The Sri Lankan crisis: Agriculture a spoilsport

Abstract:

With colossal debt and crippling balance-of-payments problems, Sri Lanka has become a
classic case of a twin deficit economy, with fiscal imbalances exceeding federal revenue and
imports surpassing exports. Sri Lankans have been taking to the streets for over a month,
demanding that President Gotabaya Rajapaksa and his brother, Prime Minister Mahinda
Rajapaksa, resign. With crop failures, soaring prices, and blackouts, the island nation is
undergoing its worst economic turmoil since independence from British rule in 1948. The
government has now requested federal aid in an emergency. It has requested bailouts from the
Asian Development Bank, India, and China to weather the storm.

Populist measures are some of the major contributing factors to the cataclysm.

Economics of Sri Lanka:

Sri Lanka's free-market economy was worth $84 billion in nominal GDP in 2019 and $296.959
billion in purchasing power parity terms (PPP). From 2003 to 2012, the country recorded a
growth of 6.4 percent per year, far outpacing its regional peers. The growth of quasi sectors
fueled this expansion, which the World Bank stressed was unsustainable and unequal. Since
then, growth has slowed. Sri Lanka was reclassified as a lower middle-income country by the
World Bank in 2019, with an income per capita of 13,620 PPP Dollars or 3,852 nominal US
dollars, dropping from an upper-middle-income status.
Sri Lanka has accomplished the Millennium Development Goal (MDG) of halving abject poverty
and is on track to achieve most of the other MDGs, surpassing other South Asian nations. By
2016, Sri Lanka's poverty headcount index had risen to 4.1 percent. Since the end of the three-
decade-long Sri Lankan Civil War, Sri Lanka has begun to focus on protracted strategic and
structural development challenges. It aspires to become a country of the upper-middle class. Sri
Lanka also has social inclusion, governance, and long-term viability issues.
In 2019, services contributed up 58.2 percent of the Sri Lankan economy, up from 54.6 percent
in 2010, industry 27.4%, 26.4 percent a decade ago, and agriculture 7.4 percent. Though the
agricultural export market is competitive, technical advancements have been slow to reach the
protected domestic sector. Sri Lanka is the world's largest producer of solid and industrial tires,
and its apparel industry is progressing up the value chain. However, the rise in trade protection
over the last decade has raised concerns about a return to inward-looking policies.
Concerns over Sri Lanka's faltering GDP, money printing, and government debt have resulted in
a succession of sovereign rating downgrades since the COVID-19 pandemic. Import constraints
and import-substituting have become more severe due to the increased monetary instability
caused by debt monetization. Sri Lanka has been rated one of the top ten countries globally for
its COVID-19 pandemic preparedness. In 2021, the Government Of Sri Lanka announced the
country's worst economic emergency in 73 years. After two years of cash printing to finance tax
cuts, Sri Lanka announced on April 12 that most overseas debt repayments would be halted,
bringing an end to the country's new debt service record.

Sri Lankan Agriculture:

Since dawn, Sri Lanka (previously Ceylon) has been a farming country. Agriculture was the
principal occupation of the Sri Lankans at the time, and land use in ancient Sri Lanka was
primarily agricultural. People farmed their food, and international agriculture food exchange was
rare. The earliest agricultural colonies were in the northern and south-eastern plains' river
valleys, where paddy was the primary crop grown under rain-fed conditions. Subsistence
agriculture was the country's staple until the mid-1800s. Rubber was first introduced in 1876,
but it was not until the 1890s that it was commercially grown. Coconut was first grown in
backyard gardens. Local planters focused mainly on coconut, which accounted for roughly 40%
of the planted land by 1900.
With the availability of lands for plantation crops at the end of the nineteenth century, this
industry became the predominant sector of the economy. When Sri Lanka attained
independence in 1948, however, a greater emphasis was placed on developing food crops. Mr.
D.S. Senanayake, Ceylon's first Prime Minister, and other leaders encouraged the production of
paddy and other food crops. To boost food production, vast areas were cleared, and hydro
schemes like Galoya were implemented. To settle people from highly populated areas,
colonization plans were formed. The agricultural sector of Sri Lanka is currently made up of the
plantation sector and the cultivation of domestic crops. Around 80% of the population lives in
rural areas, and crop derivatives are their primary source of income.

The Seismic Transition, and Catastrophe:

Sri Lanka launched the world's first 100 percent organic or biological agricultural program in
June 2021, along with a nationwide ban on inorganic agrochemicals. The program's advisor,
Vandana Shiva, praised it but overlooked critical voices from the scientific and farming
communities who warned of a probable collapse of agriculture, including a financial crisis
caused by the depreciation of the national currency, which was centered on the tea business.
Sri Lanka saw a severe decline in farming productivity of up to 50% in the autumn of 2021 and
food shortages. The scenario in the tea industry has been described as catastrophic, with
organic production costing ten times as much as conventional farming and yielding half as
much.
The Government declared an "economic emergency" in September 2021, as the situation was
exacerbated by a decreasing national exchange rate, growing inflation resulting from high food
costs, and pandemic tourist restrictions, which further reduced the country's income. These
restrictions have been lifted, but urea imports are still prohibited. Sri Lanka is attempting to
implement necessary goods rationing during times of calm.

The prohibition mainly was relaxed in mid-October 2021 "until the island was able to
manufacture adequate organic fertilizer." Sri Lanka abandoned its goal of becoming the world's
first organic agriculture nation in November 2021, citing rising prices and weeks of anti-plan
protests.
The harm to agricultural productivity had already been done by December 2021, with prices for
vegetables in Sri Lanka has risen significantly, and the time necessary to restore from the
problem. Although the fertilizer embargo has been lifted for some crops, the cost of urea has
risen globally as a result of rising oil and gas prices. According to Jeevika Weerahewa, a senior
academic at the University of Peradeniya, the prohibition will lower paddy yield by an
astounding 50% in 2022.

Advancements:
IMF Managing Director Kristalina Georgieva and other senior members of the IMF management
met with a Sri Lankan delegation led by Finance Minister Ali Sabry and Central Bank of Sri
Lanka Governor Nandalal Weerasinghe during the 2022 IMF and World Bank Spring Meetings
in Washington, D.C., and discussed policy actions to address economic challenges. With the
mission, the IMF team for Sri Lanka undertook preliminary technical discussions on an IMF-
supported program.

Masahiro Nozaki, mission chief for Sri Lanka, issued the following statement:

“During April 18–22, the Sri Lankan delegation and the IMF team had fruitful technical
discussions on the authorities’