Economic adjustment unavoidable to restore stability: Jafferjee

Monday, 25 May 2026 05:39 - - {{hitsCtrl.values.hits}}

Says slowing economic activity a necessary adjustment in a resource-constrained economy
Opines rupee depreciating because of bad policy, not because of luxury car imports or conspiracy theories about large-scale capital flight into secret overseas accounts
Argues market pricing remains most efficient mechanism for allocating scarce resources
Renews calls for targeted support for vulnerable groups instead of broad-based subsidies

JB Securities CEO Murtaza Jafferjee

JB Securities Chief Executive Officer Murtaza Jafferjee has warned that Sri Lanka must accept painful but necessary economic adjustments to restore stability in the external sector, arguing that attempts to delay or dilute those adjustments risk worsening underlying imbalances.

He cautioned against relying on expectations that future market conditions would reverse present losses or correct imbalances without immediate policy action.

“Economic agents must adjust to prevailing realities now, not on the hope that future conditions may somehow reverse present losses,” he said.

Jafferjee said the depreciation of the rupee reflects current policy settings rather than vehicle imports or claims of large-scale capital flight, noting that aggregate demand and import demand are ultimately shaped by monetary and fiscal policy decisions.

He argued that sustaining demand in a resource-constrained economy without corresponding adjustments in consumption inevitably places pressure on the external account and the exchange rate.

According to Jafferjee, slower economic activity in response to higher costs is part of the adjustment needed to stabilise the economy.

“There is no doubt that higher fuel prices would slow economic activity—but that is precisely the adjustment required to stabilise the external account. When prices rise, consumption must fall because resources are limited. Rationing is only a second-best solution; the price mechanism remains the most efficient way to allocate scarce resources,” he said.

Jafferjee also argued that imports should be treated as a bundle of goods within a market economy and that bureaucrats or politicians should not determine what constitutes essential or non-essential imports, except in the case of demerit goods.

He said broad-based subsidies distort consumption patterns and disproportionately benefit higher-income households, which account for a larger share of energy-intensive spending and overall consumption.

Jafferjee said poorer households would face pressure during the adjustment process but maintained that the Government would have greater fiscal space to provide targeted assistance if untargeted subsidies were reduced.

He also stressed the importance of stable and credible policy, noting that market participants respond to policy signals and incentives.