The flawed IMF program with its focus on the market has further aggravated the economic situation with a food crisis

Sri Lanka over the last three years has been hit by tremendous price hikes and shortages of essential services and goods. What does the New Year hold for the working people, pummelled by the rising cost of living and stagnant incomes, whose lives have become unbearable? 

Even as the public awaits the national budget next month, to address the ongoing economic crisis, the Government should announce a firm New Year resolution to address people’s suffering. I argue that resolution should be self-sufficiency first!

Vehicle imports 

Three years ago, with the disruptions of the Covid pandemic and rising global commodity prices triggered by the onset of the war in Ukraine, Sri Lanka faced tremendous shortages of imported goods with the collapse of foreign reserves. The Government of that time, failed to prioritise imports in the preceding years, which could have at least ensured the flow of essential goods. Those shortages were never really resolved. The so-called solution of market pricing imported goods from fuel to cement which only led to the contraction of demand for such goods. Indeed, the consumption of fuel and cement have fallen between thirty and fifty percent reflecting a deep economic depression; a drastic fall in consumption with people travelling less and not repairing or building houses.

Disregarding these dynamics, the wealthier classes are jubilant about the possibility of buying vehicles this year, as the IMF programme problematically calls for the lifting of restrictions on vehicle imports. What do more cars on the road mean when working people cannot even afford public transport?

In fact, the economic crisis itself was in part a consequence of vehicle imports funded by external borrowing. I warned about this trend and the impending disaster in this very column titled “Crisis, Class and Consumption” on 4 October 2021:

“In this context, from 2010 to 2019, Sri Lanka’s vehicle import bill was US$ 8,628 million. And the biggest headache for Sri Lanka today is the US$ 13,000 million in sovereign bonds that have to be repaid over the next many years. Here, the average each year of US$ 863 million in vehicle imports by using foreign exchange from sovereign debt requires debt payment ten years later of US$ 1,500 million each year. Multiply that debt repayment cost over ten years and the unsustainability of the sovereign debt stock becomes clear. Unable to pay for the past luxurious consumption of the elite, the country is now reduced to restricting the imports of essential foods for the people. Would it not be fair to wage a massive wealth tax on the wealthy classes and redistribute such wealth to the working classes so they can survive this crisis?”

The current IMF programme is marching Sri Lanka right back into a similar situation with another cycle of vehicle imports that will lead to the draining of foreign reserves. While those reserves are expected to increase with more commercial borrowing in international capital markets, another shock in the global markets will push Sri Lanka back to where it was four years ago. 

Food crisis 

The flawed IMF program with its focus on the market has further aggravated the economic situation with a food crisis. It is no longer imported goods alone that is a problem in the country, essential foods produced in Sri Lanka itself including rice, coconuts and salt, are now in shortage. The most economically marginalised of our people during the direst of times who rely on a plate of rice and sambol, or rice porridge, cannot even afford that.

What a dangerous state for our country, where people cannot afford the bare minimum of calories to keep them from starvation, not to mention the unaffordability of nutritious food such as fish and milk. Sadly, the average consumption of fish per person per year has dropped from 31kg in 2015 to 19kg in 2023, amounting to a forty percent drop due to the reduced production for local consumption and unaffordability of seafood. This is in the context where seventy percent of our people’s animal protein depends on seafood.

All this means, the Government needs to get its priorities right. Without food today, there is no point talking about economic prosperity in the future. There needs to be a resolute emphasis on self-sufficiency beginning with food we can produce in the country and extending to other goods.

Public distribution system

Self-sufficiency in food will only be possible if we rebuild our public distribution system that was long abandoned with the open economy reforms in the late 1970s. That means re-investing in many of our institutions such as the Food Commissioner Department, the Co-operative Wholesale Establishment, the Paddy Marketing Board, the Ceylon Fisheries Corporation and the Multi-Purpose Co-operative Societies. 

There will be the clamour of neoliberal proponents claiming these institutions are inefficient and have failed. In reality, it was a deliberate move of the political class and the economic elite to make these institutions fail for their extractive interests justified under the guise of a market economy. They never care about the consequences of a food crisis, as long as their supermarkets are stocked with food, even if it means unaffordable prices for ordinary people.

This year and the year ahead are likely to be full of global shocks. Geopolitical tensions, not to mention the ongoing wars, could escalate further. A global trade war seems imminent as Trump pushes his populist agenda. The climate crisis will, most of all, affect food production causing shortages and massive food price fluctuations.

In such troubling times there needs to be a focus on the food system. That will require the Government to focus on planning, and not the IMF prescribed reliance on markets. There is also the need to revive state institutions relating to the food system and social institutions such as co-operatives that can mobilise people towards food production. Indeed, the New Year’s resolution for us as a country should be self-sufficiency.

Republished From: https://www.dailymirror.lk/opinion/Self-Sufficiency-in-the-New-Year/231-299503

The current economic crisis cannot be resolved by households or social institutions alone, and loans are not the solution. The Government should introduce livelihood and income stabilisation programs to help people escape the debt trap. It should also leverage cooperatives to create markets and supply chains for rural production, while expanding affordable credit for rural livelihoods and small-scale industrial growth. Additionally, a universal social security program should be implemented

The ongoing crisis in Sri Lanka has greatly affected household debt. As the economy worsened due to inflation, higher living costs and job losses, more households are relying on debt. A significant portion of Sri Lankan households rely on microfinance companies or informal lenders and are trapped in cycles of debt. The situation mirrors what northern and eastern part of the country faced 10 years ago, which led many women to commit suicide or leave their homes. 

The household debt crisis is often attributed to people taking loans for conspicuous consumption and if financial literacy was provided, the people would avoid falling into the debt trap. However, amidst the current economic crisis, people are caught in another debt crisis. This time no one can deny that people are forced to take loans to meet their livelihood needs and cover daily essentials due to the effects of this crisis. Therefore, simply giving financial literacy will not help them escape the debt trap. 

Effects on the households 

Since 2022, when the economic crisis hit, inflation increased the prices of raw materials, energy, and transportation. Sectors such as Agriculture, Manufacturing, Small and Medium – size Entrepreneurs are facing difficulties in maintaining profit margins and have reduced their workforce leading to unemployment. Due to limited job opportunities many family members are migrating abroad for work.

When import tariffs and indirect taxes are imposed, and subsidies are removed, people pay higher prices for essential items, thus, medical, educational, fuel, and utility cost have increased. Our country depends on imports even for essentials goods such as rice, dhal, sugar, milk and so on. Therefore, the need for money to run a household has substantially increased. 

Household incomes are inadequate to keep up with rising living costs. People have been pushed to take loans or lose their small savings or assets to manage their livelihood. The current crisis has eliminated or reduced the means of repaying loans. As a result, more loans are taken to repay the loans previously taken.

Impact on different social groups

The ongoing crisis has impacted different social groups in varied ways, however, it reveals a pattern of how they have fallen into debt. People who do not have stable incomes, resources or assets are likely to fall into the debt trap quickly. 

For the fishing community, an increase in the price of fuel impacted operational costs, making it less profitable to go out to sea. The impact differs depending on the scale. Large-scale fishers have resources such as assets and social connections with state and commercial banks, so they don’t fall into the debt trap immediately. Small-scale fishers don’t have such connections to meet their financial needs in an affordable way. When the cost of fishing equipment (nets, hooks, engines and boats) increases, this makes it difficult for them to maintain or replace their equipment. Many small-scale fishers rely on loans from financial institutions or informal lenders (Sammaddy) to finance their operations. Often, these loans come with high interest rates, further deepening their financial burden and difficulty to repay, and eventually leading to a cycle of debt that many fishermen struggle to escape.

Farmers face rising costs for inputs like fertilisers, pesticides, and seeds. The Government’s 2021 ban on chemical fertilisers reduced agricultural productivity, while fuel price hikes, driven by the economic crisis, increased costs for machinery and transportation. These factors reduced profitability, causing farmers to cut back on labour, resulting in fewer job opportunities for agricultural wage workers. To manage these pressures, large-scale farmers turn to state and commercial bank loans or pawn jewellery, while small farmers rely on village-level institutions and microfinance companies. However, poor harvests and rising costs prevent many small farmers from repaying their loans, trapping them in a cycle of debt and eroding their economic resilience.

Daily wages have increased from Rs. 1,000 to Rs. 3,000 over the last three years, but job opportunities have decreased, leaving monthly income insufficient for basic needs. Many low-income earners and daily-wage workers have turned to borrowing to cover living expenses, taking out multiple loans from village savings groups, microfinance companies, and credit cooperatives, trapping them in a debt cycle. This crisis has depleted household savings and emergency funds. In this context, microfinance companies exploit people by offering daily, weekly, and monthly loans at high interest rates, targeting vulnerable people because credit is their only available means of survival. 

Behaviour of credit providers  

State and commercial banks provide loans only to people who have assets or guarantors – Government employees, large-scale farmers and fishermen – afer evaluating the borrower’s credit worthiness. Small-scale farmers, fishermen, daily wage-workers, and low-income earners are unable to access such loans.

Microfinance companies claim to provide fast and flexible loans at the doorstep, without assessing borrower’s repayment capacity. Then, they pressure borrowers to repay the loans on time. As a result, families prioritise repaying the loans from their income and are forced to take out new loans to meet their basic needs. 

Local moneylenders too offer high-interest loans during emergencies in an outwardly friendly manner. However, borrowers end up paying the interest for the rest of their lives for the loan they once received.

People end up using most of their time, labour, and incomes to obtain and repay the loans. Many women have become members of multiple village-level credit groups and spend 3 to 4 days a week attending group meetings to become eligible for loans. They also make small savings to use as collateral for the loans they borrow. To build these savings, they borrow money from friends, relatives, and microfinance companies that offer daily loans. Social groups who are directly affected by the debt crisis do not have time or agents to voice their issues or struggle against the exploitation, as all their time and labour are spent on their daily survival.

Role of State and social institutions 

The Government has failed to provide adequate social welfare for low-income and daily wage workers. Cash transfers and food aid have limited scope and don’t reach vulnerable people. The Aswesuma program offers Rs. 3,000-15,000 monthly based on family size and vulnerability, but a four-member household needs at least Rs. 3,000 daily to survive. Delays in aid disbursement and bureaucratic hurdles further prevent timely support.

Cooperatives and village groups offer affordable loans that help people maintain financial liquidity. However, they lack the capacity to provide loans for increasing credit needs and higher amounts because they circulate loans from the savings of their members. Cooperatives should enhance access to affordable credit by strengthening cooperative networks with unions and federations. In addition to offering credit services, they should focus on creating marketing opportunities for rural producers and ensuring efficient distribution of quality goods and services to consumers at fair prices.

Community-level organisations and non-governmental organisations should not limit their duties to merely providing low-interest loans as an immediate solution to this complex problem. They have a duty to reveal the depth of the issue and pressure the Government for permanent solutions.

The current economic crisis cannot be resolved by households or social institutions alone, and loans are not the solution. The Government should introduce livelihood and income stabilisation programs to help people escape the debt trap. It should also leverage cooperatives to create markets and supply chains for rural production, while expanding affordable credit for rural livelihoods and small-scale industrial growth. Additionally, a universal social security program should be implemented.

(The writer is a Research Officer at the Northern Cooperative Development Bank and a member of the Feminist Collective for Economic Justice.)

Republished From: https://www.ft.lk/opinion/Economic-crisis-and-household-debt-in-the-north/14-770935

Salomé Saqué

After Donald Trump’s victory, a question haunts many of us: how could so many people elect someone who talks nonsense, lies daily, and yet his supporters don’t seem to hold him accountable for those lies? At its core, these are broader questions : how has conspiracy thinking gained so much ground in recent years? What can be done about those, an ever-growing number, who live in parallel realities? Repeating the facts is no longer enough, so how do we address this? This is one of the questions highlighted by author Naomi Klein. In her latest essay, she delves into this parallel world—a whole underground realm of disinformation and conspiracies that, according to her, feeds off the silence and failures of the so-called progressive world. In this book, she explains that the causes progressives stand for have now become dormant and have been usurped, replaced by distorted doubles. And to discuss this, she is on the set of Blast.

Key Highlights:

1. Growth Trends:
   • Industrializing economies reported a quarterly growth of 1.4% in manufacturing output in Q2 2024. High-income industrializing economies, such as Saudi Arabia and Chile, led with a growth of 2.2%, while middle-income economies grew by 1.2%​.
   • Emerging industrial economies like Malaysia and Rwanda showed exceptional growth rates of 2.7% and 2.6%, respectively, with countries such as India and Vietnam following at 1.3% and 1.2%​.
2. Sectoral Analysis:
   • High-technology industries rebounded in Q2 2024 with a growth of 1.6%, after stagnation earlier in the year. Meanwhile, lower-technology manufacturing remained relatively flat.
3. Challenges:
   • Growth remains uneven across low-income countries, with some regions experiencing contraction. For example, low-income industrializing economies saw a 0.5% decrease in production, highlighting vulnerabilities in these areas​.

Long-term Trends:

• A gradual convergence process appears underway, as industrializing economies outperform high-income industrial economies, which reported slower or stagnant growth​.
• These insights reflect a dynamic yet uneven industrial development landscape, emphasizing the potential for technological investment and productivity improvement to sustain growth.

For further details, refer to UNIDO’s World Manufacturing Report