30% inflation dogs Sri Lanka

Noting that "[t]hirty percent inflation has never been heard of in this country [Sri Lanka] and does not exist anywhere but in banana republics," Dr Harsha De Silva, lead Economist at the Colombo-based regional Information and Communication Technology (ICT) policy and regulation think-tank, LIRNEasia, said in an interview that the "terrible economic management of the recent past" will hurt the "urban poor who would be unable to meet their minimum dietary requirements to avoid hunger due to the unaffordable cost of living."

• Harsha de Silva, Leader Interview

• Inflation indices explained

Commenting on the economic consequences of war, Dr Silva said: "The impact of the war is being felt across all sectors of this country. The indirect cost interms of lost investments, lost tourism, lost opportunities and migration of skilled workers itself in much bigger than the Rs.170 billion the government will spend this year on the war. Add to that the costs of looking after the displaced and rebuilding."

Dr. Harsha de Silva

Contrasting other countries in the region which have managed local inflation despite rising global market prices, with Sri Lanka, Dr Silva faulted the Governor of Central Bank for misleading Sri Lanka's President and people "by saying that inflation in Sri Lanka was totally a supply-side problem." He added that the "Governor and his henchmen" branded as traitors "any critics who pointed out massive money printing to accommodate the profligate Treasury was more an issue than imported inflation."

"...When the total revenue of the government is insufficient to meet even the debt obligations and defence expenditure, where is the money for all the others? So it is obvious that a politically motivated Central Bank will come to the rescue," Dr Silva said.

"If a country can be developed by printing money, we would be the richest country in the world! Unfortunately it does not work that way. Economics is based on certain theories and a fundamental premise is that 'there is no free lunch'," Dr Silva added.

Admitting that tightening monetary policy would help in the short term, Dr Silva said, "[w]hat we so desperately need is an independent Central Bank." Independence of majority members to the Monetary Board was earlier enforced by obtaining concurrence of the Constitutional Council which is currently defunct. Dr Silva pointed out that Central Bank may have crossed "ethical boundaries" by saying "appointments must be made from the 'private sector' instead of the concurrence of the Constitutional Council."

On per capita income, the Government touted figure of $1,617 obtained by dividing nominal GDP with number of people was misleading, Dr Silva said, noting that the "Household Income and Expenditure Survey, or the HIES, undertaken by the Department of Census and Statistics is a much more useful indicator to assess the reality at the household level. Now according to the figures just released, the annual mean per capita annual income is only US$ 670, nowhere near the US$ 1,617," Silva added.

On the continued deterioration and squandaring of Sri Lanka's wealth, a pessimistic Dr Silva said: "Waste is everywhere. Hundreds of ministers, thousands of staff around them, thousands of vehicles to transport and protect them and their families - billions of rupees are needed to meet these costs. I understand that in coalition politics one needs to pander to the demands of the dozens of crossers-over, but this is unbelievable. I wonder if any other country has such a large number of ministers. Clearly, the President must realise this is not good governance. But, nothing will change. This show will run until the last day of this government; if and when that would be. And thereafter, there is no guarantee the next government will not do the same."

Governor of Central bank has revised the measurement index of inflation for the third time, from Colombo Consumer Price Index or CCPI, to CCPI(New), and to Core Inflation, in an attempt to meet the figure of 10% announced with fanfare in January 2007 when the bank announced its monetary policy.

"Core Inflation is purely an internal measure of the CBSL [Central Bank of Sri Lanka], and to use it to suggest inflation is low in Sri Lanka, is an insult to the intelligence of the people in this country. In my view inflation - the real measure that people feel when they visit the grocery store, will continue to dog us for the rest of the year," Dr Silva said.