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K Amirthalingam, professor of economics at the University of Colombo, spoke to inmathi.com on the unrelenting economic crisis in Sri Lanka.
Amirthalingam has written several important books such as Taxation in Sri Lanka, The Sri Lankan Economy and so on. He has done research on migration that happens due to economic crisis. His current focus of research is the role of economic causes in creating gender disparities.
Question: What do you think is the main cause of the current economic crisis in Sri Lanka?
K Amirthalingam: The Sri Lankan economy is largely dependent on imports. The prices of computers, vehicles and vehicle parts are typically quite high. Prices of rubber, tea are quite low. There is trade imbalance as a result. This has been the situation over the last 70 years. During the Korean War during the 1950s, rubber prices climbed up. Export earnings rose at that time. But besides that, in general, trade imbalance is a feature of Sri Lankan economy.
In Sri Lanka, foreign exchange is earned through rubber, tea and tourism. Typically tourism used to bring in $ 5 billion every year. That income crashed during the pandemic.
Remittances from abroad from Sri Lankans working in other countries was bringing in another $7 billion. Because of irregularities in the currency market, the remittances were coming in through the hawala market. This led to loss of earnings for the Sri Lankan government.
Due to irregularities in the currency market, the remittances were coming in through the hawala market. This led to loss of earnings for the Sri Lankan government, says K Amirthalingam Prof of Economics, University of Colombo.
Question: Is the situation due to government policy?
K Amirthaligam: Yes. Remittances from the Middle East and western countries were mostly coming through the hawala route. In the hawala market, one dollar is sold for up to 370 Lankan Rupees. In foreign markets, this is even higher. The government faces huge losses because of this.
Question: Protests show no signs of relenting. Can you comment?
K Amirthalingam: The government went in for massive borrowings to implement many programmes. But those programmes did not yield any revenue. But the loans have to be repaid. This is how the crisis was caused.
This July, the government will have to make a payment for $1 billion for commercial loans. These are not soft loans. By the end of this year, the government will have to pay back some $8 billion. The central bank does not have the money for this. This is the main reason for the crisis.
Export and import happen through commercial banks. Because of the huge hawala market, these banks don’t have enough foreign exchange, since the foreign exchange bypasses official channels such as banks. That’s why there is little foreign exchange to pay for food imports. Though people have money, they are unable to buy essential commodities.
In Sri Lanka, foreign exchange is earned through rubber, tea and tourism. Typically tourism used to bring in $ 5 billion every year. That income crashed during the pandemic.
Question: What’s the solution?
K Amirthalingam: The government is going to ask for IMF assistance. The government has got this idea only now. I welcome it. A ship that is drifting on the high seas needs an anchor. This is how I see it. If IMF helps, other countries will also come forward to help.
Question: How can economic growth happen in Sri Lanka?
K Amirthalingam: Loss making units will have to be dealt with. Globally, public-private partnerships have done well. This can help to boost exports. The hawala market has to be dealt with. Sri Lanka should learn lessons from neighbouring countries.
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