Sunday, June 10, 2012

People tighten their belts but pressure on rupee continues

There is a report in today's Sunday Times that local bakery owners have noticed a decline in sales following increases in the price of bread.

I happened to have a chat with a banker on Friday and he said much the same thing. Based on volumes of imports channelled through this particular bank he said that they had noticed about a 15% decline in wheat imports, a 20%-25% decline in milk powder imports and perhaps a further 10%-15% in other supermarket food and FMCG items.

People are indeed tightening their belts therefore the pressure on the currency should ease. This has not because of Government expenditure and construction projects.

The US$500m raised by the Bank of Ceylon was borrowed by the Government and used to settle creditors, possibly including some petroleum bills. No one has a clear idea of what it was used for but bankers seem to think that the money was spent within a couple of weeks.

The infrastructure projects including the Mattala Airport and Hambantota port as well as private sector construction projects contribute to the growth in imports which rose 17% in the quarter to March 2012.

The problem with construction projects is that once started they are difficult to stop.

Infrastructure and construction are not bad things in themselves. They contribute positively to the calculation of the GDP number, which is, in simple terms, a measure of output. They can also create a lot of genuine activity in the local economy, depending on the amount of local content in the project.

The problem is that with the Chinese projects, local content is small, so the process of construction provides minimal boost to the local economy, despite the fact that they do in fact flatter the GDP calculation. Materials, equipment and even labour comes from China.

This is partly why the country reports high GDP growth number while many people fail to see an improvement in their standard of living. Money comes in and goes out, barely touching the local economy. If local labour, local contractors or local suppliers were used, jobs would be created and local businesses would benefit.

The bigger issue is the viability of the projects themselves. A Chinese funded and built project is still good, provided it serves the purpose and most importantly generates an adequate return that covers the cost of finance. The project needs to be able to service the debt used to build it at a minimum. If it fails to do so, then there is a big problem, as the Spanish are now slowly waking up to.

The morning after a particularly hard party can be painful.

A little more on the positive side of labour in  Chinese projects is here. There is a good debate in the comments section.



sittingnut said...

always funny to see the always wrong predictions of doom from western lackey.

still no explanations why your earlier predictions(sri lanka will not defeat tamil tigers , runways inflation in sri lanka , withdrawal of gsp + is will be a catastrophe for sl, etc etc) never came true?

may be why you don't get it right has a lot to do with your logic or lack of logic.

2 examples among many of your confused logic here -
reduction in consumption of imported goods = "tightening of belts"??
really ? you don't see the faulty logic there ? for instance are you sure that pl did not use more rice instead of bread ?

chinese projects "do in fact flatter the GDP calculation" and "provides minimal boost to the local economy"
those two cliams about the projects contradict each other and you don't seem to realize it. then you support the contradiction by linking to a poorly written hack article from a western funded ngo that don't want the chinese here . lol


btw why do you so slavishly parrot the western propaganda (with their logical contradictions and racism and all) when west is failing (and not bc of chinese projects either) ? were you bred like that ? lol

hope you will not censor this comment bc it is too "painful" for you as is the way with most western propagandists in sri lanka ? lol

Jack Point said...

On the defeat of Tigers I was mistaken, primarily because the Tigers decided to stand and fight as a conventional army. Had they decided to melt away into the jungles to reemerge as a guerrilla force things may have been different.

Inflation is higher than the rosy statistics presented by the Central Bank. They rejigged the index several times to show a lower rate.

The Chinese projects get added to the calculation of output but because local value addition (labour, services and materials) is small the process of construction does not do much to improve livelihoods.

Slavishly parroting western propaganda? Oh really? All criticism is propaganda is it? Where have we heard this before?

sittingnut said...

lol@ your claim to know how to run a a terrorist outfit better than tiger scum.

fact is you wished us to lose and tigers supported by your western masters to prevail. so you ignored facts and logic and said tiger can't be defeated.


are you claiming that we have runaway inflation as you predicted(instead of inflation actually coming down from 20%+ ). lol
btw all the well justified readjustments of index made only small changes in rate.

you are free to live in fantasy and think we have 20%+ inflation as before.
and we are "tightening of belts" bc we don't eat imported american wheat


you are still spewing contradictions like an ignorant idiot
"chinese projects get added to the calculation of output but because local value addition (labour, services and materials) is small the process of construction does not do much to improve livelihoods "

then how do they "flatter the GDP calculation"? if they are really "small" they cannot "flatter" .

lol@ your willful ignorance

when you ignore facts and make illogical statements, as i have pointed out, in order to repeat what west says about sri lanka that is "slavishly parroting western propaganda "

don't censor this as your fellow propagandist do, if you can stand criticism . lol

Jack Point said...

I think you are a bit contradictory yourself, the comment above ignores what I clarified.