Unknown Inflation by Mawella K Prematilleke

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UNKNOWN IN-FLATION

After good governance duumvirate setup in 2015, a little in the city, started to comment on signs of enlarging living cost. Thereafter commoners also felt to discuss soaring prices of goods and services.

Now, all most everyone definitely talking and believes no due diligence in price mechanism, inflation is a myth, the country is edging to a stagflation, soaring pricing after every meal, every purchase and apparently no sign of relief for living

It is clearly understood, no need profile of examination, academic interest or an economist to realise, no growth in the country. Tangible economic indexes are fallen close to freezing levels during last thirty-six months or more. It is a standing alarm that we have come to an end of beginning of the end. We are sitting on the departure platform, waiting for the last train to Dunkirk.

Cost is no surprise surged on common consumables. Food and beverages to un known credible limits.

Price hiking, like mid night express running all over the country, paralyzing economy and the system. The Escalating immovable and movable asset prices, cost of in built consumer Court common bands – formalities (even a funeral), expenditure on wedding arrangement or funding to education, find nobody could escapes resorting to an institutional or personal debt to rescue. It is a known truth average household Consumers seeking the funding from informal money lenders for survival by pawning every possible asset to feed their families, pawning become in house circle of common debt trap in Mass population.

People claim, even the worst period of 2009/10 when skimming in the war, not having experienced a difficult of living, like the presentIs this result of inflation? In other words, Sri Lankan are experiencing a running inflation.

     “Inflation is a situation of a gradual increase of price levels and decline in the value of money. “Inflation means that your money won’t buy as much today as you could yesterday.” (1)

Colombo Consumer Price Index (CCPI) BASE 2006/7 – “A Consumers’ Price Index serves a number of purposes. It is an indicator to measure the changes in the general level of consumer prices and used as one of the key indicators of inflation. Consumers’ Price Index is also used for socio-economic analysis, and policy purposes,

mainly in the determination of monetary and income policies. It is used in the analysis of the trends in wages and other monetary incomes, for indexation of salaries and wages etc.” (2)

According to the official statement of Census and Statistical Department of Sri Lanka, CPI (Colombo Price Index) is a measure to analyze limited macroeconomic situation but not myriad of economic situational analysis of the financial and social environment. Therefore, the result is not the body chemistry of economic paradigm, but merely for statistical satisfaction of consumption behavior of non-existing breakout nation. The statistics could be used only for black and white purpose for recording, sensible measurement of purchasing power of nonexistence zombie living-dying society

 

    It is an absolute factor, the figures shown above are quite debatable as these approved figures are acceptable to wage earners and would agree to contracted to work in return for price in the existing market rates. When practically and actually in the sensed of inflation, wages cannot accommodate the present cost of living in the country and signs of Stagflation coming in to the horizon of social existence.

 Our capacities are drying, our buying power no more, the stability is bleeding and soundness incarcerated. Therefore, examining our fundamentals are important, in a no-go situation. Are we experiencing an inflation or stagflation?

The Stagflation, is the worse situation of inflation. it is a combination of stagnant economic growth, high unemployment, and high inflation. In 2004, Zimbabwe’s policies caused stagflation. The government printed so much money it went beyond stagflation and turned into hyperinflation. In Germany same situation existed during world war 11.

 Most of European countries were badly hit as war devastated the countries, Economies, as no sustainable production were initiated, therefore growth reduced to zero. But Sri Lanka had nothing in that caliber since the war successfully ended in 2009/10.

 The rapid growth diminished by devastating economic policies and Selfish personal political agendas of duumvirate setup.

 

Endless Borrowing and monsoon of spending

     The debt takers (The State) not reluctantly, but enjoy getting credit from all available sources, irrespective of financial, social, security or delinquent obligations. Factually they roaming in the all available lenders, unobtrusively.

 

The gravity of unconscious credit expansion now flowing over the streets, adding constant duties, taxes and fines are very common, avoiding no one, except law makers. The controversial bond scam on 27th Feb 2015, added bond value of Rs10 bio for 30 years, adding enhancement of interest rate over 3.5% or Rs.126 bio to the National debt. This scam pushed inflation and further depreciation of local currency

     The qualified figures indicated our total debt (Domestic & foreign) has big picture of 10,313 mio or domestic running to 5,594 mio and foreign to 4,718 mio as 2017 (unaudited) in addition to that Sri Lanka is planning a 250 million US dollar equivalent Panda (Yuan denominated) bond in China in 2018, Central Bank Governor Indrajit Coomaraswamy with further 1.0 billion from a syndicated loan from China Development Bank with one more IMF transfer of 250 million US (5)

During the period of 36 months the government has borrowed over USD 16 billion in foreign currency loans alone, the script as follows, includes as cumulated as CBSL figures not disputed so far. (6)

 

  1. USD 7.2 billion through the issue of Sri Lanka Development Bonds. from January 2015 onwards
  2. USD 3.6 billion from sovereign bonds issued in 2015 and ¼ 2017,
  3. USD 2.2 billion through currency swap arrangements with India in 2015 and 2016
  4. USD 1.7 billion through syndicated loans arranged through several international banks in 2016
  5. 2017 and USD 1.5 billion from the IMF Extended Fund Facility in 2016.

The Economist have sounded alarm, that the borrowing of $16 bio or over has no substantial and qualified evidence to support investment destinations or source of investment, No debt liquidation or parking of a such a mammoth quantity of financial resources. No clue of the spent fiscal budget or statement of account for last three and half years, meanwhile no citizen witness any micro or macro project initiated for the benefit of the public, but noticed large scale scams in mega highway projects, treasury borrowings or detection of global harvest of narcotics in our shores.

It is reasonable to have a forensic work study on some of the major credit obtained during 2010 to 2015, soon after ending armed conflict. As a developing country the internal war categorically denied and also demanded rapid growth, as losing three decades of economic penetration life.

Project borrowing completed till 2015, on conclusion of conflict

  1. Norochcholay Power Plant (All three phases) US$1,350
  2. Sourthern Express way                                   US$   740
  3. Hambantota Phase 1 and 11                           US$1,300
  4. Colombo Katunayake Expressway                  US$   292
  5. Mattala Airport                                                 US$   209

     It is no surprise some massive projects undertaken during 2015, and those were not finished, presently in line to finished for operational startup. The Rajagiriya overhead way, Moragahakanda Multi development Project, Kandy -Colombo Expressway, Southern Expressway Section from Matara to Hambantota, the southern Railways from Matara to Beliatte are some of the listed.

 Moragahakanda – Kaluganga Poject ownership is claimed by the Government elected after 2015, now a situational report been called to ascertain the statement of creditability. Notwithstanding any claim, we rejoice as citizen, ending of an important project, which is the last under the massive Mahavely development & social scheme.

 

Increasing Revenue by resorting to constant fiscal adjustments (7)

The following table indicates, the state accumulated 1,832 bio as revenue against 1,455 bio collected in 2015. This is a plausible factor, how fair this was done just twenty-four months from 2015. A mammoth 377 bio increment shown in the books of fiscal report of year 2017. How it appears

 

 

      The tax collection has increased by 314 bio during the period under review. If it by expansion existing tax table, people greatly inconvenienced, but imposing all round new blade of taxation like WHT on all interest earning accounts, personal income, all income earning services are some. Another 62 bio from non-tax revenue

 According to Treasury reports the government has spent Rs.403 billion, 91 per cent of the revenue earned during the first quarter of fiscal year 2018.The revenue collected by the government was Rs.469 billion which was 90.2 per cent of the expected revenue. Expected state expenditure for the year 2018 is Rs. 3,982 billion, while the total estimated revenue is Rs. 2,175 billion, a senior Treasury official said adding that the collection of expected revenue has now become difficult. (8)

Non-Tax revenue includes banking services profits transfers, state service providers like UDA, RDA (Highway toll) insurance, fines, penalties etc. Within banking transfers, profits from State Bank charging from customers on loans and advances and non-interest income too. If service providers recover from clients, inflation standing against poor buying power.

It is quite surprised, all these factors lead to inflationary economic stimulus, but declaring 4 to 6.6% inflation is how far tolerable, the figure. If the figure reads 35- 40 may be right, we reached the point of demise. That’s stagflation,

 

Exchange rate deterioration

Local exchange rate is virtually coming to the shocking destination over Rs.161 as of 16th August 2018. The floating exchange rate becomes a curse of free market system of Sri Lanka, as stupid fiscal manipulations of economic hitmen ruin markets and bleed the system, beyond repair. The rupee depreciation along a mammoth 196 Billion from January – June 2018. Its low as selling at Rs. 161 burn value over 21% from December 2014 levels. (Global Finance Magazine). This was at 131 in 2015 mid-January.

 

Sri Lanka Rupee – Forecast     Last     Q3/1    Q4/18   Q1/19   Q2/19   2020

Value                                            160     159        160       161      162       165

 

The economic management in foreign reserves are deepening as US$9.9 billion in April 2018 had dropped to US$8.4 billion at the end of July. CBSL has released $357 mio in May-June 2017, sterilized intervention to prevent depreciation artificially by pegging US$1.5 bio out of reserves. It is not revealed to public the swap cost, but no frequently like Sri Lanka, starving for exchange as our exports become dry, inward remittances and even borrowing are remote and expensive.

If CBSL intervened to liquidate so much of reserves in the foam of Investments, setting off loan funding or inward receipts, to desist the designated Rupee dollar currency devaluation, from the York Street Banks to shelves at market, Pettah, nothing prevented accelerating inflation fly by ariel route to the consumer (9)

 

MONEY PRINTINGNew Money issues (10)

The new money issue has been standing between 89.3 in 2014 had swelled to 182.7 and returned to 83.7 in 2017. Under these emphatical proven evidence very clearly expose, actual market realities against demand and supply and where our economic situational analysis speak of Inflation

Capital market in Sri Lanka has no credibility among other markets due to corruption, manipulations and scams. In recent history the insider dealings, blowing havocked the stability and trust among interested stake holders, the corrections were late or not corrected at all. (11)

The Sri Lankan Stock market figures indicates very dissatisfactory picture on the available outcome. Market Capitalization (Total money invested by Stake holders) average price and all share price index were faded, no one interested to float money on the stocks due to lost confidence in stability and soundness.

Sri Lankan Markets have no positive signs of recovery, stagnated, never be a wall Street NY after resounding recovery from meltdown 2008, after quantitative Easing (QE), Sri Lanka is in a volunteer turmoil without a Banking crisis but for corruption, scams, insider dealings and tricksters.

 

 

At the conclusion, please peruse the abstraction from State Fiscal report, indicating shocking revelation of public interest on absorbing information. People drastically lost reading interest, Publishers lost many news prints in all three language. You can imagine one strong reason is poor purchasing power, another may be un – interest of bogus media attributed by blowers.

 

Finally, you have the option to confess whether the country is sailing on an inflationary cloud or we are under the doldrum on stagflation. On either option, the time is running fast to an exit, a dramatic exit, on a footless Economy

By Mawella K Prematilleke

Refences

 

(1) www.economicshelp.org/macroeconomics/inflation/definition/

(2) www.statistics.gov.lk/price/ccpi/Web.pdf)

(3) Real Wage Rate Indices are based on National Consumer Price Index (2013=100)” Source:

      Central Bank of Sri Lanka)

(4) Central Bank of Sri Lanka

(5) ECONOMYNEXT, Colombo/Aug03/Aug 04/2018)

(6) Colombotelegraph.com/index.php/third-anniversary-of-the-incompetent-government-

      responsible-for-the-worst-debt January8,2018)

(7) (11) (12) (13) ANNUAL REPORT-2017 MINISTRY OF FINANCE, SRI LANKA (IN TERMS OF

     SECTION 13 OF THE FISCAL MANAGEMENT (RESPONSIBILITY) ACT NO. 03 OF 2003

(8) www.sundaytimes.lk/180819/business-times/caution-urged-in-government-spending-local-

       borrowing-307244.html

(9) (http://www.dailymirror.lk/article/Unhealthy-for-SL-to-raise-funds-through-Panda-bonds-JO-

      153716.html)

(10) The Sunday times/July 15, 2018, by Ms S Gunaratne, Asst Governor, CBSL, Sri Lanka

 

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