It is surprising this took so long to happen, it should really have happened a year ago, so the Govt could have reacted better and grown reserves for debt repayment and cushioning further falls. If it had devalued a year ago by 10% by now exports would have grown and the BOP would be in better shape.
There
are many matters on which one can criticize this administration, but the recent
drop in the exchange rate is the LEAST of their economic mismanagement
consequences. SO the critics of the Government who pounce on this, which is easy
to fool the 95% of the public who have no clue how all the economic factors are
related, are actually doing a grave disservice and exposing their nakedness. (Joint Opposition note your treachery here as you are part of the problem, not the solution)
A
short essay cannot explain all the inter-dependencies here, but trust me when I
say that artificially propping up the Rupee, using borrowed money, or reserves
is a futile exercise, as eventually reality bites, and money is wasted. MR has your economic wizard sitting behind you not explained, like he did before?
This
is exactly what the opposition did when they were in Government and Nivaard
Cabral who is very critical saying each rupee’s fall is going to add so many
billions to the debt is just a half truth of which he was as guilty as this
govt. He also spent a lot of reserves, (the people’s money) recklessly in
defending the rupee which fell anyway during his watch.
So
why is the exchange rate falling?
Firstly, if we have real interest rates that
are higher than the US, if the exchange rate is not going to fall then it is
better for an investor in the US to invest in SL and then in a year take his
money back as he will have a higher rate of return. To an extent that was the
case in the past, when the US as part of QE kept the interest rates
artificially low to boost the economy and investment.
Now it is overheating,
and so the interest rates are gradually rising. If we raise the interest rates
to keep up, then our business costs rise and the economy that is growing slowly
anyway for lack of investment will grow even less. So the Government would
rather NOT increase interest rates, it will sap the already sapped Business
Confidence which is vital.
NOTE:
The Govt. can use the reserves to defend the rupee and lose their reserves with
nothing to show in the end, so the rupee will not fall in the short term, or
the Govt. could raise interest rates and again the rupee will not fall as much.
Both are counter-productive, though listening to Mahinda Rajapakse it is one of
these he would do, and ruin the economy further as he has no clue about what is
happening. If the budget is also in surplus that will reduce borrowing!
So
added to this normal and expected rise in US interest rates, there is the Trump
tariffs that have alarmed the world economy. This is an added issue from which
we have NO control to resolve and hope it will resolve itself sooner rather
than later.
Then
there is the Balance of Payments. With remittances NOT growing and exports
still stuck, our Balance of Payments are worsening because we are importing a
lot more than we export. Now that oil prices have also risen 50%, that too is
affecting the Balance of Payments a lot.
We have not cut down on our travelling
and oil usage to make a dent in this despite the rising prices! In fact this
Govt. should never have cut the oil price when they took power in the first
place and built up reserves for such rainy days.
If
we kept the fuel price high we would have fewer vehicles on the road and not
paid so much to buy foreign exchange to import vehicles, also. If we were able
to at least have a surplus taking into account the remittances, we could have alleviated
this depreciation somewhat, but it is not the Govt. to blame for that, it is
the people who love to buy imported goods.
So
buy fewer cars, don’t give duty free permits, stop sugar consumption by half,
eat local green gram and not foreign dhal, allow private medical schools in Sri
Lanka to attract foreign students so our kids don’t go to Foreign Universities
for Medicine. These are what our citizens should have done. So we can directly
BLAME THE GMOA FOR THE EXCHANGE RATE DROP! How’s that for a laugh?
As
the consumers are NOT willing to make lifestyle changes, the Govt. has NO
option but to allow the exchange rate to find its own level. It could drop to
Rs200 to US$1, and it is better it is sooner rather than later, so we can force
people to adjust their habits sooner. We have to move from private transport to
public transport, we have to encourage more Solar and I have been going on
about it for three years, and if we had then the oil we import to run our
thermal power plants will be less now.
If
we get down to that level, it will immediately help the export industries, and
make them more competitive, we can hopefully grow our exports. If our workers
go for skilled jobs overseas, as their pay is more attractive, we may have
higher remittances as long as skilled workers leave and remit.
The
area where it is essential that some patriotism prevails, is for our big
companies to keep their money in Sri Lanka, whether in dollar accounts here or
change into rupees. They don’t have to convert their dollars if they don’t wish
to but the banks will then pay them lower interest on their deposits, as
compared to rupees. So please bring your money back to the Country and don’t hide
it.
The
other area obviously is the need to repay foreign debt. So we have to build
reserves for the US$4B debt repayment next year, and so cannot waste our reserves
in defending the rupee. That is not mentioned by the Opposition cretins, who took the debt in the first place which this govt. has to repay!
Yes
Mahinda Rajapakse regime got us into debt for projects that do not give a
return on investment. No one disputes that. Now we have to pay the interest and
principal on those investments and we don’t have a return from which to pay
that, so we are in deep shit. So for the opposition to blame the Govt is a bit
rich!
Yes
we have to blame the Yahapalanaya Govt. for increasing the debt, because they
decided to pay the Public Servants more. That promise was foolish as we cannot
afford to pay them for doing nothing, when the whole economy is short of staff,
because all the unproductive workers are in the Public Service due to political
appointments. If you are a public servant who was put there by your MPs list,
then you are a traitor as you are NOT earning your keep, you are costing the taxpayer
money he cannot afford.
I
believe a collective effort on the part of the people and business can stop the
rot, and if we are able to build confidence, FDI and funds in by foreigners as
they feel the long term prospects are attractive, we can reverse the decline.
My
honest plan is to let it drop to Rs200, force austerity and then within a year
to bring it up to Rs185 by good economic management and foreign inflows, that
give good returns on their investment, relative to the alternatives.
So
to re-cap we must reduce our volume of imported fuel immediately by 20% by
lower usage and encourage electric substitution and public transport. If we can
reduce the traffic congestion by 20% at the same time, we are home and dry. We
have to get the CEB to be more efficient and reduce thermal fuel consumption
and private power from thermal fuel. If we have a moratorium on import of all cars
thanks to all car sales and SMMT, we can reduce the import bill by US$1B.
Gold
smuggling another treasonable act was another drain on foreign resources and
for one year all our people stop travelling overseas for patriotic purposes,
will also greatly help.
ITS
ALL CALLED CONFIDENCE IN THE ECONOMY not worsening and if we can attract more
money not more tourists, by giving them a good service and not cheat them out
of their money, and stop unscrupulous jeep operators overcharging, that
treasonable act can also help our economy.
Let
us all stop buying imported stuff, like apples and oranges, dhal, sugar, and
powdered milk for a year, we will be back in business, hail and hearty, and try
to use public transport whenever you can and force the private bus operators TO
REDUCE fares not increase them, as they will have more customers so not lose
out, then we are in business! Its ALL A BUSINESS PROPOSITOIN STUPID!