An update on the Sri Lankan Economic Crisis.
This is an article about the ongoing economic crisis in Sri Lanka. Due to the unpredictable nature of the present situation, the data is bound to change. In order to maintain consistency, the latest data available on 23rd May 2022 has been used.
All eyes are on Sri Lanka as the country continues to go through a financial and economic crisis, one that has been prevalent since 2019. The island nation with a population of 22 million is suffering from its worst economic downturn since gaining independence in 1948. According to experts, the crisis has been years in the making. Sri Lanka’s economy has had systemic problems for a very long time, and Rajapaksa’s government only found short term solutions for the same after assuming power in 2019.
Over the past ten years, the country has borrowed vast sums of money from foreign governments to fund public services. In addition to the borrowing splurge, Sri Lanka had to endure many strikes to the economy in the form of natural disasters, man made catastrophes as well as a government ban on chemical fertilisers that wreaked havoc on the harvests. Shortly after, in 2018, the President’s dismissal of the Prime Minister sparked a constitutional crisis. To add to their woes, hundreds of people were killed in the 2019 easter bombings which severely affected the tourism in the country and 2020 marked the year of the pandemic which contributed to the mountain of problems the country was facing. President Gotabaya Rajapaksa resorted to a tax cut in a failed attempt to restore the country’s economy. However, this proved to be counterproductive. Sri Lanka then had to depend on its foreign exchange reserves to pay off its government debt, decreasing its reserves to around Rs. 200 crores, which originally started off as around Rs. 600 crores in 2018. The Sri Lankan Rupee has plunged to a record low against the US dollar.
As of 23rd May 2022, Doctors in Sri Lanka have declared a medicine shortage and are forced to postpone life saving procedures amid the economic crisis. With 80% of its medical supplies being imported, hospitals do not have the necessary drugs to treat their patients as imports have been held off. Meanwhile, work from home is being encouraged in the nation to manage the fuel crisis as petrol and diesel now cost Rs 420 and Rs 400 a litre respectively. India has delivered around 40,000 metric tonnes of petrol to Sri Lanka, days after supplying 40,000 metric tonnes of diesel under the Indian credit line to help ease the acute fuel shortage in the debt-ridden island nation.
Effect on the Sri Lankan people
The citizens of Sri Lanka have to wait in line for basic goods, most of which are rationed. Shops are not able to operate fans, fridges or air conditioners and are forced to close due to the frequent power cuts. Over 350 non essential items are now banned for import which include milk, oranges as well as household appliances. In addition to this, the limited supply of goods is getting increasingly expensive. The price of cooking gas is three times higher than it was five months ago. The country has also increased prices of commonly used medication, the second such rise seen in the last two months. Antibiotics, painkillers and certain medicines for heart conditions are those that have been hit by a 40% markup. Health workers fear that this medicine shortage is forcing the citizens to buy less than prescribed. News reports said the exams in Sri Lanka were cancelled because there was a shortage of paper. In addition to this when the Sri Lankan government decided to ban the import of chemical fertilisers in an attempt to make the nation the first in the world to practise “organic only” agriculture, the farming community expressed concerns. Consequently on seeing a significant drop in the agricultural output, the government lifted the ban. However, the damage was already done. The cultivation of tea, the linchpin of the economy, was affected tremendously. The output of vegetables went down by 30%. This forced the country to depend elsewhere for rice and other staples. In reaction, there have been many violent clashes with the protesters and the police force, leading to the government declaring a state of emergency. With the prices of basic goods plummeting, Sri Lankan Tamil refugees are crossing the sea and arriving in Tamil Nadu. An estimated 2000-4000 refugees may land in the southern state of India, a news report said.
Sri Lanka’s high commissioner Milinda Moragoda met finance minister Nirmala Sitharaman to discuss the issue of India’s support in the economic crisis Sri Lanka is facing. India has so far provided Sri Lanka with a financial aid of almost 2.5 billion dollars, which included a $500 credit line in February for purchase of fuel and another $1 billion line of credit to buy food, medicines and other essential items.
Sri Lanka is now looking for outside help to ease the economic turmoil, mainly India, China and the IMF. With a lot of uncertainty as to what comes next and the prices of essential items changing every day, only time will tell how Sri Lanka deals with this situation.
–Mrunmayee Joshi (FY BSc, 2021-24)