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    Explained: Sri Lanka’s food shortage and dwindling economy

    Explained: Sri Lanka’s food shortage and dwindling economy

    Explained: Sri Lanka’s food shortage and dwindling economy
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    By CNBCTV18.com  IST (Published)


    Sri Lankan President Rajapaksa has appointed a commissioner of essential services who will have the power to regulate prices of essential commodities and also seize them from traders and retailers amid a shortage in the country.

    Sri Lanka has declared a state of emergency over a shortage of food. As private banks in the country have run out of foreign exchange to finance imports, President Gotabaya Rajapaksa Tuesday ordered emergency regulations to ensure traders don’t hoard essential food supplies like sugar, rice and oil.
    President Rajapaksa has appointed a former army general to the post of commissioner of essential services, who will now have the power to regulate prices of essential commodities and also seize them from traders and retailers.
    "The authorised officers will be able to take steps to provide essential food items at concessionary rates to the public by purchasing stocks of essential food items including paddy, rice and sugar," President’s media office said in a statement.
    The items will be provided at government-guaranteed prices or based on the customs value on imported goods to prevent market irregularities, it added.
    What led to shortage?
    The Department of Census and Statistics of Sri Lanka said that the increase in foreign exchange rates was one of the reasons for the price rise of essential items.
    This increase over the last 12 months directly contributed to rising inflation in Sri Lanka, which increased from 5.7 percent in July to 6 percent in August, according to data from the Department of Census and Statistics.
    Pandemic-induced problems
    Sri Lanka, which is a net importer of food commodities, has been heavily impacted by the pandemic. COVID-19 has decimated the tourism industry, which is one of the main sources of foreign currency in Sri Lanka.
    The Sri Lankan economy shrank by a record 3.6 percent in 2020 due to the pandemic and in March last year, the government banned the import of vehicles and even staples like turmeric and cooking oils to save on foreign exchange.
    Sri Lanka is also the first country in the region to raise interest rates amid a pandemic to help shore up its currency, the Sri Lankan Rupee (LKR), BBC reported.
    The foreign reserves fell to $2.8 billion at the end of July 2021 from $7.5 billion in November 2019 when the new government took office. Bank data also indicates that the LKR lost more than 20 percent of its value against the US dollar in the same time period.
    Sri Lanka’s dependence on IMF
    Since 2012, the Sri Lankan GDP growth rate has plummeted continuously and the manufacturing output has also not seen any growth, maintaining a flatline. It was amid these fragile conditions that the pandemic struck Sri Lanka.
    In an Oxfam paper titled “Adding Fuel to Fire: How IMF demands for austerity will drive up inequality worldwide” published in August, researchers studied the disproportionate impacts of the pandemic on the economies of developing nations, including Sri Lanka.
    The paper argued that one of the reasons that the pandemic hit underdeveloped nations like Sri Lanka harder than others is the underinvestment in state capacities and social services. This underinvestment in public services can be traced to the IMF mandates of fiscal consolidation when it approves loans to Sri Lanka. The paper also noted that Sri Lanka has resorted to the IMF bailouts in 16 different instances throughout its history.
    It added that the adoption of laissez-faire trade policy, by which the Sri Lankan government did not apply any tariffs on imports or exports, could also be one of the reasons for the current economic crises.
    While it is not the only country to be impacted by the pandemic, industrialised nations like Japan, Korea and China could mobilise their resources to fight the pandemic better than services and tourism dependent economies like Sri Lanka.
    Currently, Sri Lanka is facing a surge in COVID-19 cases that has severely impacted the tourism sector in the island nation. The government has also declared a 16-day curfew until September 6.
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