Sri Lanka is in the midst of a serious economic crisis, with the government running out of foreign money and unable to pay for essential imports like fuel, food, and other necessities.
Huge debt caused by years of cumulative borrowings, high inflation, a lack of international currency, key sectors experiencing a sharp drop in demand due to the pandemic, and alleged poor governance are just a few of the factors that have dragged Sri Lanka into not only an unimaginable financial downturn but also enormous political unrest.
After the country depreciated its currency sharply last month, just ahead of talks with the International Monetary Fund (IMF) for a loan program, Sri Lankans have been suffering from rising costs and shortages. The negotiations are still ongoing.
Sri Lanka is experiencing its biggest economic crisis since gaining independence in 1948. The cost of basic necessities such as food, fuel, and medicines has risen dramatically. Rice costs 500 Sri Lankan rupees per kilogram, while sugar costs 290 rupees. In Indian Rupees, this is roughly Rs 126 and Rs 73, respectively. Even for basic necessities, citizens must wait in lines for hours. Troops have been stationed at state-run petrol outlets to facilitate distribution. In the sweltering heat, the residents have to bear daily power outages of more than seven hours.
Many people blame the current situation on successive Sri Lankan administrationsʹ economic mismanagement. The countryʹs tourism sector, which is one of the countryʹs largest revenue producers, has been severely hit by the 2019 series of bomb bombings in Colombo. The Covid epidemic exacerbated the problem.
The Finance Minister has been ousted, several Cabinet ministers have resigned, and demands for the Presidentʹs resignation are growing louder. As the protests become stronger, the rest of the globe is left wondering what really is causing this turmoil.
The countryʹs economy was shut off from global markets as the crisis worsened. As a result, the FX reserve has decreased by about 70% in the last two years. As per Bloomberg, Sri Lanka had a $2.3 billion forex reserve in February and close to $7 billion in external liabilities, the majority of which was due in July.
In addition, the governmentʹs policy to phase out chemical fertilizers in 2021 has resulted in decreased rice yield this year. The present government, led by President Gotabaya Rajapaksa, has raised the debt. The President, on the other hand, has attributed the issue to the pandemic.
MP de Silva stated in a December statement in Parliament stated that the only way to bring the country out of its current dilemma is to seek assistance from the International Monetary Fund (IMF). He claimed that domestic efforts would be useless and that the countryʹs economy could only be rebuilt with the help of the International Monetary Fund (IMF). In late December, then-Agriculture Secretary Udith Jayasinghe cautioned reporters that the government may need to seek foreign assistance to feed the destitute and needy.
With national expenditure exceeding national revenue and imports exceeding exports, the South Asian republic has become a textbook example of a twin deficit economy. Itʹs evident that unless the country receives assistance, it may not be able to put itself back together. To withstand the crisis, it has requested financing from the Asian Development Bank, India, and China.
Sri Lanka has requested help from India and China. In addition to a $500 billion line of credit granted in February, India recently extended a $1 billion line of credit. Sri Lanka has also received food and gasoline from India. The Rajapaksa regime has asked New Delhi for an additional $1 billion.
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