People are only getting one meal a day, tests are being postponed due to paper shortages, and people are being urged to work from home due to fuel shortages.
Sri Lanka, an island nation, is in ruins. The country’s population is in eye-watering condition. A nation that once aimed to surpass Singapore is now entirely destroyed.
What led to this crisis?
The pandemic isn’t the only cause of Sri Lanka’s problems; the government has also made a number of bad decisions.
After years of economic mismanagement, Sri Lanka’s current issues have emerged. A brief timeline of some of the occurrences that led to the crisis is provided here.
2009 After the civil war, the Sri Lankan government put more of an emphasis on domestic production and sales, which led to an increase in imports while a decrease in exports.
2019 In 2019, Rajapaksa made tax reduction promises to win over voters for the presidential election. Just a few months before the parliamentary election, which would have put his popularity once more to the test, he also announced some significant tax reductions. He reduced the VAT from 15% to 8% and eliminated seven other taxes.
The country lost 10 lakh taxpayers and approximately INR 800 billion in public revenue as a result of these tax cuts.
In addition, in 2020, the country’s credit rating was downgraded as a result of the drastic tax cuts, which led international organisations to deny it credit.
To pay back its debt, Sri Lanka had to use up its own reserves. As a result, Sri Lanka’s foreign currency reserves decreased from $7.6 billion (£5.8 billion) at the end of 2019 to approximately $250 million (£210 million).
2020
In 2020, when the nation was staggering from charge income misfortune, the pandemic came. The pandemic had the most negative effects on the Sri Lankan economy because tourism made up about 10% of its GDP. Tourism’s share of GDP had decreased to 0.8% by 2020, resulting in the loss of over 40,000 jobs.
2021: The government decided to cut back on imports and announced a ban on chemical fertilisers made in other countries due to a rising import bill and decreasing foreign reserves. The ban was implemented to combat the country’s declining foreign currency reserves.
With just nearby, natural composts accessible to ranchers, an enormous harvest disappointment happened, which brought about a food deficiency in the country.
The government’s action backfired because the country lacked the funds to import food and crop failure resulted in a food shortage for the economy. The island nation experienced high food inflation as a result of all of this.
People have been protesting in the streets as a result of the lack of money for fuel and food in the country.
The country owes more than $50 billion, which it clearly cannot repay.
What then, you ask? China and India are attempting to lend money to the neighbouring nation because the island nation is of strategic importance to them. India has granted a $1 billion credit line.
However, Sri Lanka is deeply in debt, so these loans are insignificant. In the end, the nation would have to ask the IMF to help it out of the debt crisis.
It did inquire about the IMF, but it appears that the organisation charged with safeguarding nations’ economic well-being is merely watching from a distance rather than taking any action.
Before lending money to a country, the IMF has historically compiled a list of things to avoid. Like they will request that the nation increment charges, decrease sponsorships, and use open government assistance.
A number of suggestions that are likely to be included in the forthcoming agreement are outlined in the IMF Staff Report, which was made available to the public in March 2022. fiscal consolidation based on revenue by raising tax rates and changing energy prices; restoring the viability of debt; monetary policy tightening toward inflation targeting in the near future; fluctuating and determined by the market exchange rate; and specialised social security nets.
In addition, the fact that the Sri Lankan government defaulted on its debt just a week prior to meeting the IMF team is not surprising. They were clearly designed to do so so that the organisation can set the terms of its loans.
The emergency in Sri Lanka might have been bothered by the pandemic however it most certainly began as a result of the bumbling government.
The benefits of travelling to Sri Lanka in the current situation
- Travel agencies offer Sri Lanka-specific promotional discounts.
- The value of the rupee and the dollar in Sri Lanka has fallen, making international travellers’ travels more affordable.
- The value of their currency offsets the country’s inflation for tourists from other countries.
- Because some nations have issued travel warnings against Sri Lanka, the locations don’t get too crowded.
5. It will now be less expensive for you to purchase that Sri Lankan Batik Silk or Ceylon Tea.
