Why Sri Lanka economic crisis ?
- Bankrupt Sri Lanka asked citizens abroad to send home cash.
- 13 Lankan banks placed on rating watch negative.
- Sri Lanka defaults on 51 billion dollars external debt.
- There is trouble in the island paradise.
- There is no food at least 500 000 Sri Lankans have fallen into poverty in the last few months.
- There is no fuel there are no medicines critical surgeries are being cancelled doctors say the economic crisis may kill more Lankans than covid did there are daily power blackouts and wide-scale protests on the streets.
What’s happening in Sri Lanka is much more than an economic crisis it is a humanitarian crisis.
How did Sri Lanka lose all its money ?
The Sri Lankan crisis has numerous explanations there is a problem with the country’s policy then there is politics factors beyond Lanka’s control what people like to call fate and then there is China the root cause of many problems in Sri Lanka so that’s Why Sri Lanka is poor explained.
we’ll start with policy what’s happening now is a result of years of mismanagement you see there’s a fundamental problem with Sri Lanka it imports, more than it exports it spends more than it earns, there is a trade deficit there’s also a budget deficit this double debt is a perfect recipe for disaster Sri Lanka’s response to this disaster has been disastrous instead of trying to narrow down the deficit the country expanded its debt Colombo borrowed heavily from countries and agencies today Sri Lanka’s debt to GDP ratio is 111 percent (meaning it owes more than it produces).
In 2019 the Asian development bank flagged this problem it said the country’s national expenditure exceeds its national income and that its production of tradable goods and services is inadequate 2019 was also the year Gotabaya Rajapaksa was campaigning for presidential elections among his election promises were deep tax cuts basically (you vote me to power and i will ensure that you pay less tax).
The voters never asked and Gotabaya Rajapaksa never bothered to warn in November 2019 he was elected to office with more than 52 of the vote a series of drastic tax cuts followed ratings agencies raised an alarm they realized Sri Lanka state coffers will soon be bleeding and the country may soon run out of money so Lanka was downgraded to near default levels as a result investors fled the country and it became difficult for Sri Lanka to access international markets but Gotabaya was not done.
He made another blunder in April 2021 he banned all chemical fertilizers why good for health he said, critics rolled their eyes they realized the real problem was not health but shortage of dollars Sri Lanka was saving foreign reserves by banning importer fertilizers the move went on to kill farm output this white rice is a staple in Sri Lanka its production fell by 50 percent around June 2021 Sri Lanka was forced to import rice something like this had not happened in years in July came more bad news Sri Lanka, banned import of luxury goods by now the country was scrambling to save dollars headlines like these made it clear that Sri Lankans needed to brace for storm.
Sri Lanka walked into this storm to an extent what’s happening now is Gotabaya and company’s brand of politics backfiring this family’s return to power was made possible with the support of Sinhala Buddhists the Rajapaksa has tried extra hard to not lose their support in the last three years Sinili’s sentiments were kept in mind when making decisions involving national and international affairs from a pro-market approach Sri Lanka switched to a welfare driven mode it invested in infrastructure because the monks preferred this approach to development Sri Lanka also avoided forming closer ties with India.
The Rajapaksa has chose to move closer to China they’ve always tried to do that they used bilateral debt to fund infrastructure and expand the Lankan military Colombo bet on China to drive the Sri Lankan economy China did send some money but it also exported a Wuhan virus while Sri Lanka was never good with money it was China that ensured Colombo goes bankrupt by 2019 Sri Lanka’s tourism sector was already suffering the eastern bombings had scared of Europeans who would holiday in the island nation then came the Wuhan virus, when borders closed, tourists completely stopped arriving and so did the revenue from tourism.
Sri Lanka depends on tourism for 13 percent of its GDP tourists are also a source of foreign currency in 2020 Sri Lanka managed to welcome just 173 000 tourists in 2018 the number was 2.3 million by 2021 Sri Lanka’s tourism revenue was down to 2.8 billion dollars as against 7.5 billion dollars in 2019 the Wuhan virus also hit remittances Lankans abroad stopped sending money so late 2021 the revenue from tax had fallen agriculture production which accounted for eight percent of the GDP had also fallen tourism revenue had fallen so had remedies and to top it all there was a raging pandemic and foreign agencies were not lending money to Sri Lanka what did Colombo do it turned to its neighbors in June 2021 Bangladesh loaned Sri Lanka 200 million dollars in February 2022 India lent 500 million dollars Sri Lanka could not sustain in march Gotabaya Rajapaksa devalued the Sri Lankan rupee the idea was to encourage remittances and qualify for a loan from the IMF the international monetary fund but as the Sri Lankan rupee plunged against the dollar the people’s purchasing power took a plunge too today one dollar is equal to 320 Sri Lankan rupees the currency has fallen 32 percent since the beginning of this year back home prices have soared inflation is up 30.2 meaning the price of food has increased by more than 30 percent a coconut that would previously cost 50 Lankan rupees now costs 91 rupees prices of onions have gone up from 80 to 158 Lankan rupees for a kilo the price of rice has increased 93 chicken costs 55 more lentils 117 so there is soaring inflation huge piles of debt bleeding foreign reserves and a tanking currency everything that could go wrong with the country’s economy has gone wrong with Sri Lanka so much for all the politics and appeasement today Sri Lankans across ethnic lines are coming together every day to scream go gota go the monks have turned against the Rajapaksa so Sri Lanka economic crisis started .
how much money do Sri Lanka currently has ?
less than 1.94 billion dollars this is as of march and that’s a little over the net worth of kylie Jenner the 24 year old American model but Sri Lanka needs to feed clothe and give security to 22 million people with that money it also needs to repay loans Sri Lanka has about 8.6 billion dollars in debt payments that’s due this year that is 2022 it’s supposed to pay some 78.2 million dollars as interest payments on the 18th of April Colombo has announced that it would be defaulting earlier in April it announced a nationwide emergency as we speak Sri Lankans are fleeing to India as we speak Sri Lanka is in dire need of 20 billion dollars that’s how much it would need for essential imports like food and fuel and to restart exports the question is where will this money come from Sri Lanka is hoping the IMF will bail it out but all money comes with strings attached whichever way the story goes there’s more pain in store for the people of Sri Lanka.
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