Sri Lanka: Why is the country in an

economic crisis?

Introduction :

Sri Lanka is an island nation located in

the Indian Ocean, just off the
southeastern coast of India. Despite its
modest size. Sri Lanka has a population
of about 20 million people and The Sri
Lanka economic crisis is an ongoing
crisis in Sri Lanka that started in 2019. It
is the country's worst economic crisis
since independence in 1948. It has led to
unprecedented levels of inflation, near
depletion of foreign exchange reserves,
shortages of medical supplies and an
increase in prices of basic commodities,
Sri Lanka failed to defend their currency
further shrank Sri Lankan foreign
reserves to $6 Billion by 2016 in 2020,
S&P global rating set Sri Lanka's
existing funding sources did not appear
efficient to cover its debt servicing needs
estimated at this over $4 million in 2021.
in the face of massive protest, President
Gotabaya Rajapaksa resigned in June last
year. Prime Minister Ranil
Wickremesinghe became acting
president.

Context – Your Understanding :

My understanding of the problem

There are a number of factors that
have contributed to Sri Lanka's
economic crisis. These include:

Economic mismanagement: The Sri

Lankan government has been accused of
economic mismanagement for many
years. This includes spending beyond its
means, borrowing heavily, and engaging
in corruption.

External shocks: Sri Lanka has also

been hit by a number of external shocks
in recent years, such as the COVID-19
pandemic and the war in Ukraine. These
shocks have disrupted the country's
tourism industry and made it more
difficult and expensive to import goods.

High foreign debt: Sri Lanka has a high

level of foreign debt, which makes it
vulnerable to changes in the global
economy. The country's foreign debt
payments are due to increase
significantly in the coming years, which
will put further strain on its budget.

Main Problems :
1. Electricity and fuel shortages : The
economic crises has resulted in declines
in electricity, fuel and cooking gas
consumption, resulting from shortages.
In order to conserve energy, daily power
cuts have been imposed by the
authorities throughout the country.
Daily seven hour power cuts were seen
throughout March 2022, increased to 10
hours at the end of the month and again
increased to 15 hours in early April. As
of July 2022, the daily power cuts were
reduced to 3 hours a day.
2. Education and Health : In March
2022, several schools in Sri Lanka
announced that their term/mid-year
examinations would be postponed
 indefinitely, due to paper shortages
throughout the country mainly triggered
due to the lack of foreign reserves to
import paper. Many hospitals have also
apparently suspended routine surgeries
and have also reduced a large number of
laboratory tests. Other state-run
hospitals were also reported to be
running out of life-saving medicines.

Which led to the breakout of protest in

the capital, Colombo in April 2022.

Root Causes of the problem :

The root cause of Sri Lanka's
economic crisis is a combination of
factors, including:

Economic mismanagement: Successive

governments have mismanaged the
economy, leading to a twin deficit,
meaning that the government's spending
exceeds its revenue. This has led to a
high level of public debt, which is now at
around 110% of GDP.

Tax cuts: The Rajapaksa government

implemented large tax cuts in 2019,
which further eroded government
revenue and exacerbated the budget
deficit.
COVID-19 pandemic: The COVID-19
pandemic had a devastating impact on
Sri Lanka's tourism industry, which is a
major source of foreign exchange
earnings. The pandemic also disrupted
global supply chains, making it more
difficult and expensive for Sri Lanka to
import essential goods.

Organic farming policy: In 2021, the

Rajapaksa government suddenly banned
the import of chemical fertilizers and
pesticides, in an attempt to force farmers
to switch to organic farming. This policy
led to a sharp decline in agricultural
production, which further exacerbated
the country's economic problems.
The COVID-19 pandemic and the
organic farming policy have exacerbated
the crisis, but they are not the root cause.
The root cause is economic
mismanagement.

Solution For The Main Issue :

As the new acting president of Sri Lanka,
found the solution to resolve this crises
by taking help from the other
neighboring countries like China which
gave them $7 Billion aid and India has
given an aid of $1 billion, by which the
IMF (international monetary fund) has
agreed to lend Sri Lanka $3 billion.
From this much money they can raise
their tax to pay critical purchases
including food and fuel and they are
starting to the national airlines which will
also help to pay loan that they have taken
from other countries, and this will help to
rebuild their economy which can resolve
the problem of crisis economic crisis
which is happening in Sri Lanka.