There have been mass public agitations against the ruling Rajapaksa family for its misrule of the economic situation prompted by the foreign exchange crisis and the balance of payment issues. The Sri Lanka government doesn’t have any dollars left to import fuel or even medical supplies. Exams were cancelled because of no money to import papers. Finally, people took to the streets and there was severe turbulence in the country. Sri Lanka has declared an “Economic Emergency” in its country. The country’s foreign exchange reserves have fallen steeply in the past 4 years.
The government tries to generate money by selling bonds but only 8 per cent of bonds were sold. Since 2019, the Sri Lankan rupee has lost 20 per cent of its value in the past year against the US Dollar. This has raised the price of essential commodities steeply whereas the government doesn’t have enough money to buy food from external sources. The fear can be easily seen because the government has appointed a former army general as commissioner of essential services, who will have the power to seize food stocks held by traders and retailers and regulate their prices.
As of February, the country was left with only USD 2.31 billion in its reserves but faces debt refunds of around USD 4 billion in 2022, including a USD 1 billion international sovereign bonds (ISB) maturing in July. ISBN make up the largest share of Sri Lanka’s foreign debt at USD 12.55 billion, with the Asian Development Bank, Japan and China among the other major lenders.
Pressure cumulative on Rajapaksa brothers to resign. One dynasty that Sri Lankans believed in the betterment but got disappointed to the core. The Rajapaksa have accumulated enough wealth, they have their safe abode in foreign lands but the citizens of Sri Lanka are deprived of two-time meals. There is skyrocketing inflation. Sri Lanka has been suffering from a grave economic crisis for a few days now. The tourism sector contributes 10 per cent to the Sri Lankan GDP. A large chunk of foreign reserves comes from foreign tourists. But after the 2019 Colombo church bombings, it decreased sharply and later the lockdowns reduced it to zero.
Sri Lanka refused to take help from the IMF, which may be due to its stringent conditions but there could also have been pressure from China and depended on Chinese loans only for financial support. The Sri Lankan government took a populist measure of reducing the Tax slab to half and increasing the threshold of tax registration. This step significantly reduced the income of the government. Sri Lanka’s whole economy predominantly revolves around tourism. Although there are other services or industries also which make up the list for their economy, they’re wholly dependent on tourism. This is where the pandemic has hit them hard.
Sri Lanka kept taking loans from other nations or the world lending banks. This increased the pressure on their economy. Sri Lanka already has nothing to do with exports and they kept Increasing their import ratios. Hence this also resulted in an increase in trade deficits. They still have to repay two loans of USD 1.5 billion each. Factories shut down due to COVID-19 lockdowns, its exports almost went down 75 per cent. Sri Lanka has recently grown ties with China, but China has not shown interest to offer any bailout.
The Sri Lanka government’s decision to ban chemical fertilizers to make agriculture 100 per cent organic had a negative impact on the economy. Agricultural production is being hit by the new law as organic farming reduces production by half.
For months, Rajapaksa’s administration and the Central Bank of Sri Lanka (CBSL) resisted calls by experts and opposition leaders to seek help from the IMF despite rising risks. But after oil prices soared in the wake of Russia’s invasion of Ukraine in late February, the government eventually drew up a plan to approach the IMF in April.
Meanwhile, India announced to encompass a USD 1 billion line of credit to Sri Lanka as part of its financial assistance to the country to deal with the economic crisis following a previous USD 500 billion line of credit in February to help it purchase petroleum products. Sri Lanka is also negotiating with the International Monetary Fund for a bailout.