Drought damages

Global rating agency Moody’s has warned drought-related costs would add to Sri Lanka’s fiscal challenge and put further pressure on the B1 negative rating. The crisis calls on the Government to do more than propagate the handout system and formulate sustainable policies to deal with the economic fallout from the current crisis.   

If even half the paddy acreage sown in 2015 is unusable, that would equal 1.5 million acres and the fiscal cost of the compensation would be 0.1%-0.2% of GDP, plus costs related to compensation for other crops. According to the Sri Lankan Ministry of Disaster Management and the World Food Programme, only 35% of cultivable rice paddy land had been farmed as of the end of November, the lowest level in the last 30 years.  

The rating agency insisted drought would weigh on GDP growth because of lower overall agricultural production. Lower agricultural output will reduce exports, household income and consumption in affected areas, posing downside risks to GDP growth. Moody’s expects Sri Lanka’s real GDP to increase by 5.0% in 2017, which is materially lower than the Government’s forecast of 6.0% and could reduce further if the drought exacerbates. 

Weaker economic activity will weigh on Government revenues. The current fiscal deficit forecast at 5.2%, could be revised upward if the negative credit effect of the drought worsens or is not offset by other fiscal measures. Under the IMF’s Extended Fund Facility program, the Government targets a deficit of 4.6% of GDP in 2017. Reserves are also likely to suffer. 

Traditionally, responses to droughts in Sri Lanka are generally reactive in terms of crisis management and are known to be untimely, poorly coordinated and disintegrated. The context of current droughts calls for proactive future actions to be able to cope with their associated imperatives. Despite the repeated occurrences of droughts and their large impacts on different socioeconomic sectors, no concerted efforts have ever been made to initiate a dialogue on the formulation and adoption of national drought policies. 

Without a coordinated, national drought policy that includes effective monitoring and early warning systems to deliver timely information to decision makers, effective impact assessment procedures, proactive risk management measures, preparedness plans aimed at increasing the coping capacity and effective emergency response programs directed at reducing the impact of drought, the Government will continue to respond to drought in a reactive, crisis management mode. 

The Government must adopt policies that engender cooperation and coordination at all levels of Government in order to increase their capacity to cope with extended periods of water scarcity in the event of a drought. The ultimate goal is to create more drought resilient societies. 

This means that the Government will have to create permanent relationships with the private sector, communities and research institutions. The current drought is a result of changing rainfall patterns over many years. In such a situation, private companies for example can provide crop insurance and research can give farmers drought resistant crops. 

Change has been thin on the ground largely because knowledge of climate change and its impact have not been readily conveyed to villages along with implementable solutions. Despite drought-related task forces being among the best-funded public bodies, their functions have been ad hoc at best. A major dimension of drought control is protecting forests, wetlands and rivers. Without long term plans Sri Lanka will suffer badly for a long time.