Sri Lanka’s food shortages fuelled by COVID, economic crisis

Queuing for food or buying at extortionate prices on the black market: That's the choice many Sri Lankans are facing.

To fix the food emergency problem, the government is scrambling to seize commodity supplies already in the country.

Sri Lanka is in the grip of a runaway economic crisis triggered by the COVID pandemic that has led to shortages of food and medicine in the country. As supplies of staples like sugar, rice and cooking oil run dry and prices soar, people have been seen queuing outside supermarkets. Many fear there will not be enough, or that they will soon not be able to afford what they need. Reports suggest some people are even buying food on the black market at extortionate rates.

"For all commodities, we can see that their prices are climbing," M. Ganeshamoorthy, an economist at the University of Colombo, told DW . "For an ordinary family, it's very difficult to manage with the situation."

The skyrocketing prices forced the Sri Lankan authorities this week to declare an economic emergency. President Gotabaya Rajapaksa's government has also appointed a former army general to seize food stocks held by traders and retailers and regulate their prices.

"The authorized officers will be able to take steps to provide essential food items at concessionary rate to the public by purchasing stocks of essential food items including paddy, rice and sugar," according to a press statement issued by the government. "These items will be provided at government guaranteed prices or based on the customs value on imported goods to prevent market irregularities," the statement said.

Foreign Minister Gamini Lakshman Peiris told reporters on September 3 that "what we see is not a genuine shortage," rather an "artificial shortage created by a few."

'Alarming' depletion of forex reserves

Sri Lanka is a net importer of food and other commodities, so it needs foreign currency reserves to pay for those imports. One of the nation's main foreign currency earners is its tourism sector, which is vital for the economy, accounting for over 10 per cent of GDP in 2019, according to the World Travel and Tourism Council.

But tourism has been hit hard by the coronavirus pandemic. Tourist arrivals in the country plummeted in 2020 due to the health crisis and the worldwide restrictions on travel, causing the Sri Lankan economy to shrink by as much as 3.6 per cent. This has resulted in a foreign exchange crisis, with reserves plummeting from about $7.5 billion (€6.3 billion) in November 2019 to just $2.8 billion at the end of July.

Experts say the depletion is "alarming." "This country's foreign reserves have been depleted to an alarming level," said Ganeshamoorthy. "The government hasn't been able to maintain import flows into the country."

Deeper economic problems

The Sri Lankan economy has been struggling under the weight of its own debt for several years. The ongoing recession made it even harder for the government to keep up with debt payments and finance imports. Meanwhile, the Sri Lankan rupee has lost 7.5 per cent of its value so far this year. The decline in foreign currency reserves, coupled with the depreciation of the national currency, has meant that Sri Lanka is struggling to pay for imports and meet its debt payments.

Importers are no longer able to access the foreign currency they need to buy products from other countries — including food and medicine. As a result, many hospitals are struggling to buy essential drugs and equipment they need to treat patients, including those suffering from COVID-19, at a time when the country of 21 million is in the midst of another brutal wave of infections, killing over 200 people a day.

In addition, Sri Lanka depends upon imports for gas and petrol, so an energy crisis may be lurking just around the corner. The government has asked people to use fuel sparingly and warned that it could be rationed. Against this backdrop, the International Monetary Fund has recently stepped in to provide an emergency relief package worth $787 million.

How the government is tackling the problem

As an immediate fix to the food emergency problem, the government is scrambling to seize commodity supplies already in the country. Importers who have stocks of sugar and other scarce items have an incentive to hold back on selling their goods in order to help drive up the price. Government officials have been sent to raid private warehouses to stop this from happening. The military officer in charge of the operation said they had discovered over 13,000 tons of hoarded sugar in storage outside the capital city of Colombo.

The government has said it will pay a fair price to the importers and release seized foodstuffs at controlled prices onto the market. But some shop owners are worried that the government's measures will impact them unfairly. "We sell at the prices the wholesalers give us. Small shop owners also have to make a living and our margins are being squeezed so much we have almost nothing," W.A. Jayasekera, a grocery shop owner, told the Reuters news agency.

Critics have slammed the measure for being too heavy-handed, with the nation's main opposition party, the Samagi Jana Balawegaya, saying that the government declared the food emergency in "bad faith" and "with an ulterior motive of further wrongfully restricting the fundamental rights of the citizenry."