West Asian war rages on
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There were some welcome showers on Wednesday night in Colombo, a breather from the sweltering heat that has engulfed the country these days. However, the respite was short-lived as the heat returned on Thursday – just as the country returned to work after the long holiday owing to the Sinhala and Tamil New Year, with the reality that Sri Lanka is facing a plethora of problems arising from the conflict in West Asia.The International Monetary Fund (IMF) and the World Bank – commonly known as the Washington twins – have both warned of a worsening global economic crisis if the war escalates. Attacks between Israel and Lebanon continue despite the ceasefire between Israel and Iran. While Israel has agreed to a ceasefire with Iran, there has been no such agreement with Lebanon. However, peace talks between the two were held in Washington on Tuesday.
While the world waits with bated breath for an early end to the war, opening of the crucial Strait of Hormuz and reduced impact on oil production and the supply channels, the Washington multilateral agencies along with the Asian Development Bank (ADB) have hinted at a lowering of the global economic growth forecasts this year.
A worried IMF Managing Director Kristalina Georgieva, who recently visited Sri Lanka and praised its response to the Cyclone Ditwah disaster, has said that the Fund was planning to upgrade its global growth forecast this year. “That was before the war broke out. Now, we have to lower the growth forecast to 2 per cent from 3 per cent,” she was quoted as saying in an interview, just as hundreds of ships waited in vain to transit through the Strait of Hormuz. While fuel prices in Sri Lanka are expected to be revised every month based on overseas pricing trends, in countries like the US it is changed daily.
The good news in our household, meanwhile, was that the trio had returned to the neighbourhood after their annual sojourn to their villages for the Avurudu.
Sipping from a mug of tea in the kitchen, I could hear the trio conversing under the margosa tree. “Mae gamana avurudu uthsava lokuwata thibba, ratata prashna godak thibbata (This time the Avurudu celebrations were grand despite the problems the country is facing),” said Kussi Amma Sera. “Avurudu kreeda godak thibba. Kattiya harima santhosen hitiye aluth andum andagena, sampradayika rasa kevili hada hada (There were lots of games and people seemed happy wearing new clothes and preparing traditional sweetmeats),” noted Mabel Rasthiyadu. “Apey gamey ehema thibbe nae. Godak pavul kanassallen hitiye egollangey nediyo meda peradiga weda karana nisa (That was not the case in my village where many families worried over their loved ones working in the Middle East),” added Serapina.
As I walked back to the room to resume writing this column, the phone rang. It was ‘Cardboard’ Sando, the muscle man from the nearby petti-kade. It was a welcome break from a sweaty morning as I hadn’t spoken to him for a long time. “What is your view of the Middle East war?” he asked, after we exchanged the usual pleasantries. “One word: Disastrous. It not only impacts on fuel prices and threatens the fuel supply and also fuel production in those countries but also affects our overseas workers in those countries. If it prolongs, there may even be layoffs for Sri Lankan workers,” I said.
“While some of my relatives in the Middle East were worried about their jobs, here in Sri Lanka we have to worry about rising fuel prices which are impacting prices of all essential goods including vegetables,” he said.
In Colombo, ADB economists said last week that much-needed foreign earnings would fall as exports and tourism were adversely impacted by the war. The bank said inflation was set to rise. One of the sectors badly hit by the war is tourism which reported a 20 per cent drop in arrivals in Sri Lanka in March. Much of the tourist traffic from Europe comes via Dubai, Abu Dhabi and Doha which are vital transit hubs servicing Europe for two reasons: Cheaper tickets than European carriers and in some cases no direct flights. The rising cost of air travel owing to higher insurance levies was also a factor being considered by tourists. In a separate assessment, the UNDP said the war could cost the Asia-Pacific region up to US$299 billion.
In the meantime, fertiliser shortages are threatening Sri Lanka’s plantation sector output. The Planters’ Association of Ceylon (PA), the apex body of Sri Lanka’s plantation industry, has expressed deep concern over rising prices and limited availability of fertiliser amid the escalation of the crisis in West Asia.
With the closure of the Strait of Hormuz, shipping traffic through the region is reported to have dropped by 90 per cent. Given that an estimated one-third of global trade in raw materials for production of fertiliser flows through the Strait, these interruptions are already disrupting fertiliser supply chains around the world, the PA said in a statement. After Russia, Egypt and Saudi Arabia, Iran is the fourth-largest global supplier of urea, the most widely used fertiliser ingredient.
The PA cautioned that the implications of another fertiliser crisis extend well beyond direct agricultural impact. Importantly, the next two to four months will have a significant impact on the annual crop yields of the industry. The association warned that these dynamics could significantly affect balance of payments, inflation and purchasing power for critical resources like fuel.
The other good news was on April 2 when the World Bank Group and the Government of Sri Lanka launched a new five-year Country Partnership Framework (CPF) to support Sri Lanka’s continued recovery, help achieve its 7 per cent medium-term economic growth target and support job creation.
The bank said private sector-led job creation is at the heart of the new partnership. Nearly one million young Sri Lankans are expected to enter the job market over the next decade. Without stronger growth and greater private investment, the economy will create only around 300,000 new formal jobs — leaving roughly 7 out of every 10 young job seekers without access to a quality job.
Good news, bad news……there is no respite these days from external shocks. Every time the ubiquitous US President Donald Trump wakes up in the morning, the world waits with bated breath: “What is he going to say today?”
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