When economies confront problems such as inflation, deflation, unemployment and recession, mainstream economists and policymakers refer to the situation as macroeconomic imbalance. They also provide reasons for the imbalance and propose various policy actions to stabilize the economy back to the balance.

In this analysis, macroeconomic imbalance is referred to the situation that the total supply of goods and services of the economy is not equal to its total demand. For example, central banks around the world state that present inflationary pressures are due to the demand in excess of the supply consequent to the stock of money expanded and supply bottlenecks during the pandemic time 2020-21.

The reasons they mostly cite for the expanded money stock are the money printing and bank credit created to fund the government budgets/spending on fiscal stimulus to fight the pandemic. Therefore, almost all central banks have started raising interest rates to reduce the monetary/credit growth in respective countries. In 2022, nearly every central bank has raised the policy interest rate by about 250 bps.

Meanwhile, the Central Bank of Sri Lanka blames the budget deficit singularly for the hyper-inflation as well as the present economic crisis confronted by the country. As this is a grave macroeconomic imbalance, the Central Bank has raised interest rates so far by 1,000 bps to stabilize the economy by bringing the demand back to the balance with the supply.

However, macroeconomic imbalances, underlying reasons and policy actions or stabilization policies are highly controversial subjects because they are based on various economic concepts that have not been proved by empirical studies.

Therefore, this article is to present the invalidity of mainstream economic conclusions underlying macroeconomic stabilization policies, mainly inflation, budget deficits and current account deficit (in the balance of payment -BOP), in modern monetary economies connected to the global economy.

The objective of the article is to help the policymakers to innovate monetary and fiscal policies in a new sectoral approach in the new year to recover living conditions back to the pre-pandemic levels.

Concept of Macroeconomic Balance

This is none other than the conventional national income identity taught to beginners of macroeconomics.

GNP = Y = E

Gross National Product = Gross National Income = Gross National Expenditure

This is known as the macroeconomic balance, that is, the aggregate supply in the economy is equal to the aggregate demand. This is not a theory, but a fact because the value of aggregate production or supply of a country will be its income and expenditure on income.

In this model, Y is the sum of income to factors of production, i.e., labor, landowners, capital owners (including financial capital) and entrepreneurs, in the form of wages, rent, interest and profit (W, R, It and Pt). Therefore, 

Y = W + R + It + Pt ………………………………..(1)

Accordingly, the national income should be equal to the national expenditure (Y = E) derived as below as factors of production cannot spend more than their income in total.

Y = C + I + G – T + X – M ………………………..(2)

• C and I are private sector consumption (C) and investment (I)

• G is government spending (consumption and investment)

• T is tax paid by the private sector. It is deducted as government spending is financed by tax paid by the private sector out of the income/production value.

• X is exports of goods and services. Exports are added to domestic spending to reconcile with income as exports is a withdrawal from the country’s expenditure on production.

• M is imports of goods and services. Imports are deducted from spending to reconcile with income as the private and government expenditure also contains imports.

In this concept, E or (C + I + G – T + X – M) is the demand side of the economy whereas the Y is the supply side.

Accordingly, equation (2) can be restated as follows.

Y – C = I + G – T + X – M ………………………..(3)

S = I + G – T + X – M ……………………………(4)

• S is private sector savings.

Accordingly, terms in the equation (4) can be rearranged as below.

(G – T) = (S – I) + (M – X) ……………………….(5)

Budget Deficit = Private Net Savings + BOP Current Account

The equation (5) shows that although the economy is at balance (supply = demand), sectors of the economy can be at imbalance. Those sectors are the state, private and foreign. Budget, net savings and current account which show sectoral status can be at balance (that is zero) or at imbalance (deficit or surplus). Therefore, macroeconomic balance does not mean that economy is necessarily at sector-wise balance.

As the above model is not a rocket science, macroeconomists present it under various assumptions.

Concept of Macroeconomic Imbalance

Accordingly, this is the situation where Y < or > E which means the aggregate supply differs from the aggregate demand. However, in the concept, aggregate supply should always be equal to aggregate demand. If so, imbalances are interim conditions in dynamic economies as markets continuously adjust to various factors.

If so, how do economists detect macroeconomic imbalances? The approach central banks adopt is the change of inflation beyond their targets. Accordingly, any imbalance between the supply and demand will change the general price level and inflation. This is the application of market mechanism in economics. 

For example, if the quantity of demand for a product for any level of supply is higher, the price of the product will rise to ensure that the demand falls to the level of its supply as the quantity of the supply is externally given. In opposite, if the demand is lower than the supply, the price will fall to ensure that the demand rises to the level of the supply. 

When it comes to the economy as a whole, changes in prices of goods and services are reflected by inflation or deflation. In this approach, the supply is considered as externally given or static variable in the short-run.

Stabilization Policies

In the above model, stabilization policies are the state policies implemented to bring the economy back too balance (demand=supply) when there is an imbalance. Accordingly, mainstream economists propose fiscal and monetary policymakers to manage the demand side of the economy to match the given supply side. Therefore, stabilization policies are known as demand management policies by leaving the supply side externally given.

Accordingly, in the event of inflationary pressures, tight fiscal and monetary policies are proposed to reduce the demand because inflation is interpreted as excess demand situation. This is why central banks globally raise interest rates to reduce credit and discourage spending during inflationary periods.

In opposite, when economies confront recessionary/deflationary situations, i.e., demand less than supply, stabilization policies are the fiscal and monetary expansion policies.

However, fiscal authorities are not willing to curtail government spending during inflationary periods. Instead, they are willing to use fiscal instruments selectively such as consumer subsidies and indirect tax cuts on essential consumer goods to reduce the cost of living. 

Therefore, central banks have no hesitation to raise interest rates, irrespective of macroeconomic outcomes of high interest rates. However, during recessionary times, both fiscal and monetary authorities follow the same course of expansion.

Policy Controversies in Real World Context

The conceptual model presented above is used by mainstream economists and policymakers to manage the economies with various targets such as inflation, growth, unemployment, BOP and wages through monetary and fiscal policies. Therefore, these policies fucus on adjustment of the demand side of the economy as a whole or on selected demand components. 

Some of the major controversies on the model in real world context are highlighted below.

• Demand management alone inappropriate

The model does not consider the direct or immediate impact of fiscal and monetary policy instruments on the supply side in present information technology-based economies. Selective tax and credit instruments can have an immediate impact on investments and productivity which will change the supply to match the existing demand without calling for demand control per se.

However, this view is not considered in the model as the supply is considered externally given where any present change in the demand will have a lagged effect on the supply. However, as the supply side is a result of factor markets, policies can directly focus on relevant factor markets to fix supply side issues that have caused economic imbalances. Therefore, the demand management approach is outdated now.

• Inappropriate treatment on budget deficit on macroeconomic imbalances

Central banks and mainstream economists use equation (5) above to blame governments for macroeconomic imbalances. What they state is the culprit behind the private sector investment lower than saving (S-I) and the deficit of the country’s BOP current account (M-X) is the budget deficit (G-T). This interprets that if the government runs a budget deficit, private sector and external sector have to provide resources through net savings and current account deficit (or import of resources) to finance the deficit.

This is the reason why the IMF imposes conditions on countries confronted with BOP/foreign currency problems to reduce the budget deficit by cutting the expenditures and raising taxes if they are to receive IMF financial assistance. It is surprised that the followers of these conditionalities fail to understand that cutting the government expenditure is nothing but cutting the country’s production capacity as well as already contracted supply side.

However, they all forget that the equation (5) is true only if the economy remains at the balance or demand supply equilibrium. Therefore, budget deficit is only a sectoral imbalance, and it does not reflect a macroeconomic imbalance as defined in this model.

Further, equation (5) is only a mathematical solution. It does not interpret sectoral interactions and inter-relations. The equation also can be interpreted to blame the private sector for the budget deficit and current account deficit as shown in equation (6) below.

(S – I) = (G – T) + (X – M) …………………………(6)

Accordingly, the government has to run a high budget deficit if the private sector is not prepared to invest more than savings when the country runs a current account deficit.

In addition, if the equation (5) is accepted, it may be that the government runs a budget deficit to undertake infrastructure investment that the private sector is not prepared to take whereas the most part of current account deficit could be private sector imports not due to the budget deficit or government spending. Therefore, blaming the government for the current account deficit is baseless.

Further, the allegation of monetary financing, high interest rates and crowding out of private investments arising from budget deficits is not established in the model. Therefore, such allegations are arbitrary and stabilization policy based on fiscal sector tightening is baseless.

• Factor market impact on supply and prices not captured or focused

When market mechanism is considered, the income and cost of production are determined by factor market forces. Therefore, prices can change because of changes in factor market prices (i.e., wages, rent, interest and profit margin) independently from the demand where the demand will adjust accordingly. 

For example, the present global inflationary pressures are primarily a result of increases in costs and supply side bottlenecks. Sri Lankan inflation is a direct result of heavy currency depreciation, acute shortages of imports, higher interest rates and increased energy prices that have nothing to do with the demand side.

Therefore, the policy attempt to stabilize the economy by cutting the demand as a means to reduce inflation has no economic rationale. As the present high inflationary pressures around the world are mostly a supply side phenomenon, the correct policy approach should be policy actions to lift the relevant production and factor market sectors in the supply side.

• Lack of information on the demand and sectoral imbalances

Policymakers do not have a mechanism to estimate the contemporary demand that causes imbalances. The data on demand are estimated within the production or supply side estimates (i.e., national accounts) made on the assumption of demand-supply equilibrium. Therefore, proxies such as retail sales statistics used for tracking the demand are highly unprofessional and ad hoc.

Further, standard national accounting statistics are received with lags of quarters. Therefore, macroeconomic imbalances are mostly detected from movements of consumer price index (CPI) to reflect the changes in general price level believed to be caused by demand supply imbalances. 

Accordingly, stabilization policies are taken on the basis of information on movements of CPI. However, the CPI represents only a sub-set of consumer prices and, therefore, does not represent the macroeconomic general price level determined by the demand and supply in the model. As such, the inflation estimated from the CPI is only a statistical exercise which has no value to stability of living standards.

For example, Sri Lankan policymakers boast about inflation falling from 69.8% in September to 57.2% in December, last year. However, the general prices in December 2022 were 57.2% higher than general prices in December 2021 whereas the general price level in 2022 was 46.4% higher than that in 2021. Inflation figures are statistical results largely determined by so called base effect.

If you assume that the inflation in December 2023 falls to 5% to be within the inflation target of the government (4%-6%), the general price level as measured by the CPI will be 85% higher than that in December 2020 (i.e., the increase of the CPI from 138.0 to 255.4). Therefore, the boasted reduction in or control of inflation is meaningless in macroeconomics and living standards. Nobody will believe that the economy is stabilized if the general price level is at such a higher level unless the real income of the general public is raised to offset the higher price level. However, demand management advocates do not have a desire to think that way as they are illusioned by the statistical inflation rate phobia.

In that context, stabilization policies initiated on movements of CPI have no macroeconomic basis but they are exercises for intellectual satisfaction of those who believe in such policies like divine prescriptions.

Therefore, mandating public duties/objectives for central banks to secure economic and price stability and financial stability connected to the macroeconomic balance has no macroeconomic rationale as the standard demand management-based stabilization policies by central banks or by fiscal authorities are unable to secure such stabilization objectives. 

In that context, central bank policy actions are nothing but conceptual monetary exercises that have no benefits to the economy and general public. That is evident even from developed countries that confront economic crises and high inflation cyclically from time to time despite central banks’ stability mandates.

Although equation (5) above shows sectoral positions/balances which are inter-related in the equation, actual data are gathered from different sources which are not reconciled in national income estimates. For example, current account deficit and budget deficit are compiled from trade data and public finance data which have no connection to the GDP data on supply and demand in the economy. Therefore, the sectoral equation is only a statistical concept and cannot be tested empirically for macroeconomic balances or imbalances or for stabilization policies as defined in the standard model.

• Structural economic risks to macroeconomic balance not captured

Although the model focuses on demand-supply imbalances in aggregate, major imbalances or economic crises are caused by structural or systemic risks such as excessive, unhealthy concentrations involved in demand and supply sectors and markets. For example, the present economic crisis in Sri Lanka is a result of systemic risks that existed in the foreign currency market and foreign reserve of the Central Bank. These risks existed in the BOP capital account that was not a component in the demand management.

Therefore, the present economic crisis in the country is not a demand-driven crisis, but a crisis caused by certain sectors exposed to considerable degrees of structural macroeconomic risks. In fact, foreign debt and reserve which were not captured on the demand side were the main causes of the crisis. These were the transactions involved in huge systemic risks in the capital account of the BOP and, therefore, were not captured in the conventional demand management model. 

However, the authorities only attempted to manage current account deficit in proportion to the country’s GDP and never figured out the systemic risks involved in movements of capital account. In fact, they were overwhelmed by foreign capital raised through sale of Sovereign Bonds and currency swaps where their rollover risks were never identified or assessed. Overall, the fundamental risk was the highly import dependent economy with consecutive current account deficits funded by government short-term foreign debt through the BOP capital account.

However, present macroeconomic management and stabilization approaches only focus on the demand side and do not have any regard to identification and management of structural economic risks that exist in sectors and markets. Therefore, raising interest rates to the sky high will not stabilize inflation-hit economies as such interest rate hikes will not fix the structural risks underlying high inflation or supply side bottlenecks.

Further, fancy mechanisms of financial stability and macroprudential surveillance with stress testing used by central banks to detect and manage such systemic risks in the financial sector have miserably failed because they are only bureaucratic, academic research on past data. 

The present economic crisis in Sri Lanka is a result of mismanagement of foreign reserve and public debt by the Central Bank whose systemic risks should have been detected by macroprudential and financial stability techniques that were in place for years. In that context, the sugar high interest rate policy adopted under the standard demand management model to stabilize the economy from the crisis is only a baseless concept.

• Monetary policy impact not identified empirically

Central banks across the world follow monetary policies, mainly interest rates, to stabilize economies when imbalances are reflected by movements of general prices or inflation. However, there is no empirical research to establish that the monetary policies carry intended impact on demand and prices. Even money-driven inflation is only a concept developed in primitive economies. However, modern economies are highly dynamic with modern markets and, therefore, monetary policy cannot fix markets that have caused imbalances in the economy.

For example, high interest rates adopted to control rising inflation have already shown strong signs of economic recession and rise in unemployment due to increase in cost of production. This seems to worsen macroeconomic imbalance through new imbalances in other sectors/markets rather than stabilization of the economy as claimed.

• Demand management restricted by the economic globalization

Countries operate through direct and indirect links on trade of goods, services, factors and capital to the current global economy. Therefore, macroeconomic volatilities and policy changes in trade partner countries and developed countries will have impacts on other country economies. 

For example, economic slowdowns and interest rates in the US and Europe will affect emerging market economies, irrespective of their demand management policies. Therefore, domestic policies in open economies are restrictive as demand supply imbalances are largely driven by global factors.

In that context, standard demand management policy model is a closed economy model with highly controlled merchandise trade. Therefore, this model fails to stabilize present economies linked to the global economy.

Overall Comment

The present fiscal and monetary tightening implemented by Sri Lankan authorities is presented as the only way to stabilize the economy from the current economic crisis. Authorities state that this tightening policy approach is followed in compliance with conditionalities imposed by the IMF to secure a 2.9 bn USD worth loan facility to be disbursed over a period of four years as a BOP support. 

Therefore, the stabilization policy model followed by both Sri Lankan authorities and IMF is the old demand management approach presented above. However, the present economic crisis in the country is not a demand-driven crisis, but a supply side crisis caused by systemic risks in the BOP capital account. 

Therefore, the present tightening policy stance and the conventional IMF financial/reserve facility will definitely fail to stabilize the economy in 2023 and beyond. The reason is the invalidity of the demand management model as highlighted above for stabilization of modern market economies where their failures, inclusive of IMF, are already known and well documented. Further, the core objective of the IMF model is to reactivate same risky foreign debt sector in the BOP capital account.

Therefore, it is proposed that relevant authorities immediately abandon this demand management model and implement a package of well coordinated fiscal and monetary instruments to fix sectoral imbalances that carry structural macroeconomic risks. However, this will not come from standard macroeconomic textbooks. 

Therefore, those international economists who claim that they are prepared to take difficult, painful decisions to stabilize the economy will have to walk in the middle of the general public, find the root causes of the crisis from the sectoral grounds and invent policy instruments to fix them by leaving out brave talks in the political media like modern scientists and doctors. 

This policy approach should focus on targets on sectoral developments and living standards with structural risks/concentrations minimized, unlike in the demand management model with statistical targets of inflation and GDP growth. This approach can be used to secure a material recovery of the economy in three months without any IMF support (by now 8 months have already lapsed in dreaming of the IMF without a definite time target) that will boost the public confidence in markets and policies with a new hope for the new year 2023. It is a simple fact that wars and crises cannot be won unless innovative techniques are adopted.

Therefore, if Sri Lankan policymakers continue to stay in their comfort zones of baseless, failed demand management policies by proposing new laws such inflation targeting and new monetary systems as part of the IMF 2.9 bn USD, the present economic crisis will drag the general public further for decades parallel to Zimbabwe, Sudan, Venezuela and Ghana while the young generation and professional community will end up in labour forces abroad. The resulting negative growth of the country’s population will anyway destroy the demand in the medium-term without any fiscal and monetary instruments such as high interest rates and tax hikes supported by the IMF.

Therefore, if the present government wishes the new year to be the macroeconomic stabilization year for their political agenda, it has to deploy a team of policymakers who are capable of inventing a new sectoral policy package as proposed above in place of the failed demand management policy model suitable for tribal economies.

Therefore, front-running religious leaders and political leaders must be careful when blessing the IMF and its followers on demand management policy models in the new year as they are not professionals knowledgeable on this subject.

I only can sincerely wish that those who are involved in macroeconomic management of the country at this historic crisis time take professional time to understand the important facets cited above if they are really hopeful of stabilizing the crisis-hit economy at least back to the pre-pandemic levels in the general public interest.

 (This article is released in the interest of participating in the professional dialogue to find out solutions to present economic crisis confronted by the general public consequent to the global Corona pandemic, subsequent economic disruptions and shocks both local and global and policy failures.)

P Samarasiri

Former Deputy Governor, Central Bank of Sri Lanka

(Former Director of Bank Supervision, Assistant Governor, Secretary to the Monetary Board and Compliance Officer of the Central Bank, Former Chairman of the Sri Lanka Accounting and Auditing Standards Board and Credit Information Bureau, Former Chairman and Vice Chairman of the Institute of Bankers of Sri Lanka, Former Member of the Securities and Exchange Commission and Insurance Regulatory Commission and the Author of 10 Economics and Banking Books and a large number of articles publish. 

The author holds BA Hons in Economics from University of Colombo, MA in Economics from University of Kansas, USA, and international training exposures in economic management and financial system regulation)

Economy Forward: https://economyforward.blogspot.com/2022/12/wishing-2023-for-stabilized-economy-let.html

Sri Lanka government is to ease the oppressive taxes imposed on the people after the economic situation is improved as the tax hikes were aimed at supporting 90 per cent of the people who need the state assistance, a senior minister said.

A great deal of indignation and fury as to the impact on their disposable income and lifestyle have been expressed by many over the media and social media.

In addition, concern has been expressed that the country will lose many skilled professionals who might migrate to countries with higher tax rates and compliance of nearly 100%!

The corporate sector, which is also being impacted, has demanded from the government greater restraint, accountability, and transparency on its spending.

Unfortunately, Sri Lankans, have, in addition to accepting corruption as part of country’s DNA, turned a blind eye to the civic responsibility of being a tax-compliant citizen for multiple reasons.

State Minister of Finance, Ranjith Siyambalapitiya says that the imposition of new taxes has been done in order to support 90 per cent of the people who need the government’s assistance.

Speaking to the media while joining an observation tour at Embilipitiya Excise Station, the State Minister mentioned that he hopes to revise the oppressive taxes for the people at the first possible opportunity.

“Taxes are not something that will continue forever. We are ready to reduce them at the first possible moment and provide relief to the taxpayer. But until then we have to keep this society alive.”

Social security contribution levy was criticized by many people, the State Minister said, mentioning that he also believes that it is not that much of a good tax to be imposed.

Further, he expressed that they hope to remove some parts of the social security contribution levy which has some effects, by the beginning of next year.

“The first meeting of the Treasury which will be held on January 02, is to talk about the taxes”, he said.

Sri Lanka’s Rail transport service is deteriorating day by day despite efforts to repair and rebuild railway lines country wide with the involvement of IRCON International, a fully owned company of the Indian Government, in upgrading railway lines.

Upgrading crucial lines of Sri Lanka’s railway system could cost the Government up to US $4.5 billion but the move will provide a significant impetus to economic growth, a railway expert said.

No daily maintenance, no dollar for spare parts 60-70 trains a day are cancelled, train service delays, derailments and timetable changes are all due to financial crunch, General Secretary of All Sri Lanka Railway Employees General Employees Union and co-convener of Railway Union Alliance S. B. Vithanage said.

He said that there is informal management and inefficiency in the department and that railway tracks should be maintained daily and now due to lack of proper maintenance train derailments occur frequently.

He said that due to the lack of dollars required for the importation of the spare parts and the maintenance of the train carriages, the railway is now in a very bad condition and because of this 60 or 70 trains are running a day is canceled.

Stating that 9,000 posts are unfilled in various sections of the railway service, Vithanage said another 700 will retire by December 31, 2022 and the number of vacancies will increase by January 1, 2023.

Apart from this, he said that due to lack of tools like shoes, pen roll, clips etc. required for railways, the railway tracks are dilapidated day by day.

He noted that the speed of the coastal train has been reduced by 30 to 40 km per hour due to maintenance crisis as planned by Indian IRCON.

IRCON International, a fully owned company of the Indian Government, is on the verge of marking 12 year in Sri Lanka, having completed upgrading to the tsunami railway line and the much publicised northern railway link.

Similar upgrades to the railway lines to Kandy, Omanthai and Trincomalee would increase connectivity and fast track transport at a cheaper cost to the country, opined IRCON Project Manager in Sri Lanka S.L Gupta.

India’s state-run IRCON will begin a 33 billion rupee (about 90 million dollars) upgrade of section rail track to the northern city of Jaffna from January 05, Transport Minister Bandula Gunawardana said.

The upgrade from Maho to Omanthai in Vavuniya will see the track capable of running trains at speeds of up to 100 kilometres an hour.

The track from Omanthai to Jaffna was previously upgraded under an Indian credit line.The travel time from Colombo to Jaffna will be cut by about an hour after the upgrade. The track will be closed for five months from January five.

Sri Lanka Railways will operate 5 trains to Anuradhapura daily and busses will be provided by state-run Ceylon Transport Board and other operators to carry passengers to Jaffna.The section of the track has 213 culverts and 90 bridges an IRCON official said.

The track now has speed restrictions on 27 locations where the train can be run at 10 to 40 kilometres an hour. After the upgrade the minimum speed will be 70 kmph.

The track will be re-built from the bottom up, with new ballast and welded tracks, which will allow for fast smooth travel without the current ‘jerks’.

Sri Lanka is set to introduce first ever National Agricultural Policy and it will be presented in Parliament shortly by the subject Minister Mahinda Amaraweera.

The expert committee appointed to prepare the National Agricultural Policy informed that they have already finalized draft of this new policy.

Former Agriculture Director Generals, Ministry Secretaries as well as university professors and agricultural representatives were in the committee including Senior Prof. Buddhi Marambe, Prof. Udith Jayasinghe, Prof. Palitha Weerakkody, Prof. M.B. Rathnathilaka, Dr. B.V.R. Punyawardena, Dr. D.S. Kuruppuarachchi, former Director Generals of Agriculture Dr. Ajanta de Silva and Dr. W.M.M Weerakoon.

The Minister said that the final draft will be submitted to the parliament for approval, and after that everyone should work for the implementation of the new Agriculture Act.

“ A s um of US $400 million have been spent on the import of rice in a period of 10 months. Therefore, it is necessary to give everyone’s support for the implementation of the national agricultural policy,” he added.

Following the identification of about 100,000 acres of uncultivated land, the Ministry of Agriculture has planned to acquire the land for the Government for a period of five years, with effect from this year 2023.

Minister of Agriculture Mahinda Amaraweera said that the approximately 100,000 acres of land remain uncultivated although most are suited for cultivation purposes.

The Agricultural Lands Act, No. 42 of 1973 will be amended accordingly so that these lands can be given to youths who have no lands to cultivate,” he said.

Upon establishing an agreement with those who cultivate the respective land under the five-year programme, Amaraweera said that landowners may opt to cultivate the land if they so desire, at the end of the five-year period.

If the landowners choose to not cultivate the land, he said that steps will be taken to direct those who cultivate the land to give a part of the harvest to the landlords as ground rent.

Sri Lanka’s agriculture sector, mainly paddy cultivation, has suffered a major setback since April 2021 with the Cabinet of Ministers’ decision to ban the import and use of chemical fertilizers and agrochemicals, as per a proposal made by then-President Gotabaya Rajapaksa.

Since then, many farmers are reported to have abandoned cultivating their fields, resulting in the fall of harvests in several cultivating seasons since.

The Asian Development Bank will grant Rs. 8 billion to be distributed among the 1.2 million farmer families and youths who will participate in the massive paddy cultivation programme.

In addition to these 100,000 acres, another 800,000 hectares of paddy fields will be cultivated in the next Yala season in 2023.

The utilisation of 5,000 hectares of land in Moneragala, Kotiyagala and Kabilitta for farming was also proposed as a precautionary measure to prevent the food crisis which is expected in the future.

This decision was taken at a meeting held at the Presidential Secretariat under the patronage of the President’s Senior Adviser on National Security and Chief of Presidential Staff Sagala Ratnayake recently.

Although nearly 8,000 hectares of land in these areas were owned by the Forest Department for reforestation, it has been decided to commence reforestation activities in only 3,000 hectares of land in which saplings have already been planted.

The temporary distribution of the remaining 5,000 hectares of land amongst farmers for cultivation until the necessary facilities for reforestation were prepared was also discussed at the meeting.