Sri Lanka, a small yet beautiful island country in the Indian Ocean, located in the southeast of the Indian Subcontinent is right now in a state of emergency. I have foreign friends who used to think that it was a part of India. Maybe because of the cultural similarities between the Lankans and South Indian Tamils. Right now my neighboring country is going through immense pain and suffering due to the worst economic crisis happened since its independence in 1948. Public outrage is increasing every day and several protests have been erupted recently against the government asking them to step down and leave the country for good. The whole cabinet of ministers did a hard exit on 4th April except for the brothers' duo Prime Minister (Mahinda Rajapaksa) and President Gotabaya Rajapaksa). The whole country is quite unstable right now and it will take years for them to recover from this setback.
Sri Lankan Economy Is Collapsing
The Lankan government asked for help from IMF (International Monetary Fund)for a bailout. They require financial assistance against a loan with deferring repayments. When the economy is back on track, they will have to start repaying the loan to the lender i.e. IMF at a later date. The Indian government has decided to give a $1b dollar line of credit so that Lankans can buy basic commodities for their survival. This has to be repaid as well as the situation becomes normal in the future. A country that is already under huge public debt, this situation is going to be more hurtful for future generations to come. All these facts are proof that their economy is slowly dying and extreme measures have to be taken to revive it. The following points will help you understand the current situation in the country:
- There's a severe shortage of foreign reserves in the country due to which government couldn't manage to pay for even the basic commodities. They went down 70% during the month of January as compared to December. Since it's a small country with scarce resources, they have to rely on imports for even basic items. Essential imports are hit and supply is not enough to meet the demands of the citizens. As per the Lankan government, this is the major reason for the fuck up that is happening right now. They only have 1 month of reserves left to provide for their people.
- Cost of imports is increasing since Sri Lankan currency i.e LKR (Sri Lankan Rupee) is performing poorly against the USD (United States Dollar). LKR value will continue to depreciate quickly in the short term which will further add fuel to fire. This will also have detrimental effects on the domestic markets.
- Stock Markets were shut down for trading because the Index fell below 6% causing people to panic sell their investments. This happened after the news of mass cabinet resignations came out yesterday and top stocks fell down by huge margins.
- Power cuts have been imposed due to electricity shortage. There has been a severe fuel shortage because they have no money to pay the bills. Government offices have been asked to run without ACs & citizens have to stand in long queues to get bare minimum fuel for travel & regular day to day activities. Mind you, it's a hot & humid country and summers will be at their peak during the month of April, May, June & July. Out of 24 hours, electricity is only available for 4-5 hours.
- Sri Lanka is under a huge pile of public debt. Debt to GDP percentage is expected to cross over 115% this year. I am pretty sure it will grow even more once they get financial assistance from different countries and organizations.
- As per the Department of Census and Statistics, the Inflation Rate is more than 25% for the month of March 2022 which is the highest since 2015. The prices of all basic commodities like food, water, electricity & fuel are rising every day because there is a huge shortage of them which is rising daily.
- There is also a massive paper shortage due to which printing presses in the country are affected. School exams have been postponed indefinitely due to this crisis affecting millions of students.
- Most social media websites are banned and curfews are imposed in various parts of the country.
How Did This Happen?
Obviously there is not a simple explanation for this. There are different reasons which led to this economic crisis. Sri Lanka's economy is dependent heavily on tourism. Around 12% of the GDP comes from the tourist activities that happen in the country. It was badly hit due to the rising violence and communal riots that happened after the infamous 2019 terrorist attack. Before this it was a hot destination for foreign travelers and that one single day change the whole game. The covid-19 pandemic further hit the industry and they are yet to recover from those impacts. Facebook was also accused of instilling more hate & communal enmity between different religious groups.
In 2019, Gotabaya came into power as the president of the country and immediately reduced taxes. This move was one of the biggest fucks up his government did because as soon as they did it, a pandemic happened and they had to bear heavy revenue losses. The final nail in the coffin was the agriculture crisis where the government overnight decided to ban the use of fertilizers, making Sri Lanka a complete organic country. In a few months, they had to import even Rice from outside to meet the ongoing demands. Bad decision-making by the government is only major reason why this is happening.
The current situation tells us that the Sri Lankan government is taking the whole country into a huge debt trap. In fact, just like the economy, their government is also dying. Outraged citizens also attacked the houses of the president and the prime minister. Obviously, they had to face water cannons and tear gas shells but they are not going to stop unless some concrete steps are taken to relieve their pain.
Sri Lankan Refugees?
Tamilnadu, a state in India that is very close to Sri Lanka, is already gearing up to welcome and provide humanitarian aid to the Lankan refugees. Poor citizens are using dangerous means to cross the border via sea and enter the Indian state. It is expected that thousands of people will flee and move to other countries to take refuge.
They have lost all hope in their government and the country. Can't blame them though. Cannot even imagine what they are going through right now. I hope the financial support they are getting from other nations and organizations, would be used with proper planning to revive their dying economy.
