Amidst falling international currency reserves and soaring prices of commodities, the President of Sri Lanka, Gotabaya Rajapaksha announced a public emergency in the country! Read here to know the Sri Lanka economic crisis and the current situation In Sri Lanka 2022.
Current State In Sri Lanka
On Friday, the Rajapaksha Government issued a special Gazette notification, which declared a public emergency in the country from 1st April 2022!
Amidst the CoronaVirus pandemic, the country is hit by the insufficiency of foreign currencies to pay for imported goods and services. Extended hours of power cuts have been experienced in the households due to the inability of the Government to pay for imported fuel products. This has resulted in children sitting for online classes with kerosene lamps! Following this incident, the country saw a huge protest near the President’s house, demanding he resigns from his position.
Additionally, tourism, one of the main income-generating sources for the country, faced a huge backdrop due to the worldwide restrictions of the Covid-19 pandemic!
The Russia- Ukraine war has also contributed its fair share to the current economic situation in Sri Lanka 2022. Prices of oil have been increased, thus, it becomes tougher and tougher for the country to import oil from the war wrecked nations!
Sri Lanka Economic Crisis: Current Situation Of Sri Lankan Economy
The Sri Lankan economy has fallen into a vicious debt trap. It has to repay $5 billion to China as debt return. It has additional repayment of a $1 billion loan to Beijing as well! The huge repayment of loans is one of the major causes of the downfall in the current economic situation in Sri Lanka in 2022.
Economic experts are fearing that the country might fall into the vicious clutch of bankruptcy this year! According to studies by the Census and Statistics Department, the economy has fallen by 1.5℅ in 2021.
The lack of foreign currency has made it impossible for the traders to pay for imported items, thus, the majority of the imported goods cannot be imported further and people need to sacrifice their food!
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Sri Lanka And Its Creditors
Although it is true that Japan is highly trapped in debt, the situation in Sri Lanka is more fearful! Sri Lanka has borrowed huge sums of money from international nations. The international debt of Sri Lanka is 119℅ of its GDP, which is quite higher than its production!
While Japan has mostly borrowed from the country’s Central Bank, the country of Buddhist culture, Sri Lanka has borrowed mostly from international markets! The biggest share of credit is borne by the International Sovereign Bonds, which account for 36.4℅ of the total debt. Another biggest creditor of Sri Lanka is the Asian Development Bank, which has contributed 14.6℅ of the total debt! Sri Lanka has also borrowed money from Japan, which accounts for about 10.9℅ of the total debt. China has also contributed its fair share in the international debt by about 10.8℅ . Sri Lanka even borrowed $1.4 billion dollars from India initially. Now, it has requested $1 billion more to meet its daily needs!
Impact Of Tourism Loss
Sri Lanka is highly dependent on its tourism sector for much of its income generation! Now, as the whole world was hit by the novel Coronavirus pandemic, the tourism industry of the country was hit badly! The restrictions and regulations on moving from place to place had resulted in the closing of the tourism line. Thus, much of the income source is hindered which resulted in mass unemployment in the country. Following this series of incidents, Sri Lanka’s credit rating companies excluded it from the international economy!
Food Shortages In Sri Lanka
The country is highly dependent on imports for its necessary food items. With Sri Lanka’s declining foreign reserves and a lack of foreign currency, it becomes impossible to continue the importation of necessary food products! Additionally, Colombo has introduced a ban on imported items to reduce the expenses on imported goods, resulting in further food shortages in the country. This has resulted in high demands with low supplies, ultimately leading to high food prices! In order to cut excessive spending, the citizens of the country are looking for affordable food items.
All these factors have led to increasing anger and protests among the people of the country. According to reports, many people have even fallen prey to certain diseases without proper nourishment!
Long queues can be seen outside the shops from early morning to collect enough food to sustain each day in a family! People often engage themselves in fights to gain their fair share of food products.
Additionally, the Government wanted to transform the country into the world’s first fully organic country. In the hope to turn the product fully organic, the Government banned the use of chemical fertilizers. This overnight change in the agricultural sector faced a huge setback by the farmers, which warned of food shortages in the country. Additionally, the cost of imported organic fertilizers was too high for the farmers to afford. The Government paid no monetary help to the farmers for investing in high-quality organic fertilizers! The farmers were also afraid to invest the money as they were unsure about the profits.
What Government Has To Say About The Economic Crisis
In response to the ongoing economic crisis, MP de Silva said that the only way to bring back the stable economic situation in Sri Lanka is to request monetary help from the IMF! Additionally, Agriculture Secretary Udith Jayashinde in one of his statements admitted that they might need help from the neighboring countries for the supply of food grains to feed the women and children of the country.
Government On Economic Crisis
Basil Rajapaksha, the finance minister of Sri Lanka, paid a visit to India to have discussions on monetary assistance from India. It has been reported that India has agreed to lend 1.9 billion dollars! Similar meetings were held with China and Bangladesh as well.
The Rajapaksha government even announced that farmers would be given subsidies and each family would be entitled to receive 15kg of free wheat each month.
Effects Of Current Economic Situation In Sri Lanka 2022
The adverse effects of the current economic crisis have been felt majorly by the citizens of the country. Farmers are facing a huge loss of income, with shortages of production. On the other hand, the closure of the tourism sector has resulted in unemployment among the youths! Food shortages and lack of fuel for the production of electricity have become common issues in the country. The examinations of the students have been postponed. There has been an increasing turmoil in the country! People are demanding the abolition of the Rajapaksha Government.
Conclusion: How India Is Helping Its Neighbouring Nation?
India has never stepped back in helping its neighboring countries in distress. Prior to the economic crisis of Sri Lanka, the RBI signed a $400 million exchange to help Sri Lanka level up its foreign reserves. Additionally, India announced help to the country through a $400 million dollar credit line for purchasing fuel from our country. India has also lent help to the country by providing them with essential food products, daily essentials, and medicines.
We hope that the Sri Lanka economic crisis will end soon and the people of the country will again experience a new beginning, full of colors and joy!
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