B1

Sri Lankan Economy crisis

 Sri Lanka is facing an economic crisis due to a number of
reasons including depleting Foreign-Exchange reserves,
depreciating currency, and rising food prices in the country.
 The President of Sri Lanka Gotabaya Rajapaksa declared an
economic emergency on September 1, 2021, under the Public
Security Ordinance to contain the crisis from worsening
further.
 The Sri Lankan government has appointed a former Army
General as Commissioner of essential services who is
authorized to seize food stocks held by traders and retailers and
regulate their prices.

Tourism Fall down

 A setback in the tourism industry of the country has resulted in
the depletion of forex reserves from over $7.5 billion in 2019 to
approximately $2.8 billion in July 2021.
 Due to the depletion in the forex reserves, the country had to
increase the amount of money to purchase the foreign exchange
to import goods.
 This increase has led to the depreciation of the Sri Lankan
rupee by approximately 8 per cent so far in 2021.
 Since Sri Lanka heavily relies on imports to fulfill the basic food
supplies in the country, the depreciating currency has further
led to a rise in the price of food items.
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Reasons of food crisis and

Idea of Organic farming
 Sri Lanka govt ban on use of chemical fertilizers in farming
 Sri Lanka during the COVID-19 pandemic suffered a severe
setback in its tourism industry which contributes to over 10 per
cent of the country’s Gross Domestic Product (GDP) and brings
in foreign exchange.
 The ban on the use of chemical fertilizers in farming by the Sri
Lankan government has led to a reduction in the agricultural
production sector.
 Rajapaksa in 2021 announced his plan to make Sri Lanka the
first country in the world with a 100 per cent organic
agriculture sector.
 The move to make Sri Lanka a country with a 100 per cent
organic farming agriculture sector is expected to aggravate the
economic crisis.
 It will reduce domestic food production significantly and cause
a further rise in prices.
 People are already queuing up outside shops to buy essential
goods due to a shortage of supplies.
 Deployment of the army with the power to seize supplies from
traders will take the incentives from the traders to bring in
fresh supplies. This will further cause a drop in supplies and an
increase in the prices of food items.
 B3

Response of the Govt.

 Sri Lankan government has ascertained that the rise in food
prices is due to speculators hoarding essential supplies.
 Therefore, the government has declared an economic
emergency under the Public Security Ordinance.
 The government has appointed the army with the authority to
seize food supplies from traders and supply them to consumers
at fair prices.
 The army has also been given powers to ensure that forex
reserves be used only for the purchase of essential goods.

Lack of basic planning

 The lack of basic planning and foresight by the Rajapaksa

government to have gauged its enormity in time and initiate
necessary corrective measures.
 The Rajapaksas themselves were also, in some way, involved in the
making of this crisis.
 Until 2018, tourism was as the only vibrant and consistent
contributor to Sri Lanka’s economy until 2018.
 But in 2019, that sector too suffered a major setback due to the
horrendous Easter bomb blasts in Colombo that killed more than
250 people. The effect on Sri Lanka’s economy was immediate and
shock-inducing.
 There was a reduction in income through tourists by around 20 per
cent, adversely affecting foreign exchange reserves.
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 The country followed the International Monetary Fund’s

‘suggestions’ from 2016 to 2019 and gained some forex back but the
GDP growth kept slipping.

Impact of China

 While all of this was happening, China was playing a game not only
to gain a strategic advantage in the island nation but also to keep its
economy hostage.

 While China is currently involved in more than 50 projects in Sri

Lanka, their nature and execution are alarming, to say the least.

 These are Hambantota and Colombo Port City, both of which have
been given for 99 years of lease to China.

 Chinese economic support for Sri Lanka was never meant only for
trade and economic considerations. It was always a means to gain
political and security leverage against India and safeguards its
interest in the Indian Ocean Rim, through which the bulk of China’s
energy movement takes place.

 China is now the second-largest lender to Sri Lanka.

 By 2019, it was holding more than 10 per cent of Sri Lanka’s

outstanding foreign debt.

 China became the largest investor in Sri Lanka between 2010 and
2020, displacing India from the position of the largest importer of
Sri Lankan goods despite an adversarial geographic location