Columns

Are we likely to face a long period of shortages of essentials and an economic crisis?

This is the question uppermost in the minds of our people as we face severe shortages of petrol, diesel, gas and kerosene and unprecedented warm weather with the prospect of an El Niño drought that threatens our food security. Will it be a long period of deprivation and shortages of essentials and a drought that threatens livelihoods in the country?

Trump

Although in his Wednesday night televised address, United States President Donald Trump, commenting on the war against Iran, said he would “finish the job”, once again, this is not likely to happen. In any case, Iran is not likely to open the Straits of Hormuz.

This would mean continued high expenditure on our essential imports and less export revenue. Consequently, we are likely to face a crisis in our foreign reserves once again.

Energy insecurity

The country will face severe shortages of fuel, fertiliser, food and other essentials and necessities in the foreseeable future if the war in West Asia continues.

Shortages

The months ahead are likely to bring not only shortages of fuel, fertiliser, and other essential imports, but also restrictions on water and electricity, along with a decline in the production of rice and other domestically produced food. The combined impacts of the war in West Asia and the prospect of an El Niño–driven heatwave and drought are likely to cause unprecedented hardships for the country.

Unless the war in West Asia comes to an end and the Strait of Hormuz is opened for shipping, the country will face both energy and food insecurity.Our foreign reserves would deplete to crisis proportions if the war continues.

Peace prospects

There are no signs of an end to the conflicts in West Asia. In fact, the deployment of troops on the ground by the US could escalate the war before domestic pressures may compel President Trump to announce once again that he has finished the job in days. His remarks need to be taken with a pinch of salt, as did his earlier statement that he has obliterated Iran’s nuclear programme and military capabilities.

No solution

Even if the US withdraws from the war, it is unlikely to resolve the crisis over shortages of fuel and high prices, as Iran is likely to continue the blockage of the Strait of Hormuz.

Iran’s assurance

Although Iran has assured Sri Lanka of free passage of ships carrying oil, we do not have ships to transport oil. We would have to depend on friendly countries’ ships to avail ourselves of this concession. The government is most likely to turn to India and Pakistan for help. However, the government is somewhat wary of using this facility, as it may offend the US, which is a market for about 25 per cent of our exports.

Drought

If the external shocks on our economy are severe, our difficulties are compounded by the likelihood of having to face an El Niño heatwave and drought during the year. We are already facing high temperatures and likely to face a drought.

The impact of the drought on the country’s food security and external finances would be massive.  The imports of rice, wheat and other food would be a severe strain on the trade balance and external reserves.

IMF concessions

The Central Bank of Sri Lanka expects the IMF to make concessions on its conditions owing to the impacts of Cyclone Ditwah and the external shocks of the ongoing wars. Hopefully these concessions would be of much relief to our external reserves.

Concluding reflection

The next twelve months or more are a very difficult period for the country’s economy and people. Sri Lanka will face shortages of essentials. Unfortunately, those opposing the government are exploiting these difficulties and blaming it for the shortages of food, fuel, electricity and water. Such is our political culture.

The country must face these difficulties by conserving our resources and turning to substitutes, as the end to the hostilities is uncertain and perhaps distant. The prolongation of the closure of the Strait of Hormuz and high prices for oil would deplete our foreign reserves and once again create a foreign exchange crisis. In addition, the impact of the warm weather and drought or low rainfall would threaten food security, strain our foreign reserves and lead to a foreign exchange crisis once again.