Economic Forecast 💸💱

It seems like no one is paying attention to the scariest quotes casted by the Prime Minister these days🥲. He is very serious in my opinion. Let’s understand what’s going on here.

Is this really serious as Prime Minister says? Let's look at them. Starting with the inflation.🙂

What is inflation?

Forget the dictionary definition. How I tried to explain Inflation is,😪

{“ Due to some unsustainable fiscal & monetary policies of the government, cash in hand of the general public and businesses increase exponentially. So, people will come forward to spend more money on the things they want to buy. And people have more money now than before. So, people try to purchase two or more things which they’ve purchased only one before. In this situation, things become scarce. The demand for things, especially for essential items increases. If the demand for commodities increases, the value of money decreases.

The seller is also not an exception. In order to survive in the “So called local rich environment” he should increase the prices too. The worst part is the demand for essential items.

If the price of wheat flour increases, this affects the whole supply chain of the bakery products and food industry. Same with fuel too. These chain effects continue to affect every single product available in the market.”}

*take a breath*😮‍💨😮‍💨

You may ask, “Ok, People have more money to spend & prices also increased. Fair enough, what’s wrong?”🤔

There’s a catch.😁

Rising of Prices

For an example, let's take a bakeman as “Cabraal”🤓. The formula for his bread price is as follows,🧐

P = V1+V2+V3

V1 = Cost of materials🍚

V2 = Rent + Electricity + Labour salary etc⚡️

V3 = Profit margin🥐

Before the inflation, the profit margin of “Cabraal” is 20% of the final price.🥞

But now due to inflation, V1 + V2 have increased. And Cabraal realised that he is in between a hyper inflation and crisis. He doesn't know when his supply chain will be cut off😪. He is not sure about the economy, fuel prices, electricity prices, labour  charges, politics and so on. So, he should increase his profit margin to 50%, then only he can lie under the margin of safety.🥲

The panic like this in every industry increases the prices exponentially that the middle class people cannot afford even the basic essential items.😢 Expenses exceed the income of a large proportion of the people. So protests spark here.🔥☠️

There’s another fact which is much worse than this, foreign exchange.🤡💩

Foreign Exchange

Quick Note: No one can measure the exact amount of inflation. The inflation rates released by the central bank and in various media are just overall approximate figures.  Inflation for each merchant differs. The inflation of automobile suppliers and food suppliers are mostly different. 

                  

When buying power of the local currency falls, foreign trade partners of the country bid low for the local currency😩. Because they know they cannot buy much assets or goods with the local currency. In our case LKR😣. Like I’ve mentioned earlier in the quick note, the valuation every foreigntrader calculate about LKR is different. But some entities use this instability to take advantage of the economic and political crisis😒. Pulling the LKR rate down forcefull, so they can buy assets in Srilanka with their Dollar for cheap. This is good  for dollar inflow and new investments 🤓even though the country has to pay more in local currency to import essential items😮‍💨. So, when a country has less income, it has to print money. So, again the foreign trader uses this chance to pull the local currency rate down😶. This influence almost every supply chain and government again has to print money, repeat.🔁

And this infinite loop continues forever until the national income become stable🤧. This traps the country into hyper inflation which seduces the local currency to lose its value. (In the last 18 months Lebanon currency lost 90% of its value due to hyperinflation. Approx 225% inflation)😞

These types of situations are almost “Out of the hand” situations. Out of the control of local or state government bodies. In Srilanka’s  case we are already into so much debt. Worst situation.🙂🥲

Case Srilanka

We don’t have any quick relief right now other than borrowing money from friendly countries & IMF debt restructuring🙂. IMF debt restructuring is not sweet as it was portrayed by oppositions😪. Very worst period to come. Our new Prime Minister is expecting a huge food scarcity in August. We still don’t know what the negotiations are with the IMF😮‍💨. Foreign reserves are running low. Tourism has fallen into the underworld. Rupee depreciated more than 70%. Friendly countries issuing credit lines, anyways falling into the debt trap again deeper & deeper☹️. How long are we gonna hang with the IT sector and major crops such as tea and rubber?😶

We need new investments, open market policies should be implemented. Innovations needed. Government expenses should be cut down✂️. In a recent interview, the prime minister asked western countries to help Srilanka. And confidently stated that “We’ll pay back”. Still not sure what are the innovation ideas he has in hand to promise such things🤔🤔.

Research has to be done and the government institutes which are making losses over these period should be privatised✍️.

It’s clear that we are trapped into the infinite inflation loop and debt. We need innovations to completely overcome this crisis. ✊️✊️

Blake Masters mentioned in his book "Zero to One", If every Indian household uses the same energy as the energy used by American households, we should be extinct now due to climate change🤭. That’s completely true, every nation needs a unique way to develop itself. Globalisation made us copy the West in many ways. Just copying and copying the all the ideas successfully worked in the West not gonna help us. We need innovations😎. Innovations in everything. Policies should be adjusted to innovate education, agriculture, technology, energy, IT and tourism. That’s the only way to stand alone and reconstruct our distorted economy.📉↪️