Sri Lanka, the Pearl of the Indian Ocean, is currently indulged in an Economic Crisis worse than ever. The Economic Mismanagement by the Sri Lankan government has caused the country to face severe consequences. Sri Lanka Economic Crisis.
The Inflation rate has risen to 18.7%, and the value of the Srilankan rupee has depreciated by 30% against US Dollar. The Exchange rate is at its all-time high, trading 1 US dollar for 310 Sri Lankan rupees making it the World’s poorest performing currency. People face a deficiency of essential utilities such as Food, Fuel, and Gas. Hospitals are suspending routine surgeries due to a lack of drugs. Many People are even escaping to India due to Sri Lanka’s worsening condition. The price of daily necessities has skyrocketed. According to the Department of Census and Stats, the cost of White Rice has increased by 93% since 2019. Chicken, Flour, and Tomatoes prices have increased by 55%, 65%, and 195%. The whole country has been suffering a power cut of 13 hours since March 31st. 50% of the transport in the country ain’t operating due to increased fuel prices. The Sri Lankan Government has postponed all the exams and has asked the Newspaper organization to print fewer Newspapers due to a Shortage of Papers.
This Economic Crisis has caused a Political Crisis as well. There have been protests nationwide from late March 2022. The protesters are asking for the immediate resignation of President Gotabaya Rajapaksa, chanting, GO HOME GOTA. Sri Lankan people, protesting for the immediate resignation of President Gotabaya Rajapaksa. Picture Courtesy:- @ianuradhas In response to the Protest, the Sri Lankan government imposed a Curfew in many areas and blocked Social Media Platforms. Security forces were allowed to use tear gas and Water canon against the protestors. On the Other hand, they had the liberty to arrest people without a warrant. Around 26 Government Officials resigned, including the President’s nephew and the Governor of the Sri Lankan Central Bank, due to increased pressure. The Government Cabinet has dissolved due to this. The Ruling Party has also lost its majority in Parliament to escalate the situation further. How did they reach this stage? Now you may wonder how they reach this stage. There are a few reasons for this disastrous crisis. Shortage of Foreign Reserves The incompetency of the Government has caused the Foreign reserves of Sri Lanka to plummet. The country’s high dependency on Imports for daily used items such as Pulses, Sugar caused the National Expenditure of the Country to exceed the National Income causing a Trade deficit. According to President Rajapaksa, the country will incur an import bill of $22 billion this year, resulting in a trade deficit of $10 Billion. Such are the consequences of these that The country has to pay Foreign debt of around $7 billion this year but only has $2.31 billion in foreign reserves. COVID-19 Pandemic COVID-19 Pandemic had a devastating impact on the Worldwide economy, one of the countries which faced this was Sri Lanka. The tourism industry, which contributed around 12.6% of the Country’s GDP, failed to generate much revenue due to the COVID Restrictions and Travel Bans. On the Other hand, Many Overseas Sri Lankan had to return to Sri Lanka due to the Pandemic, due to which the country’s foreign remittances faced a decline.
The country’s Exports also saw a plunge because the Garment and Tea factories couldn’t function due to COVID. Russia-Ukraine War Russia and Ukraine have been Sri Lanka’s critical markets for tourists since it reopened in December 2020. Just when the Sri Lankan economy was slowly healing from the side effects of Covid-19, the Russia-Ukraine Conflict shut down the slowly recovering Tourism Industry. One of the Effects of the Russia-Ukraine War was increased inflation. Crude Oil, Sunflower Oil, and Wheat saw a steep rise in their prices which further burdened the Sri Lankan Economy. Government Mismanagement The Government’s tax cut from 15% to 7% resulted in less income. Other than that, The ban on Chemical Fertilizers to promote Organic farming affected the production yield negatively. Although the intention behind these was right, the Government’s failure of having a proper execution Plan caused these steps to backfire. The FDI (Foreign direct investment) also faced a decline under the rule of Gotabaya Rajapaksa. According to the Sri Lankan government data, the FDI decreased from $1.6 Billion in 2018 to $548 Million in 2020. What’s next? Many countries have shown their support for Sri Lanka in this tough time, with India on the front line. India has extended a $1 Billion Credit line to Sri Lanka, which would enable Colombo to acquire food, medicines, and other essential items. India also announced a SAARC Currency swap of $400 Million to Sri Lanka. The country has also provided over 40,000 MT fuel Consignment to Sri Lanka in this challenging situation. The Sri Lankan Government is also in talks with other countries for economic support. President Rajapaksa is likely to travel to Washington in Mid-April, to present Sri Lanka’s Proposal in front of the International Monetary Fund(IMF).
With such critical circumstances, Experts say that Sri Lanka’s recovery will neither be Fast nor easy.