Electricity is a costly business. Erratic rainfall patterns have led to a situation where Sri Lanka has to rely mainly on coal and thermal sources of power instead of hydropower. Of course, coal and fossil fuels have to be imported at a cost of millions of dollars per month. The lack of source materials resulting from a foreign exchange crunch led to lengthy power cuts that were later reduced to a more acceptable two hours and forty minutes.
Compounding this problem was the fact the Ceylon Electricity Board (CEB) was selling electricity to consumers at subsidised rates way below the actual cost of generation. This is untenable in a country experiencing a huge economic crisis. Regardless of the conditions said to have been imposed by the International Monetary Fund (IMF) to grant the US$ 2.9 billion Extended Fund Facility (EFF), we can no longer afford to provide subsidies for everything from electricity to fuel. The economy simply cannot sustain such a drain of resources. But it also goes without saying that State-Owned Enterprises such as the CEB, Ceylon Petroleum Corporation (CPC) and SriLankan Airlines should necessarily be restructured or even privatised to trim the fat.
In any case, it is time that we change our “freebie” attitude and adapt to paying at least the cost price for the services we get from the State. But as President Ranil Wickremesinghe has said, it is vital to protect the vulnerable sections of society from steep price increases of products and services. The IMF too has requested the Government to shield these segments from the effects of certain painful reforms that will have to be carried out for economic recovery.
There are already signs that such recovery could be possible by 2024. Foreign exchange reserves have shot up to US$ 2 billion, which was unthinkable in the not-too-distant days when the Central Bank of Sri Lanka (CBSL) had less than US$ 100 million in the coffers. This is partly thanks to higher remittances from Sri Lankan expatriates and the Sri Lankan Diaspora, who seem to have defied an appeal to them by both major Opposition parties not to remit any funds to Sri Lanka that would help “prop up the current Government”.
Remittances sent by Sri Lankan expatriates jumped 68.8 percent in January, as more workers channelled their foreign earnings through formal banking channels, CBSL data showed. The remittances, the top foreign exchange earner at the moment, recorded US$ 437.5 million in the first month of 2023 compared to just US$ 259.2 million in January last year, according to CBSL data. If this momentum continues, Sri Lanka will get close to US$ 5 billion through remittances this year, which is just shy of the normal US$ 6-7 billion. This is a positive trend that will augur well for the economy in the medium term.
A considerable rise in the number of tourist arrivals is another cause for optimism. Tourist arrivals have crossed the 50,000 mark in the first two weeks of February, giving rise to hopes for a faster recovery in the tourism sector, a key source of foreign exchange. Russia, India and the UK were the biggest source markets. Tourism authorities hope to attract around 1.5 million tourists this year, a realistic and achievable target in a post-Covid world. This is certainly a good number, not much further away from the 1.9 million arrivals that Sri Lanka recorded in 2019 prior to the Covid pandemic. Tourism too should be able to make a significant contribution to the Exchequer, even though earnings might fall short of the pre-pandemic US$ 5-6 billion per annum.
Sri Lanka last year earned a record US$ 13 billion from exports as world trade grew in the aftermath of the pandemic. With market and product diversification, it should be possible to substantially increase our export earnings. “Trade not Aid” should be our mantra for an exit from the present economic impasse. To this end, Sri Lanka must expedite its proposed Free Trade Agreements (FTAs) with Singapore, Thailand and several other countries. However, this will also mean that we might have to loosen up our import restrictions, as trade is a two-way process with a bit of give and take. This should now be possible as the country’s foreign exchange reserves increase slowly but steadily.
Getting out from the economic quagmire is not a far-off dream if we take a whole-of-society approach to this issue. People in Singapore, South Korea and Japan made huge sacrifices to reach the position they are in today. There is no gain without pain. In fact, Sri Lanka was far ahead of all Asian countries except Japan in 1948, when Independence dawned. But somewhere along the way, we missed the bus. But now we have another chance at redemption as President Wickremesinghe envisions a developed Sri Lanka by 2048, the Centenary of Independence, with a clear roadmap. This opportunity must be seized without a second’s delay to achieve prosperity for all Sri Lankans.
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