Tougher Times Ahead

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Sri Lankans already buffeted by the high cost of living (CoL) will have to brace themselves for more price increases if Sri Lanka is to obtain an IMF loan to get over its US dollar crisis, an IMF statement released yesterday showed.

Those include the possible upping of the already increased VAT rate by a further three percentage points to 15 per cent and an increase in electricity rates already hinted by the authorities in Colombo.  Premier and Finance Minister Ranil Wickremesinghe, recently, also indicated the possibility of another VAT hike, when he said that revenue uplift would be brought to be on par with 2019 rates.

Prior to the present, when Wickremesinghe served as Premier from 2015-2019,  his ‘Yahapalana’ Government ‘s VAT rate was 15 per cent, before it was reduced to eight per cent no sooner President Gotabaya Rajapaksa came to power in 2019. However, with the reappointment of Wickremesinghe as Premier, by Rajapaksa in May 2022, the VAT rate was upped by 50 per cent to the current 12 per cent rate.

Such possible increases will have to be looked at in the context that Colombo’s food inflation soared to a record high 80.1 per cent last month, beating its previous record of 57.4 per cent established in only the previous month , Census and Statistics Department  data released yesterday  showed.

Such statistics also showed that the overall price increases suffered by an ordinary family living in Colombo were Rs 15,087.10 year on year (YoY) to last month. Consequently, overall Colombo inflation hit an all-time high of 54.6 per cent last month, beating its previous record of 39.1 per cent established in only the previous month May.

Among some of those increases were an ordinary family living in Colombo’s transport costs up YoY to Rs 3,090.98 last month; restaurant and hotel bills, including ‘buth kade’ costs (Rs 1,664.45); fish consumption bill (Rs 1,626.74); vegetables (Rs 1,432.93); bread (Rs 722.55); rice ((Rs 691.14); secondary education costs (Rs 564.18); housing, water, electricity, gas and other fuel bills (Rs 542.93 and milk powder bill (Rs 526.06). Subsequently non-food inflation also increased by a record 42.4 per cent last month, beating its previous record of 30.6 per cent, established in May (30.6 per cent).

 Wickremesinghe, speaking of the revised 2022 Budget to be presented shortly, said that it will have a focus on the uplift of the poor. IMF, supporting the Premier’s view also said in their statement, that one of the objectives of the new IMF-supported programme (loan) would be to protect the poor and vulnerable.

With Sri Lanka broke,  the poor and the vulnerable may be protected only by multilateral and bilateral aid, either through  budgetary support or via multilateral agencies such as the UN and its adjuncts, as well as through INGOs/NGOs .

It may be that, in this context, where one of the most recent indications was from Canada. Where, Canada’s High Commissioner to Sri Lanka David McKinnon, delivering a statement in respect of ‘Canada Day’ which was celebrated yesterday, also said, “In collaboration with the World Health Organisation, we are funding the procurement of essential medicines and supplies. Canada is also working with the World Food Programme to purchase urgently needed rice stocks for the National School Meal Programme. As the crisis deepens, we are looking how we can best respond to the recent flash appeals by the UN and the International Federation of Red Cross/Red Crescent Societies.”

But, not only should the poor and vulnerable be protected from today’s high CoL, but avenues of  not only jobs, but better jobs should also be made available to the masses for sustainability. In this regard Wickremesinghe should take a cue from his uncle J.R. Jayewardene, who, in 1978, not only abolished the universal rice ration book, but also opened up new avenues of employment to the masses, such as via the multibillion rupee accelerated Mahaweli Development Programme led by bilateral aid and the opening up of FTZs in Katunayake and Seeduwa to name a few.

The key was strong diplomatic relations with the West and Japan. An IMF programme signals that Wickremesinghe is following Jayewardene’s footsteps.