Home Editorial Six Reasons of The Sri Lankan Economy Crisis

Six Reasons of The Sri Lankan Economy Crisis

Six Reasons of The Sri Lankan Economy Crisis

Sri Lanka is now in a terrible economic crisis. General people are rushing to buy fuel, oil, and food. The country has never been in such a dire situation since independence in 1947. The country’s economy has been hit hard by a severe foreign exchange crisis. The situation in Sri Lanka is such that they cannot meet the cost of importing essential commodities. As a result, commodity prices are skyrocketing now. In such a situation, it is said that the country’s economy has collapsed due to six main reasons. Here are Six Reasons of The Sri Lankan Economy Crisis:

Unnecessary Projects

In the last 15 years, Sri Lanka has undertaken several mega projects. Seaports, airports, roads, and various other projects have been undertaken. It will take 25 years to complete the work, and the budget is estimated at one and a half-billion dollars. It is said that the new city will compete with Hong Kong, Dubai, and Singapore. Sri Lanka is implementing this project together with China.


The situation was not created overnight. Instead, this problem has accumulated over the last 15 years. As a result, different governments of Sri Lanka have taken loans from different sources at home and abroad. One of the sources is the sovereign bond. Since 2006, the country’s government has issued sovereign bonds to raise funds. Economists say such sovereign bonds are sold when the cost is higher than a country’s income. Then, such bonds are sold in the international capital market to raise money. That is what Sri Lanka has done.

Tax Reduction

After coming to power in November 1919, Gotabaya Rajapaksa, the President of Sri Lanka, decided to reduce VAT and taxes. As a result, the VAT rate has been reduced from 15 percent to 8 percent. The main reason for the VAT reduction was to give impetus to the economy. But within a few months, the coronavirus epidemic began worldwide. As a result, the income of the government decreases. Again, the coronavirus epidemic affected trade and commerce.

Disaster in Tourism And Remittance Industry

The largest source of foreign exchange in Sri Lanka comes from the country’s tourism sector. Unfortunately, the country is in dire straits as the tourism industry has been shut down for almost two years due to the coronavirus epidemic.

Disaster in Organic Farming

President of Sri Lanka, Gotabaya Rajapaksa, who came to power in 1919, introduced organic farming to the country. That is why chemical fertilizers and pesticides in agriculture are prohibited. As part of this, fertilizer imports were banned in Sri Lanka, causing a bad impact on agriculture. This reduces rice production by up to 20 percent.

Trial To Recover

Sri Lanka needs foreign currency to cope with the current crisis. That is why the country is facing many. The government is in talks with the International Monetary Fund (IMF). The country has devalued its currency by up to 15 percent to get a loan from the IMF. At present, the Sri Lankan rupee is 230 against the US dollar. The country has also applied for more loans from China and India.

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