COLOMBO: As its foreign exchange reserves shrink, Sri Lanka has cut back on imports of farm chemicals, cars, and even its mainstay spice turmeric, limiting its capacity to repay a mountain of debt as the South Asian island nation fights to recover from the epidemic. Toothbrush handles, venetian blinds, strawberries, vinegar, wet wipes, and sugar are just a few of the hundreds of foreign-made commodities that have been prohibited or subjected to special licensing requirements in an effort to reduce the country’s trade deficit, which has been rising for years.
Price hikes in a variety of consumer products, from bread to construction supplies to gasoline, have sparked protests among Sri Lankans fed up with the long-running crisis.
In August 2020, Thusitha Vipulanayake ran out of motorcycles to sell. He used to sell at least 30 per month, as well as a dozen motorized trishaws, but today he makes his living selling bottled, locally grown turmeric paste and LED lightbulbs. As he sat in his empty motorbike showroom on a road outside of Colombo, Vipulanayake said, “This is something we never expected.” READ: The Rajapaksa family tightens its hold on a country in crisis
READ MORE: Sri Lanka tightens foreign exchange controls
Sri Lanka was already in difficulty before the outbreak, with the tourism industry, which is a crucial source of foreign exchange profits, on the verge of collapse. It typically employs more than 3 million people and accounts for around 5% of the economy. After the devastating suicide bombings on Easter Day 2019, which killed more than 250 people, visitors were already keeping away. However, as the country faces another wave of COVID-19 infections, efforts to restore the business are failing. Now, the country’s foreign exchange reserves are only enough to cover three months’ worth of imports, at a time when large repayments on its foreign debts are due, putting the country’s financial system under strain. Udaya Gammapilla, the Petroleum Minister, has stated that the country does not have enough cash to pay for oil imports.
The government has prohibited US dollar transactions in order to conserve valuable foreign exchange. Despite the restrictions implemented last year, imports of tea, rubber, seafood, and textiles continue to surpass exports. “There is no doubt that the economy is in bad shape,” said Muttukrishna Sarvananthan, director of the economic research organization Point Pedro Institute of Development.
On June 16, 2021, Sri Lankan daily waged laborers push a cart load of imported garlic at a wholesale market place in Colombo, Sri Lanka, during limitations implemented to combat the spread of the coronavirus. (AP/Eranga Jayawardena photo)
Sri Lanka must pay a total of US$3.7 billion in foreign debt payments this year, having already paid US$1.3 billion. According to the central bank, this is in addition to local debt. Its currency has been rapidly falling against other major currencies, increasing the burden of such repayments in local currency. Sri Lanka has been downgraded to the CCC level by Fitch Ratings, suggesting a genuine risk of default. The country’s foreign debt obligation is expected to rise to US$29 billion in the next five years, according to the report. It also risks losing preferential trade status for its garment exports to Europe as a result of criticism of a terrorism law that critics claim breaches human rights. Sri Lanka received a US$1.5 billion swap facility from China earlier this year to assist restore its reserves. According to the Central Bank, a US$400 million swap from India will be available by August. Officials say they want to encourage more foreign investment rather than seek assistance from the International Monetary Fund, which has a reputation for imposing stringent policy requirements on its borrowers. The government’s decision in April to prohibit the use of agricultural chemicals and require farmers to switch to organic farming was made in order to save $400 million annually on imports.
Pathmasiri Kumara, a Sri Lankan vegetable farmer, pulls weeds from his potato crop in Keppetipola, Sri Lanka, on July 1, 2021. (AP/Eranga Jayawardena photo)
However, such chemicals are heavily used by Sri Lankan farmers. To compensate for the lack of fertiliser, some farmers say they’re using cow manure, poultry litter, and compost, but the abrupt move is affecting output. “The country’s leaders should have done a better job in making decisions,” farmer Pathmasiri Kumara remarked as he toiled in his field in Welimada, a village in the country’s central hills. “These issues arise when you don’t visit the farmers and make decisions while seated in swiveling chairs.” “Look at this potato plant; it isn’t developing properly because there isn’t any fertilizer,” Kumara explained. “It’s a heartbreaking circumstance. This is our main crop, and if we don’t get chemical fertilizer, we’ll lose at least half of our income for the year.”
Pathmasiri Kumara, a Sri Lankan potato farmer, checks the availability of fertilizer in the market in Keppetipola, Sri Lanka, on July 1, 2021, using his cellphone. (AP/Eranga Jayawardena photo)
The European Union is reviewing its favorable tariff treatment for Sri Lankan imports under the GSP, or generalized system of preferences, which is putting pressure on garment makers. According to the EU, it eliminates import levies on a substantial portion of Sri Lankan exports, such as textiles, tea, and fish, saving the country around US$360 million each year. The decision will not be made until the next year. The consequence of losing the privileges, however, would be “very severe,” according to Sirimal Abeyratne, an economics professor at the University of Colombo. The EU accounts for roughly 20% of Sri Lanka’s overall exports. Another ten percent goes to the United Kingdom, which, if it loses its GSP status, may follow the EU’s path, according to Abeyratne. Meanwhile, Sri Lankans are irritated by import restrictions that have slowed operations in a variety of industries.
On July 1, 2021, Sri Lankan rice farmers prepare their field for cultivation in Keppetipola, Sri Lanka. (AP/Eranga Jayawardena photo)
Metlal Weerasuriya put off purchasing a toilet for his home for five months.
“I visited a number of retail and wholesale establishments. They were out of stock, and there was a wait list to get one,” stated journalist Weerasuriya. Finally, he found one advertised on the internet. “Buying a commode and finishing the bathroom took at least five months,” he claimed. To make ends meet, Vipulanayake, the motorcycle trader, said he relies on money from a small rubber plantation he owns, as well as sales of various other products. He is adamant about keeping his showroom, which is in an excellent location. He stated, “I believe things will be well and bikes will arrive.” “Perhaps I’m just dreaming, given how unpredictable things are.”/n
