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Saturday June 15th, 2024

“Operation stopgap” helping thousands ride the COVID storm

VOLUNTEERISM – Sri Lankans of all walks of life stepped into help daily workers and other deprived of income during the COVID 19 shutdowns like this group in Point Pedro/supplied

ECONOMYNEXT – V Udayaraj, a projects officer at a private company based in Peliyagoda is surrounded by people in his neighbourhood every time steps out of his home.

He told EconomyNext that there are about 1,500 families living in the Dutugemunu Mawatha area in Peliyagoda in his neighbourhood and many are hard-pressed to put food on the table because they have no work.

“Of them, around 500 families are in a really bad situation, and are living precariously,” he says.

“Most of these people are daily wage earners, Three-wheeler drivers or casual workers in the Pettah market or cleaners or part-time drivers of heavy vehicles,” he says.

Udayaraj has been a focal point in this area for many years, every time there has been a flood or other disaster because he gets aid from various sources for them. “But this time it is very different,” he said.

Udayaraj is part of a network of neighbourhood and regional workers across Sri Lanka who have benefited from donations received by social activist Marisa de Silva, who put out an appeal as the COVID 19 crisis broke.

This network has disbursed more than six million rupees covering the whole island since the outbreak and the restrictions of movement began with the cash reaching the needy through community leaders and activists.

GENEROUS DONORS FROM EVERYWHERE

“I had an amazing response from people I know as well as those I never knew,” she said. One group in Canada who contacted her through Facebook held a fundraiser too had sent her money.

De Silva told EconomyNext she had been “swamped by appeals over the last week and have been trying to help as many communities as possible.”

The focus has been the daily wage earners. “They range from plantation workers, street vendors, sex workers, workers in the factories in the Free Trade Zone and members of the Transgender community,” she said.

The donations have a wide range. Looking at some of the reports de Silva has submitted to donors that we have seen, they have addressed needs of varying communities.

Most of the time they have been dry rations; rice, flour, dried milk, dhal and tinned fish.

Sometimes the needs have been more specific. A group of women resident in the Northern Province and disabled during the war were provided with sanitary napkins.

The people in the Peliyagoda neighbourhood, and in many other parts of urban Sri Lanka declared “high-risk” for the spread of COVID 19 are poor or lower-middle-class families dependent on a daily income.

UP THE HILL – Food reaches an elderly resident in Kadugannawa

“THEY ARE STRUGGLING TO SURVIVE”

There are at least 2.5 million people who are working in the so-called “informal sector” outside of the Agricultural sector, government statistics show.

De Silva says “there are hundreds of thousands of daily wage workers who are not entitled to formal Government economic support programs who are struggling to survive.”

“We are acting as an informal stop-gap initiative, until the government mechanisms kick in, which by the looks of it, might take a while, particularly by the time it makes it’s way to the informal sector workers,” she added.

Udayaraj concurs. He says those who qualify for Samurdhi, payments, usually given to the poorest of the poor, have received some money. “They have got Rs 5,000 per family, but that does not last them more than a few days,” he says.

The people Udayaraj worries about are families who earn above the threshold that qualifies them for Samurdhi but have had no income for more than a month owing to the curfews and shut-downs enforced to stop the spread of COVID 19.

He says “it is the people who usually have a fairly comfortable life with their daily earnings who are feeling the pinch at present because for nearly 30 days they haven’t had any work.”

Former Minister Kabir Hashim told reporters last week that most of those persons are employed in Small and Medium Enterprises which have not been able to carry out their businesses in the high-risk, heavily populated districts of Colombo, Gampaha, Kalutara, Kandy and Jaffna because of the indefinite curfew.

Hashim called on the government “to recognize these people and help them.”

Government Ministers including Health Minister Pavithra Wanniarachchi have also realized the plight of these people. “We are hoping to open up and get the economy moving again to help the daily wage earners,” she told reporters on Friday, April 17.

On Saturday, April 18, the government announced that the restrictions would be relaxed from Monday April 20 for most of the country and for the high-risk areas on April 22.

Udayaraj says that there has been no distribution of dry rations or essentials by the government until now, although they have received those from local organisations.

One of the groups that received assistance from de Silva is in Kadugannawa and an activist in the area, who did not wish to be named, said that the cash she got from de Silva went a long way in assisting many families.

These people who received help were also semi-urban dwellers “mostly people who are day labourers, three-wheel drivers or office assistants,” she said.

Many, she said, were originally from villages in rural parts of the province but were trapped in the towns when the indefinite curfew was imposed in the Kandy district resulting in all economic activity coming to a standstill.

In the teeming central Colombo area, where there is rampant poverty the COVID 19 crisis has grossly increased the needs of the people.

RELIGIOUS BODIES STEP UP

The Parish of Our Lady of Fatima in Maradana, which usually helps hundreds of people in need, has spent more than 1.2 million rupees providing groceries for the poor as well as the many others who are daily-wage earners.

Their work has been supported by the Buddhist and Hindu temples in the area as well as Muslim charitable organisations.

The Oblate Missions has also spent around Rs 800,000 helping families across the country, a spokesperson said.

“This time around we are helping the poor as well as middle-class people whose salaries have been cut or have lost their source of income,” he said. One woman who had tuition pupils coming home had appealed for help as no students had arrived to be tutored all month.

Prof. Charitha Herath who speaks for the government’s Special Task Force headed by former Minister Basil Rajapaksa providing essential services said the government was spending Rs 7.7 billion on the relief effort.

He rejected allegations that the relief was going only to supporters of the governing Sri Lanka Podujana Peramuna.  “There is also help going to Samurdhi recipients registered during the last government,” he told EconomyNext.

Opposition politicians including the General Secretary of the Samagi Jana Balavegaya, Ranjith Madduma Bandara have accused the government of “politicizing” aid.

He told the media on Friday that the “distribution of aid has been taken away from the hands of the government officials and handed over to the local political leaders of the SLPP.” (Colombo, April 19, 2020)

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Sri Lanka beats key IMF program targets for March 2024 amid rupee stability

ECONOMYNEXT – Sri Lanka has exceeded key quantitative targets set in an International Monetary Fund program for March 2024, based on preliminary data the Washington based agency said in a report.

The March data are not performance criteria on which reviews are conducted but are indicative targets which shows the progress of the program and are a stepping stone for a September review based on June data.

An indicative target for the primary balance (roughly overall deficit minus interest costs), was assessed at 316 billion rupees more than four times the 70 billion rupee target set in the program.

Primary balance can be a big surplus if the interest bill is high and capital expenditure is cut and is a type of crisis management tool after a central bank triggers a currency crisis by cutting rates with inflationary liquidity tools.

However, Sri Lanka’s Treasury has also kept a lid on most current spending. A state salary hike is however due after the currency collapse made life difficult for everyone.

Meanwhile more taxes have been collected from the people to finance the island’s bloated state.

A 750 billion rupees central government tax revenue floor has been exceeded to reach 837 billion rupees.

Central bank credit to government (outstanding stock) has been reduced to 2,691 billion rupees in March compared to a target of 2,800 billion rupees. In December the CB credit was calculated 2,742 billion rupees.

Net international reserves of the central bank were brought up to a negative 1,268 million US dollars exceeding the target of a negative 2,035 by almost 700 million dollars.

In order to collect foreign reserves, which is a type of appropriation of domestic savings of the people by the central bank (taking in deposits) and exporting it to the US and other countries to finance their deficits or by other agency debt in reserve currencies.

In order to collect such ‘deposits’ the central bank has to prevent them from being invested domestically.

It is achieved with deflationary policy through sell-downs of down its Treasuries holding to domestic banks or others, at a market rate, collecting interest from the government or repayments of re-finance credits, subject to any nominal changes in reserve money at a given exchange rate.

In 2024 the central bank allowed the exchange rate to appreciate, which can also reduce prices of traded goods boost real and nominal savings and make it easier to collect foreign reserves.

When domestic credit is weak it is easier to collect reserves. Reduced domestic credit and collection of reserves, including by private banks which then cannot be invested domestically, can push the external current account into surplus.

The central bank also met a 5 percent 12-month inflation target, with an achievement of 4.3 percent.

Sri Lanka’s economy grew 5.3 percent despite reserve collections, amid the stability provided by the central bank.

There were no central bank purchases of Treasuries from the primary market.

However the central bank injected overnight and term money to banks (not on a net basis) showing how easy it is for a rate-obsessed monetary authority to get around the requirement and create external instability again as soon as private credit recovered.

The central bank also allowed excess liquidity from dollar purchase to remain unsterilized for an extended period under its ad hoc pegging arrangement, getting a short term falls in rates, but triggering pressure on the rupee as a result in May and June.

It is not possible to collect reserves with a free floating exchange rate. (Colombo/June15/2024)

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Sri Lanka GDP grows 5.3-pct in first quarter of 2024 amid monetary stability

ECONOMYNEXT – Sri Lanka’s gross domestic product grew 5.3 percent in the first quarter of 2024 data from the state statistics office showed as the central bank continued to refrain from generating monetary instability.

Instead of printing money to cut rates under ‘flexible inflation targeting’ and printing money to boost growth by taking into account ‘potential output’ as permitted by its new monetary law, the central bank ran deflationary policy and also allowed the rupee to appreciate.

“The Sri Lanka economy experienced a more favorable economic condition[s] in the first quarter 2024, when compared to the first quarter in the year 2023,” the Department of Census and Statistics said.

“The high inflation had prevailed in the first quarter of year 2023, gradually reduced to a lower level by the first quarter of 2024 and this low inflation incentivized the economy by providing inputs at [a] much lower price.

The agriculture sector grew 1.1 percent in the first quarter of 2024, after also growing 1.6 percent last year.

Industry grew 11.8 percent in the first quarter, against a 24.3 percent last year.

The economy grew amid falling prices, the statistics office said in sharp contrast to the Anglophone macroeconomic claim that inflation is needed to boost growth, on which Sri Lanka has 5-7 inflation target has apparently been set.

Related Sri Lanka central bank pushing for high inflation target to boost growth

“Among ‘Industrial activities’, coinciding with the decline in input prices, the ‘Construction industry’ grew by 14.2 percent, parallel to this, the ‘Mining and quarrying’ industry too expanded by 18.3 percent during this quarter,” the Statistics Department said.

Sr Lanka’s services sector grew 2.6 percent, against a decline of 4.6 percent recorded last year.

The International Monetary Fund has also urged the central bank to give priority to stability.

Sri Lanka dropped the stability mandate in the earlier monetary law which was violated after the end of a civil war to push the country into serial currency crises especially after the International Monetary Fund gave technical assistance to calculate potential output.

Related Sri Lanka has a corrupted inflation targeting, output gap targeting not in line with monetary law: Wijewardena

Sri Lanka survived a 30-year civil war by giving priority to a stability mandate despite shortcomings in its operational framework but defaulted in peacetime amid activist monetary policy which denied monetary stability to the people. (Colombo/June12/2024)

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Sri Lanka’s NPP notes five-point crisis for economic growth sans details

Former JVP MP Sunil Handunneththi

ECONOMYNEXT — The leftist National People’s Power (NPP) has identified five crises that need resolving for Sri Lanka’s economy to progress, much of which emphasise a production economy targeting export growth though sparse on the detail on resource allocation.

NPP spokesman and former parliamentarian Sunil Handunneththi speaking at an event in Mulaitivu on Thursday June 13 said Sri Lanka is grappling with firstly, a collapse of the production economy, second, a budget deficit, third, a balance of payment crisis which has, fourthly, created a debt crisis, and finally, a resultant gap between haves and have-nots.

“We must first understand the crisis. We reocgnise five main crises that have the same impact irrespective of differences between the north and south.

“The first is the collapse of the production economy. We can see this historically. Agriculture that used to be some 30 percent of gross domestic product (GDP) has now fallen to 8 percent. Essential food is imported. We cannot produce the rice needed for the small population here. Things that can be made here are also imported.

“Second is the income crisis. For the people, their expenses are twice their income. The budget deficit is two or three-fold every day. Banks cannot give loans to businesses and industries because the government takes funds to address the budget deficit. The government takes most of the people’s savings for this,” he said.

The balance of payment crisis Sri Lanka is facing the third crisis, according to Handunneththi, which has triggered a debt crisis, in turn leading to a crisis of income disparity among the people.

“Third is the balance of payments crisis. Imports are two or three fold export income. The government has to take 11 to 12 billion US dollars in loans from foreign countries. When GDP is 80 billion US dollars, debt has gone over 100.”

“All this creates a massive gap between haves and have-nots. Without finding solutions to these crisis, there is no point distributing goods,” he said.

Handunnethi’s remarks appear to be departure from the NPP’s anti-corruption rhetoric which had centred its economic development policy agenda primarily on fighting corruption.

‘Fighting corruption’ and ‘recovering stolen assets’ have been popular slogans since the Aragalaya protests in Sri Lanka and the NPP has made it its central theme in its bid for power. The leftist outfit had also adopted a position that’s cautiously critical of the International Monetary Fund (IMF) and the reforms the international lender has prescribed for Sri Lanka in exchange for a 2.9 billion-dollar bailout.

However, NPP leadership had recently acknowledged the need to continue the IMF programme since the agreement has already been signed.

The Marxist-Leninist Janatha Vimukthi Peramuna, which controls the NPP, though it was never in government barring a brief stint in an Sri Lanka Freedom Party (SLFP)-led coalition in the early 2000s, has been instrumental in driving popular support against privatisation.

Three key policy pillars articulated by the JVP from 2001-2004 and embraced by mainstream politician Mahinda Rajapaksa’s administration in 2005 onward have been highlighted by experts.

From 2005, Sri Lanka halted privatisation, started recruiting tens of thousands of unemployed graduates into the public service every year with lifetime pensions, expanding an already bloated public sector and denying any benefit of a peace dividend to the country.

Sri Lanka also abandoned a price formula for fuel that had helped keep the rupee stable and inflation low from 2001 to 2003 even as global commodity prices went up from the ‘mother of all liquidity bubbles’ fired by the Federal Reserve from 2001.

From 2001 to 2003, state workers fell from 1.164 million to 1.043 million. By 2020, the public sector cadre has grown to 1.58 million with another batch of 53,000 unemployed graduates being paid tax money. (Colombo/Jun14/2024)

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