'CBL's CSR initiative, an example '

The annual Distributor Convention and Star Awards Presentation ceremony of Ceylon Biscuits Limited (CBL) was held recently at the Waters Edge. Secretary, Ministry of Finance, Dr.P.B. Jayasundera who was the guest of honour said that CBL's social initiatives were an example to other Corporates.

However, a crowding out effect has created other issues. Upward pressure on price level is one of them. Some analysts say that inflation will reach 9 percent as commodity prices have increased in the recent past. However, CB Governor Ajith Nivard Cabraal last week expressed confidence in maintaining inflation at mid single digit.

However, the Department of Census and Statistics, which monitors the markets on a daily basis and computes the official price index- CCPI confirmed that inflation will increase. According to statistics, prices of almost all vegetables have increased between 1-10 percent in the fourth week of May. Market sources said that price increases were over 100 percent in the first and second weeks of this month. Additional Director General of DCS, D.C.A.Gunawardena said that all factors were pushing price levels up. The devaluation of the rupee caused an increase in the prices of all imported commodities in addition to sharp price increases in vegetables due to low supply. Both these factors have a significant impact on the CCPI. If crude oil prices continue to decline and the Government passes on that benefit to consumers, revising oil prices will help to reduce inflation by around 1 percent, he said.

The volatile exchange rate has made the environment for business difficult so said food commodity importers from Fourth Cross Street, Pettah. They said that there was no sharp increase in the price of perishable commodities but what has happened is that business turnover has declined. “Perishable commodity prices depend on supply and demand and we have to incur losses and in some instance we sell stocks below cost and settle export credits obtained from banks, as interest rates were as high as over 14 percent. This is the best option, otherwise we have to incur a loss at both ends”, traders said.

Therefore, price increase in perishable commodities is not significant. However, demand for commodities such as potatoes and big onions has increased due to a sharp increase in vegetable prices.

In the non perishable dry ration market, price increases are a little bit higher. However, the biggest issue traders faced was volatility of the dollar exchange rate. Proprietor of Barik Enterprise in Pettah said that changes in the Dollar exchange rate by Rs.1 creates around Rs.1.50 profit or loss.

For instance, he pointed out that last Tuesday (12) morning, the Dollar exchange rate was Rs.134.00 and on the next day morning it was Rs 132.00. “If I ordered a stock of commodities on Tuesday and my competitor next door ordered the same commodity on the next day and as a result he can sell commodities oat a cheaper price and I will lose. We prefer a stable exchange rate even at Rs.150.00 for a dollar $. We can't do business with this uncertainty”, he said.

As a result of this uncertainty there is a decline in imports and traders said that demand too has declined as wholesalers have reduced stocks.

This is also achieving the Government's objective of reducing imports but it will result in a price increase in the future.

The depreciation of the Sri Lankan rupee continues and the Rupee fell to a record low last week. It exchanged at Rs 133.60 on Tuesday, Rs 134.25 on Wednesday and Rs134.95 on Thursday against the Dollar on importer demand for the Dollar.

Despite continuing depreciation of the Rupee, the CB maintains its non intervention policy and has let the market to determine the exchange rate. The previous recorded low of the Rupee was Rs 133.00 on April 25. The Rupee has depreciated by 17.5 percent since November 21, 2011. It started from 3 percent depreciation according to the Budget proposal of 2012.

From February 03, the Rupee has depreciated by 16.2percent against the US dollar.

Economists argue that although these policies will work and achieve external sector stability in the short run, this issue in the Sri Lankan economy was deep-rooted.

Senior lecturer of the Department of Economics, University of Colombo, Dr. Sirimal Aberathne said that the exchange rate should be flexible and stable. However, in the present environment both these cannot be achieved. The reason is our exchange rate is dependant on a highly volatile foreign exchange. Sources such as Government borrowing from foreign sources and foreign remittance and cushion the balance of payment. It has to depend on exports and export- earning is the most stable and sustainable foreign exchange source, he said.

Dr.Aberathne said that the issue is slow growth in the Sri Lankan export sector. In terms of percentage of the GDP, Sri Lankan exports have declined over the years.

In 2000, it was 40 percent of GDP and in 2011 it has reduced to over 21 percent of GDP and is still on the decline.

He compared the Sri Lanka's situation with the emerging and high performing economy of Vietnam. Fifteen years ago, our exports was $ 5b and $ 7b in Vietnam. By 2011, our exports have doubled to $10b and exports in Vietnam have reached $ 90b he said.

The volatile environment which prevailed earlier was not conducive for FDI and FDI inflow and is far below compared to countries such as Vietnam. However, the situation has now changed and Sri Lanka should learn from these emerging economies on how to address deep- rooted structural issues in the economy, he said.