What happened in Sri Lanka?
Sri Lanka is now facing its worst economic crisis since its independence in 1948, and the situation isn't looking up. The country is increasingly running out of food, fuel, medicine, and other basic necessities, which is causing protests against the government in power. In this dire situation, a state of emergency has been declared by the current acting president, Ranil Wickremesin, after Prime Minister Mahinda Rajapaksa resigned in May 2022 and President Gotabaya Rajapaksa fled and resigned from his post.
So, what exactly happened that led the country to bankruptcy?
The seeds of economic mismanagement have been sown for a few years now. Sri Lanka made a series of bad economic decisions which eventually led to a crisis.
In 2009, when the Civil War ended, taking more than 70,000 lives, Sri Lanka focused on providing for its domestic market and fell behind on developing its foreign exports. The economy showed some percentage of growth, but there was still a persistent concern of overdependence through bilateral loans from foreign countries like China.
In 2019, when Gotabaya Rajapaksa stood for presidential elections, he promised high deductions in taxes in exchange for votes. As a result, he was elected and a new taxation policy was implemented. This was a poor decision, ignoring the question of how the country's GDP would be sustained with the minimum taxes. Soon enough, the country started running out of money and started losing investors, resulting in a loss in their international market.
Sri Lanka felt the need to save the limited foreign reserves that it had and decided to ban the import of chemical fertilizers and encouraged farmers to use natural fertilizers instead. This resulted in around 50% of the entire crop production of the country failing, making things much worse.
Sri Lanka was under the burden of a trade deficit and a budget deficit, which meant it was importing more than exporting and the expenditure was much more than the revenue generated.
Another major hit for the Sri Lankan economy was when Colombo suffered bombings which directly affected the tourism of the country in 2019. Then came the pandemic which only contributed to the loss. Tourism being one of the major sources of GDP, with a 13% share, was completely shut down during 2020.
The country now has very limited fuel for essential services and is facing inflation with the skyrocketing prices for food and fuel. In these unprecedented situations, countries like the US, India, Australia and Japan have come with aid in forms of currency, fuel and food.
Short and crisp article, should have been more interesting if said about China's role in Srilankan crisis. The article has in short highlighted all the reasons for the Srilankan economy downfall. A good read!
Brief and concise, the article would have been more interesting if the author talked about Srilanka's overdependence on exports and tourism and government's tendencies to give freebies. Nonetheless it was a great article.