Food shortages soaring prices and lack of fertilisers threaten livelihoods

Sri Lanka’s battered economy is facing several social and political upheavals that have been brought about by the deteriorating economic conditions, ill-advised economic policies, the mismanagement of the economy and the unscientific and impractical policy to suddenly switch to organic agriculture.

Food shortages soaring prices and lack of fertilisers threaten livelihoods, while foreign reserves decrease to critical levels. These problems are likely to intensify in the next two months and in 2022.

Reasons

While the economic difficulties, especially the severe foreign currency difficulties, are underlying reasons for the shortages and price hikes of food and essentials, the mismanagement of the economy by inappropriate and faulty monetary, fiscal, trade and exchange rate management policies have aggravated these problems.

Organic agriculture

The sudden switch to organic fertilisers has threatened crop production and the livelihoods of farmers and caused mass protests country-wide. The inevitable reduction in crop production would strain the external finances further owing to increased imports of food and reduced tea and rubber exports.

Not only COVID

Many government politicians and several foreign commentators have attributed the economic crisis to COVID. The attribution of the economic crisis, especially the external financial crunch, to COVID is only partially correct. It is only correct to the extent that there were additional expenditure on COVID, a disruption in export manufacturing for a few months and a halt to tourism.

Tourist earnings

Undoubtedly, tourism that was expected to revive had another severe setback owing to the global pandemic. Tourist earnings of US$ four billion in 2018, before the Easter Sunday bombings in April 2019, were severely disrupted by the global spread of the COVID pandemic. The second wave of COVID in the country and international restrictions on travel denied the country a significant inflow of foreign currency as earnings from tourism dried up to a negligible amount in 2020 and 2021.

Benefits

In contrast, there were other compensatory benefits. The rock bottom petroleum prices (US$ 30 per barrel) reduced import expenditure and decreased the trade deficit to only US$ six billion. The expected reduction in exports was for only a couple of months. After a brief setback, manufactured exports bounced back to pre-COVID proportion by a diversification of export items.

In fact one silver lining amidst the dark and gloomy economic scenario has been the growth in manufactured exports to around US$ one million a month.

It is therefore clear that COVID was not the villain of our economic problems. Paradoxically, it is the post-COVID global economic recovery that is increasing our import costs and widening the trade deficit.

Faulty policies

The economic difficulties and the consequent social upheavals have been brought about by the adoption of ill-advised macroeconomic and unscientific policies. The pursuance of so called alternate economic policies that were a disaster in 1970-77 and the New Monetary Theory (NMT) has been reasons for the accentuation of the country’s economic plight.

Organic agriculture

The attempt to switch to organic fertiliser has been a disaster. It has increased import needs and will reduce agricultural export earnings soon.  The adverse impact of this policy will be revealed during the course of next year when the trade deficit will widen further owing to increased import expenditure.

Social upheaval

The unscientific and hasty introduction of an unrealistic organic agriculture has unleashed mammoth protests by the rural community that is a huge political set back to the Government. The modification or reversal of this policy in response to these protests is increasingly evident. In addition, organic fertiliser imports from China have led to controversies and even some diplomatic displeasure with China.

Reversal

We are currently witnessing the reversal of the decision to convert the country’s entire agriculture to organic cultivation in various disguises and face saving rhetoric. Though late, it is a move in the right direction. However, the disruption of agriculture by the lack of fertiliser and agrochemicals will be inevitable in the first half of the year. Hopefully there would be a revival in agricultural output later next year with the availability of fertilisers, pesticides and fungicides.

Recapitulation

The country’s economic problems have been worsening during the course of the year. Foreign reserves that were US$ 4.5 billion at the beginning of the year have fallen below US$ 2.5 billion. The continuing widening of the trade deficit and deterioration of the balance of payments implies a further depletion of the foreign currency reserves.

Import expenditure is likely to increase owing to higher imports of food, fuel and other essentials whose international prices are increasing. The escalating international prices and higher import requirements owing to lower domestic food production will be a severe burden in 2022.

The plea by the government that the economic difficulties were owing to the global COVID pandemic is incorrect. Most of the economic difficulties were due to structural weakness in the economy, and adoption of ill-advised macroeconomic and unscientific policies. The prime example of this is the attempt to switch to organic fertiliser. This has increased import needs and reduced agricultural export earnings next year. These adverse impacts will be revealed much more during the course of next year when the trade deficit will widen further.

Conclusion

The economic recovery of the country can be achieved only by drastic reforms and international financial assistance. The stubborn resistance to make drastic changes in economic policies will only lead to further deterioration of economic and social conditions. The road ahead is wrought with more problems and economic hardships.