Sri Lanka has been facing an economic crisis for several years. However, since the beginning of 2022, the crisis has intensified. The prices of all the necessities are skyrocketing. Moreover, a lack of fuel disrupts power generation. How the country will survive in this situation is now speculation! However, the United Nations has advised the government to accept dollars by exchanging currencies with neighboring countries and ensure a temporary basic income for its citizens. The Editorial is about How Can Sri Lanka Survive!
Debt-ridden Sri Lanka finally declared itself financially bankrupt. Since then, there have been calls for the resignation of President Gotabaya Rajapaksa and Prime Minister Mahinda Rajapaksa. However, according to the latest reports, Mahinda Rajapaksa resigned and took refuge in a naval base to escape the people’s wrath.
In 2019, a working paper of the Asian Development Bank (ADB) stated, “Sri Lanka is a classic twin deficit economy.” The twin deficit means that a country’s national expenditure exceeds its national income and its commercial production of goods and services is inadequate. Analysts say the main reason for the failure of defaulting Sri Lanka is the indiscriminate sale of state bonds to foreign investors on a commercial basis. In other words, the Sri Lankan government has sold savings certificates in dollars without considering the past.
These dollar-based savings certificates account for about half of the country’s total foreign debt. However, the Sri Lankan government has failed to pay the installment-based profits of these savings certificates due to the dollar depreciation in the state reserves. As a result, the Sri Lankan government is now reaching out to the IMF for dollars to cover emergency import costs. If the situation improves, the interest on savings certificates will be repaid to foreign investors later. As a result, Sri Lanka is primarily rescheduling loans taken through savings certificates sold in foreign currency. This is about 50 percent of Sri Lanka’s total foreign debt.
Sri Lanka’s economy revolves around three sectors — readymade garments, tourism, and tea. But unfortunately, they have not been able to diversify the economy. And during Covid’s time, countries that relied heavily on tourism suffered the most. The same thing happened in Sri Lanka. In the last two years, they have not been able to generate much revenue from the tourism sector. But they earn থেকে 500 to 600 million a year from tourism.
Tourists have been declining in Sri Lanka since bombings killed more than 200 people during Easter Sunday in Colombo in 2019 before Kovid. However, after the influx of the pandemic, tourists started coming to Sri Lanka, but after the Russian invasion of Ukraine, Sri Lanka suffered another blow. Because a large part of their tourists are Russian citizens. And last but not least, the big market for Sri Lankan tea in Russia. It has not been possible for them to deal with Russia since the war began.
Agricultural production has declined in Sri Lanka. Sri Lanka, a country of 22 million people, has seen a decline in rice and tea production due to the ban on fertilizer use. In addition, the per capita income of the country’s people is more than three and a half thousand. As a result, the wages of the workers are higher. The big challenge is to increase agricultural production by hiring workers at such high salaries. They started mechanization of agriculture but could not increase production till the end.
One of the reasons for the current crisis in Sri Lanka is Rajapaksa’s promise to reduce taxes during the 2019 election campaign. A few months before the Corona epidemic began, the Sri Lankan government implemented a tax cut. That being said, this decision was like a blow to the head.
Sri Lanka has now turned to the IMF and other international bodies in this reality. IMF conditions, India must be in the negotiations. The UN suggests that Sri Lanka can now exchange dollars with other neighbors, including India and China. This news was found in the sources of Financial Times. Sri Lanka has already borrowed 200 million from Bangladesh in exchange for currency. In contrast, they are depositing the same amount of Sri Lankan rupee.
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