Explaining Sri Lanka’s Food Shortage & Forex Problems
The Sri Lankan government is trying its best to help the nation that is struggling with food shortage. We take a closer look at where it all began…
Sri Lanka’s parliament has given approval to a state of emergency declared by the Sri Lankan President Gotabaya Rajapaksa on August 30, 2021, using powers vested in the country’s Public Security Ordinance. The emergency was declared with a view to stabilizing the prices of food items such like sugar, and rice, and maintaining their supply.
A statement, as mentioned by News18, said that the government will provide essential food items at government guaranteed prices or based on the customs value on imported goods to prevent market irregularities. The rules that are invoked are against hoarding of staple food items, which permit officials to seize stocks, and decide prices at which they are to be sold.
Is There A Food Shortage?
There are reports that the emergency has been declared to stabilize the prices of food items such like sugar, and rice, and maintaining their supply. Meanwhile, the government has said that there is no food shortage. A spokesperson for the President said that the emergency orders were targeted against hoarders.
The spokesperson stated, as mentioned by News18, “Certain local and foreign media are carrying out media stories that there is a food shortage in the country. There is no basis to these reports.” The government also said that hoarders artificially created the shortages.
Economy In Ruins
The government might say that hoarders are artificially leading to the shortage. Meanwhile, according to Sri Lanka’s Department of Census and Statistics, increasing food prices are being triggered because of foreign exchange rates surging at a pace faster than the country is able to keep up with.
This caused a *knock-on effect on Sri Lanka’s supply of food and commodities. (*Knock-on effect: When an event or situation has a knock-on effect, it causes other events or situations, but not directly). So, shortages have pushed up prices in local markets, and month-on-month inflation in August jumped to 6% from 5.7% in July.
While foreign exchange rates is increasing on one side, the country is also witnessing a jump in COVID-19 related infections and deaths. This has affected one of the industries that helps the Sri Lankan economy the most: tourism. Tourism normally provides jobs for over 3 million people, and accounts for around 5% of GDP. Tourists already avoided the nation because of deadly suicide bombings on Easter Day. However, the efforts to revive the industry were in vain as the country goes through another wave of COVID-19 infections.
Even though COVID-19 may have worsened the crisis, experts attribute the crisis itself to economic policies, and structural factors. After the island nation recorded an economic boom in the post-LTTE years, it increasingly turned to foreign borrowings via the issue of sovereign bonds. But apart from tourism, and certain exports, Sri Lanka hardly managed to make sure it was attracting enough Foreign Direct Investments (FDIs), and foreign funds to meet its increasing debt obligations. The national debt has jumped from nearly $48 billion in 2016 to $86 billion in 2021.
We can see that the country is going through a lot of problems. It is not making any money from tourists, but what about exports? Sri Lanka is heavily dependent on tourism and tea exports. However, exports contracted by a record 3.6% in 2020. The nation’s exports are dwindling, and it has a mountain of debt. So, in order to subdue the outflow of foreign currencies, the Sri Lankan government has previously tried to impose a ban in international vehicles, and goods.
Apart from this, a sharp depreciation in the rupee also led to the government deploying a ban on imports. However, these efforts gained little success. Now, Sri Lanka has been forced to increase interest rates for improving financial growth and ease the pressure cause by costly import inflation.
In The End
Sri Lankan government officials might say that the country is not going through a food shortage. However, we cannot ignore the fact how the nation is going through a lot of problems, and it looks like it might not get solved until the pandemic recedes. Tourism is one of the country’s main foreign currency earners, and with the pandemic continuing to disrupt travel, we can see how Sri Lanka might continue to struggle.
The pandemic alone might not be responsible for the country’s current situation, but also the lack of better policies to attract foreign investments to the nation. Unless travel returns to pre-pandemic levels in Sri Lanka, the nation might continue to see more debt. However, the country’s President has said that the authorized officers will be able to take steps to offer essential food items at a concessionary rate. And we hope that these measures work, and help the people get access to ample amounts of food.