Updated: Aug 9
Everybody around the world witnessing the chaos in Srilanka wants to know what is happening in Srilanka and why it all happened. A small country with a population of 22 million located in Indian Ocean on the global map has become the center of attention of everyone.
The country is facing political turmoil owing to economic crisis and the government has declared bankruptcy. The Rajapakse regime being in power for almost two decades government blamed the covid pandemic, which affected Sri Lanka's tourist trade - one of its biggest foreign currency earners. It also says tourists were frightened off by a series of deadly bomb attacks in 2019. However, many experts blame economic mismanagement.
The governments in Srilanka since the end of the civil war in 2009 focused more on importing goods for its domestic consumption rather than improving the foreign trade and increasing exports. It currently imports 3 billion dollars of goods more than the exports on annual basis.
The inflation in the country is at an all time high of 54.6 percent. The prices of everyday goods have risen steeply. The gas stations have all dried up. There is no fuel available for public transport and the government doesn’t have foreign exchange to import fuel. There are widespread power cuts too. Non-availability of essential medicines has led health system on the edge of collapse. The food crisis is also expected soon too. The country failed to meet its obligation of paying interest on its foreign debt amounting to 78 million dollars in May 2022. The country has accumulated a foreign debt of 51 billion dollars. The foreign reserves which stood at 7.6 billion dollars in 2019 have shrunk to 250 million dollars now.
Way out of Economic Crisis
· Srilanka has a total debt of 51 billion dollars out of which it owes 6.5 billion dollars to China and the two are negotiating on how to restructure the debt
· World Bank has offered 600 million dollars to Srilanka for essential imports in the short term
· India has decided to extend 1.9 billion dollars
· G7 group countries have announced to support Srilanka’s efforts to reduce debt repayments
· IMF is currently negotiating a deal with government of Srilanka for a 3-billion-dollar loan facility
· State Enterprises like Srilanka Airlines will be privatized
· Srilankan government has requested Qatar and Russia for the supply of oil at reduced prices to help mitigate the fuel crisis
However, both economic and political stability are linked to each other, and the economic stability will only be achieved once the political turmoil comes to an end and a government is in place that the majority of its citizens supports.