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(ANI): Indian External Affairs Minister Dr. S. Jaishankar will brief the Parliamentary Consultative Committee on External Affairs on June 18th over the ongoing crisis in Sri Lanka. Apart from Jaishankar, India’s Foreign Secretary and other MEA officers will be present at the meeting at the ministry office at 11 am. During the meeting, the Indian government Jaishankar to brief India’s MEA Consultative Committee on Sri Lanka crisis

ECONOMNYNEXT – Sri Lanka’s imports fell 0.5 percent from a year earlier as interest rates were raised and investment goods and telecom equipment imports, outpaced an increase in oil costs, official data showed.

Sri Lanka’s fuel imports went up by 96 million dollars in April 2022 to 510 million US dollars, while investment goods imports fell 87 million US dollars or 24 percent to 266.3 million Us dollars.

Building material imports fell 22 percent to 75.6 million US dollars in April and non food consumer goods imports fell 43 percent to 87.9 million dollars.

Sri Lanka’s exports also fell 18.5 percent to 969.8 million US dollars.

The trade deficit narrowed to 729 million US dollars from 889 million US dollars a year earlier.

Sri Lanka is hit with the worst currency crisis triggered by the island’s soft-pegged central bank.

The rupee has collapsed from 200 to 370 levels in a float botched by the surrender rule. (Colombo/June12/2022)

ECONOMYNEXT-Sri Lanka’s power situation will remain precarious for the next 3 to 4 years if the officials do not diversify energy generation methods and bring in renewables, the island’s utility regulator has warned.

Speaking at a media briefing on Thursday (09) Janaka Rathnayake, Chairman of the Public Utilities Commission of Sri Lanka said that Sri Lanka can continue with 3-hour power cuts till December this year with the existing resources.

The island would have to import around 500 million US dollars worth of fuel if it is to go till December with no power cuts, he said.

Sri Lanka uses a mix of hydropower, thermal energy and a small amount of wind power to generate energy.

A period of drought compounded by a forex crisis that left the country unable to import fuel for power generation resulted in the ongoing power cuts that once lasted up to 13 hours long.

Rathnayake warned that if a similar drought occurs in February to April next year, the situation would be dire for the next 3 to 4 years, as Sri Lanka does not have the foreign reserves required to purchase fuel.

The nation is currently surviving on Indian credit lines for fuel.

“We can go on until December but the trouble is that this will not stop then,” Rathnayake said.

“If there is a period with no rainfall in Feb March April next year, if we do not use renewables or something and increase generation plants somehow, this situation can continue for the next four to five years.”

Power and Energy Minister Kanchana Wijesekara stated in a press briefing Friday (10) that government offices, schools and other institutions were implementing a request to install solar panels to help with the energy crisis.

Critics say that the request is impractical, as existing buildings do not have the roof space or capital required to install a sufficient number of solar panels per institution.

Wijesekara had also tweeted in May that he hoped “to encourage foreign direct investments as well as opportunities to local developers to participate in the Renewable Energy Plans.”

Sri Lanka’s plans for renewable energy generation have historically been benched due to delays due to bureaucracy and corruption within institutions.

Former State Minister of Energy Duminda Dissanayake told Parliament that: “When you go for tender, they drag it for years and we will be compelled to buy diesel on which some (corrupt) officials want.”

The island’s latest wind power project with the Indian Adani company is also marred by controversy.(Colombo/Jun11/2022)

ECONOMYNEXT – Sri Lanka Railway Department-owned lands will be leased out to farming societies for a very low tax rate for a period of one year, the President’s Media Division (PMD) said as the country is struggling to avoid a food crisis in the near future.

The plan was revealed at meeting with President Gotabaya Rajapaksa and public officials on the progress review of the Ministry of Transport and Highways.

“It was also revealed that a plan to lease the reserved lands owned by the Railway Department for food crops for a period of one year,” the PMD said in a statement.

“(Transport) Minister Bandula Gunawardena said that the Divisional Secretariats are planning to provide the relevant lands to the farmer societies at a very low tax rate.”

Sri Lanka is facing a looming food crisis because farmers could not produce adequate food after President Rajapaksa banned chemical fertilizer overnight in April last year.

A foreign currency shortage along with sharp depreciation of the US dollars have made food imports very expensive and reduced the food imports into the country resulting in a food shortage.

Prime Minister Ranil Wickremesinghe has said the a food shortage is imminent from August. He has already held discussions over obtaining help from the World Food Programme to prevent a food crisis.

The government is in the process of encouraging people to grow crops and home gardening in all the lands available to prevent food shortage, government officials have  told EconomyNext.

The United Nations World Food Programme launched a 47.2 million US dollar Humanitarian Needs and Priorities (HNP) Plan to provide life-saving assistance to 1.7 million people worst-hit by the economic crisis over a four-month period, from June to September in Sri Lanka, the UN said on Thursday. (COLOMBO/June 11/2022)

ECONOMYNEXT – Sri Lanka President Gotabaya Rajapaksa is exploring steps to decentralize key public institutions to reduce number of public servants coming to capital Colombo and give priority to youth-led agriculture to achieve greater productivity, his office said on Saturday (11) as the country is facing its worst economic crisis with fuel shortage and a looming food crisis.

Government officials have told EconomyNext that Rajapaksa administration is facing difficulty in ensuring fuel supply for public transport as its foreign reserves are exhausted for imports and repay foreign loans in the past two years.

The government has already reduced the number of working days for many government sector employees for four in a week to save fuel. Government officials told EconomyNext that a special holiday declared for next Monday is also an attempt to save fuel and energy along with an already declared holiday on Tuesday.

Sri Lanka is facing a looming food crisis because farmers could not produce adequate food after President Rajapaksa banned chemical fertilizer overnight in April last year while foreign currency shortage along with sharp depreciation of the US dollars have made food imports very expensive.

The President has said “the decentralization of key public institutions in the capital to the provinces could reduce the number of public servants coming to Colombo”, the President’s Media Division (PMD) said in a statement.

The President made the remarks at a special discussion held at the President’s House on Friday (10) on the role of the Ministry of Public Administration, Home Affairs and Local Government and the accelerated home gardening programme.

The key public institutions are located in capital Colombo and thousands of public servants are coming into Colombo from other districts and provinces for employments and get their essential services done. Such centralized efforts have increased fuel consumption in the island nation which is struggling to ensure fuel for motorists and generate power amid extended power cuts since February.

President Rajapaksa has also focused on increasing the farm products to boost agriculture, the PMD said. The economic crisis followed by excess money printing and sharp depreciation of the rupee has also raised the food prices to expensive level with food inflation hit 57.4 percent in May.

The Ministries of Public Administration and Agriculture have decided to launch a combined national food security programme titled “Let’s Grow Together – Win the Country”, PMD said.

“The President also advised to give priority to youth in agriculture sector to achieve greater productivity and to plan for higher yields using new technology,” the PMD said. (Colombo/June 11/2022)

ECONOMYNEXT – The Executive Director of the United Nations World Food Programme (WFP) is planning to visit Sri Lanka on an invitation of Prime Minister Ranil Wickremesinghe, his office said as the country is facing a looming food shortage.

Rice production is hit by lack of chemical fertilizer usage in the last two cultivation seasons while foreign currency shortage has prevented the Island nation of importing essential foods as in the past, leading to a looming food shortage.

Wickremsinghe has said the country could suffer a food shortage from August onwards.

Wickremsinghe said he spoke to David Beasley, the Executive Director at the UN WFP late on Friday and invited him to visit Sri Lanka.

“He accepted my invitation and is planning to visit shortly. We appreciate all the support extended to us by the WFP,” Wickremsinghe tweeted.

The prime minister’s invitation came a day after the UN and non-governmental agencies launched a 47.2 million US dollar Humanitarian Needs and Priorities (HNP) Plan to provide life-saving assistance to 1.7 million people worst-hit by the economic crisis over a four-month period, from June to September in Sri Lanka, the UN said on Thursday.

Many families will be unable to meet their basic food needs, if it does not act now, UN Resident Coordinator in Sri Lanka Hanaa Singer-Hamdy has said in a statement.

Sri Lanka’s currency has collapsed after being under a soft pegged control until March this year.

Sri Lanka which earns a billion US dollars a month in exports and earns about 600 million US dollars in remittances, about half of which are coming to the recipients through unofficial channels boosting family incomes cannot find 25 million US dollars for medicines due to price controls and a broken peg.

Staples have also become expensive with food inflation stood at 57.4 percent in May, while shortages of key food items, as well as fuel for cooking, transport, and industry, remain widespread, with ongoing daily power outages. (Colombo/June10/2022)

ECONOMYNEXT – Sri Laka’s state-run Litro Gas Lanka Ltd Chairman Vijitha Herath resigned from the position Friday (10) afternoon after a stint of little over two months.

Herath was appointed in April, a week after previous Chairman Theshara Jayasinghe resigned resigned blaming ex-ministers and the administration for the country’s economic crisis.

The reasons for Herath’s departure were not immediately clear. Delays in cooking gas distribution has caused much public inconvenience, with long queues for gas cylinders still a common sight, particularly outside of Colombo.

Litro was the sole cooking gas provider in the island from early this year when the privately owned Laugfs Gas was left unable to import gas due to dollar shortages making it difficult for the company to open letters of credit.

The forex crunch hit Litro from mid-May, leaving the company unable to distribute cooking gas for short periods of time. The company issued distribution plans and urged the public not to queue up for fuel.

Herath had previously served as chairman of Sri Lanka Insurance and the Ceylon Electricity Board. (Colombo/Jun10/22)

ECONOMYNEXT – Sri Lanka’s Ministry of Finance on Friday (10) signed an agreement with the EXIM Bank of India for a 55 million US dollar credit line to procure 65,000 tonnes of urea from India, the Prime Minister’s office said.

The request for the credit facility was sought to purchase fertilizer to meet immediate demands during the yala cultivation season.

Prime Minister Ranil Wickremesinghe has repeatedly warned of a looming food crisis in Sri Lanka if preventative measures aren’t taken on time.

The PM’s office said the credit facility could “help to ensure the availability of urea for the upcoming yala season.” (Colombo/Jun10/2022)

ECONOMYNEXT – Despite a full-order book at the moment, Sri Lanka’s apparel exporters feel their customers shifting their orders to de-risk from Sri Lanka’s ongoing crisis.

The five billion dollars industry, a top dollar earner of the country, so far has a full order book.

But for the second season (the industry runs on a six-months cycle) that is to begin in July, exporters are saying they are seeing signs of customers pulling out to be on the safer side.

“We are seeing a reduction on the horizon and that is not because of the sector’s ability to deliver to the customer but more because of the customer seeing the country as risk; so to de-risk what they have in Sri Lanka,” Yohan Lawrence, Secretary General of Joint Apparel Association Forum of Sri Lanka, said.

“Where they bought 100, they’ll buy 80. The impact will probably be seen in July/August.”

If the apparel customers of Sri Lanka start to cut down on orders now, the impact of that will be seen only in July or August when the new production season starts.

“We are seeing early signs of customers moving orders to other countries, mainly because they are worried about the country’s social stability,” Rehan Lakhany, former Chairman of Sri Lanka Apparel Exporter Association, said.

“Mainly with what they (customers) see on the news in foreign media, they are worried about whether we are able to operate our factories and if we can deliver goods on time to their stores.”

Customers are sending questionaries to exporters on a daily basis inquiring about the country’s situation.

“We need to show stability in our ports, transport sector, and diesel supply. Unless some concrete assurance is given to them, not just verbal [assurance, they will move orders],” said Lakhany.

He added that there’s unnecessary fear among buyers, but regardless, the country needs to show them that the banks are able to make payments on time and give assurance that operations are running as usual.

The main three factors worrying them now is the shortage of liquidity of dollars in the bank, Lakhany said.

“A lot of the banks don’t have dollars now. Even if we give them a 100 million from exports, they are not able to give us the same 100 million for the import of raw materials.

“We have taken orders, but banks are unable to make the payments. Banks are having liquidity issues in foreign currency.”

The second concern buyers have is the fuel shortage as generators must be run during power cuts and to transport employees.

The third concern is social stability of the country.

In the first four months of 2022, the industry has earned 1.8 billion dollars.

Hanging by a thread

The 30-year-old Sri Lanka’s apparel industry, once known for its quality and reliability has become a question mark among its customers as social instability and a severe dollar and fuel shortage continue to cripple the country.

Compared to regional competitors, Sri Lanka’s garment export size is very small but the quality of its products has made it a favorite among its dollar rich European and American buyers

The Export Development Board (EDB) specifically notes that the island’s fame in apparel is because of its “excellence in speedy delivery and reliability.”

The “Made in Sri Lanka” label is synonymous with quality, reliability, social and environmental accountability, EDB says.

But it all may come to an end as the country goes through its worst economic created by years of bad monetary practices funneled by money printing.

Lakhany says no matter how much they try to say that despite the challenges factories and businesses are operating, the customers are not ready accept it.

To aggravate the situation, Shanghai in China has opened up following a two-month strict COVID-19 lockdown.

This Lakhany sees as bad news for Sri Lankan businesses as now the customers have more options to make an easy shift. Shanghai is one of the world’s largest apparel and textile exporters.

Therefore losing even 20 percent of the orders or one month’s export (500 million dollar on average), the exporters say the impact will be multifold.

“If we lose orders, the impact will be unimaginable. The apparel industry runs on margins. Even if we lose 20 percent of orders, the impact will be 80 percent. Factories will end up shutting down,” Lahany said.

He fears that the factories might not be able to provide for the workers.

There are close to 800,000 workers relying on the industry.

On top of this, the manufacturers have difficulty in paying their suppliers who, after being delayed payments, have started to ask for those payments.

“One of our biggest suppliers has been outstanding for so long they want us to pay the supplier. But we can’t pay because the banks are not releasing funds,” Lakhany said.

“So there are multiple factors, and customers pulling out is the last nail on the coffin.”

“If they pull out without any ground and just out of fear, the impact that will be felt in the next four months will be unstoppable.”

The exporters say action must be taken now to mitigate the risks before it’s too late. (Colombo/Jun10/2022)

ECONOMYNEXT – The United Nations have launched an appeal to raise 47.2 million US dollars to help 1.7 million persons hardest hit as the country’s currency collapsed from 200 to 360 to the US dollar after the central bank mis-targeted interest rates using ‘flexible’ policies.

The UN and non-governmental agencies launched a 47.2 million US dollar Humanitarian Needs and Priorities (HNP) Plan “to provide life-saving assistance to 1.7 million people worst-hit by the economic crisis over a four-month period, from June to September,” the agency said.

“Multiple factors are impacting Sri Lanka’s food security situation; if we don’t act now, many families will be unable to meet their basic food needs,” UN Resident Coordinator in Sri Lanka Hanaa Singer-Hamdy said in a statement.

There was an “urgent need to prevent a humanitarian crisis later in the year, while bridging efforts towards development and socio-economic interventions.”

Sri Lanka which earns a billion US dollars a month in exports and earns about 600 million US dollars in remittances, about half of which are coming to the recipients through unofficial channels boosting family incomes cannot find 25 million US dollars for medicines due to price controls and a broken peg.

“Sri Lanka’s once-strong healthcare system is now in jeopardy, livelihoods are suffering and the most vulnerable are facing the greatest impact,” Hanaa Singer-Hamdy said.

“Now is the time for the international community to show solidarity with the people of Sri Lanka.

“The UN and humanitarian partners are calling on donors, the private sector and individuals to urgently support this plan to provide life-saving assistance to the women, men, and children most affected by the crisis and thus prevent a deterioration of humanitarian needs in the country.”

“Sri Lanka, formerly an upper-middle income country, is facing its worst economic crisis since independence,” the UN said.

“In May, food inflation stood at 57.4 per cent, while shortages of key food items, as well as fuel for cooking, transport, and industry, remain widespread, with ongoing daily power outages.”

Sri Lanka is facing the fate of many developing countries with economists who have rejected the classical economic principle of sound money and embraced the mercantilist principle of mis-using people’s money for stimulus or export promotion by destroying real wages.