Columns

The JVP/NPP May Day rallies in 22 of the country’s 25 districts provided President Anura Kumara Dissanayake the opportunity to showcase the government’s economic performance in its first year in office as the best in many years. The president also told workers of the country that they will be the beneficiaries of the economic gains from its government’s good economic management.

Economic gains

The pertinent question in the minds of many is whether there would be economic gains this year. Even those cheering the president on for economic gains must have been thinking of the high costs of essentials that have eroded their wellbeing.

The year ahead

The year ahead is fraught with severe economic difficulties unless and until the West Asian war is over and the Strait of Hormuz is open for shipping.

Hard times

The country, the people and the government are likely to face economic difficulties. Even though these difficulties have been brought about by external shocks, most people will no doubt blame the government.

Global crisis

The world economic crisis or global recession will create considerable hardships for our economy dependent largely on trade, tourism and remittances. The opposition has seized the opportunity to criticise the government and attempt to form new political coalitions to jointly confront the ruling party.

Closure continues

The escalation of the West Asian war despite a fragile ceasefire and the closure of the Strait of Hormuz are causing severe hardships to the country and threatening the economy. High prices for our essential imports and threats to our exports are severe setbacks to our external finances.

Economic growth

The economic growth of 5 per cent achieved last year, as well as price stability, is likely to be undermined. Furthermore, West Asian worker remittances, which constitute about one half of total remittances and are the biggest strength to our balance of payments and external reserves, are expected to see a significant drop.

Tourism

The insecurity in the Gulf region, which is an important transit point from Europe and North America, could reduce tourist earnings. Our exports of tea to West Asia, which is our largest market for our tea, have been disrupted. Our merchandise exports to Europe and North America could also be affected adversely by the closure of the sea route.

External finances

In fact, our trade balance has widened and foreign reserves have fallen in the first few months of this year. Economic growth is likely to fall from last year’s 5 per cent to 3 per cent or less.

Alternatives

We have to find ways and means of coping with these economic difficulties. We have to find ways of curtailing our consumption of imports.

On the other hand, we must identify new markets for our exports and produce more import substitutes.

People’s response

Ideally, we must respond to these challenges by curtailing consumption of imports and turning to import substitutes. In fact, a large proportion of people, either due to their ignorance or political biases, have blamed the government. This is not to imply that there is a high proportion of people who also support the government’s methods of conservation by adopting austerity measures.

Oil prices

Oil prices increased sharply last week to US$116 per barrel and dipped to around US$99. It has risen again to around US$110 and is likely to be high and volatile.

Setback

High oil prices and the unavailability of oil and gas pose a perilous setback to our economy. We have to cope with not only high oil and gas prices but also their unavailability that is likely if the closure of the Strait of Hormuz continues.

Rationing

The increase in prices of petrol and diesel and the introduction of the QR code method of rationing of fuel should reduce consumption by a significant amount and stretch the available stocks of fuel.

Recapitulation

The continuation of the war in West Asia and especially the closure of the Straits of Hormuz are causing severe hardships to the people and threaten the economy. We have to find ways and means of coping with these economic difficulties. We need to curtail consumption of imports by finding substitutes for imports. On the other hand, we must find new markets for our exports and produce more import substitutes.

Ideally, we must ourselves respond to these challenges by adopting import substitutions. But most people, either due to their ignorance or political biases, have blamed the government.

Conclusion

An early end to the war is vital to stabilise the Sri Lankan economy. Its continuation could bring severe hardships to people and even provoke social unrest. There are signs of the free flow of ships through the Straits of Hormuz, with the US ceasing hostilities, saying they have achieved their objectives. However, there is no likelihood of opening the Strait of Hormuz for safe passage.

The inability to achieve a peace accord between the US and Iran could result in an economic downturn. Recent hostilities in West Asia have once again brought out the need to reduce Sri Lanka’s need to reduce its dependence on imports, remittances and earnings from tourism.

It is highly unlikely that the JVP leaders could boast of economic achievements at next year’s May Day rally, though this is no fault of theirs.