ECONOMYNEXT – Sri Lanka has taken some “very painful structural adjustments”including shift in fertilizer and fuel price hike under a climate resilience and green economy initiative for a healthy nation, President’s Secretary PB Jayasundera said.
President Gotabaya Rajapaksa’s ruling Sri Lanka Podujana Peramuna (SLPP) has faced countrywide protests from its core vote base after the government banned fertilizer imports and went on an organic drive without and also raised fuel prices after promising to fix them before coming to office.
Jayasundera, the country’s top most public servant and who is privy of the reasons for such decisions, said the moves were to ensure a healthy nation in the future.
“The national balance sheet is very scary because almost all districts are reporting non-communicable kidney, heart, and diabetes diseases,” Jayasundera told EconomyNext in an interview.
“The large portion of the health expenditures is for non-communicable diseases and we are trying to save the people without a sustainable solution,”
“The shift from chemical fertilizers to a more natural fertilizer is one structural reform to put the population balance sheet in a much healthier. This is a preventive measure with regard to the health.”
The government has said in 2019, Sri Lanka spent 221 million US dollars on fertilizer importers and with a rise in oil prices 300 to 400 million US dollars may be spent.
However analysts have warned that forex shortages are a consequence of liquidity injections (inflating reserve money in excess of the monetary anchor by printing money, which is currently a 203 to the US dollar peg or external anchor having fallen from 182 before the latest stimulus began).
Raising oil prices (partly a result of US stimulus which has weakened the dollar and pushed up commodity prices from food to base metals) will improve tax revenue to the government and reduce the need to print money and create further ‘foreign exchange shortages’ analysts say.
Market pricing fuel also reduces disposable income of domestic economic agents and slashes non-oil imports by a similar amount, helping strictly match outflows of dollars to inflows and keep the external sector and aggregate demand in balance.
Sri Lanka has injected hundreds of billions of rupees into the banking system through failed Treasury bill auctions and outright monetization to finance a deficit budget, forcing foreign reserves to be spent to redeem the rupees as domestic economic agents used the money banks gave loans with the central bank credit.
President Rajapaksa in the run up to 2019 presidential poll pledged to provide fertilizers free of charge.
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The President had said 50 billion rupees spent annually to import to subsidize farmers who may face yield declines as a result of organic fertilizer use.
Grassroot farmers have complained that they are facing chemical fertilizer shortage in the ongoing cultivation season while cost of living is rising after the rupee fell.
The government has planned to go for more renewable energy in the future with an aim to increase it to be 70 percent of the energy mix.”
“The govt is bold enough in replacing (the fuel) with renewable energy,” Jayasundera said, outlining the thinking of the administration.
“In a short gain, raising the fuel prices may be a cost recovery. But it won’t address the issue. It is highly priced inelastic commodity in our system because the public transport has not developed.
“In addition to chemical fertilizer, a solution has to be there for transportation strategy. People could know that even with 30-40 dollar per barrel of crude oil, we have come to a stage of 3.5 to 4 billion imports of oil. Imagine if the oil prices rise to 60-70 dollars, it is not affordable.
President Rajapaksa has said Sri Lanka increase the share of power to 70 percent. (Colombo/Aug28/2021)