmen will encourage a Central Bank-led engagement with the commercial banks to ensure that the decision-making process is comprehensive and well-coordinated in alleviating the stress felt by the industrialists in default,” the SLBA said.
As I wound up my column dealing with the stresses felt in the economy, Kussi Amma Sera brought my second mug of tea, saying: “Paan mila adu wela thiyena eka hondai (It’s good that bread prices have come down).”
I nodded my acknowledgement, reflecting on current trends where the economy seems to be on the right path, notwithstanding the cost of living which is still high.
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