Highlights:
- Sri Lanka is reeling under an appalling economic crisis owing to a serious balance of payments (BoP) problem.
- Upsurge in fuel prices, 13-hour blackouts, suspension of routine surgeries, low-income workers moonlighting for survival, hus protests – Sri Lanka’s economic meltdown wreaks havoc.
- Thousands of protestors gather outside President Rajapaksa’s residence in Mirihina demanding his removal shouting slogans like “Go home, Gota go home” and “Gota is a dictator”.
Sri Lanka is teetering at the brink of a financial collapse resulting from mismanaged government funds and ill-timed tax cuts apart from the horrendous impact of Covid-19 that hit the vital tourism industry. Sri Lanka’s economy was in trouble long before the pandemic struck. Since 2010, the nation witnessed a sharp rise in foreign debt extending up to 88% of the country’s GDP (Gross Domestic Product) in 2019. The pandemic induced global recession accelerated and magnified the crisis and by the end of 2021, the foreign debt rose to 101% of the nation’s GDP unleashing its worst economic crisis since 1948.
Sri Lanka’s economic hardship can be traced back to the incessant policy errors made by the Sri Lankan Government under President Gotabaya Rajapaksa. Untimely tax cuts adversely impacted the government revenue and budget deficits skyrocketed from 5% in 2020 to 15% in 2022 owing to fiscal policies. The government turned a deaf ear to the IMF’s (International Monetary Fund) advice to put a halt to printing money, bump up interest rates and raise taxes while cutting spending. This landed the nation in a neck-deep economic crisis.
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The present situation in Sri Lanka is worsening with every passing hour. To facilitate an orderly distribution of fuel, the Sri Lankan army has been deployed at every petrol station where men and women wait in long queues to purchase petrol and kerosene. The cost of cooking gas rose by approximately 1,400 Sri Lankan rupees with gas cylinders now priced at a whopping 4,200 Sri Lankan rupees.
This queue was longer than this, just managed to capture only this part, in Grandpass this morning. The queue is mainly for kerosene since there has been no gas in the market and sometime back, 12.5 kg was sold for Rs 5500.#SriLanka pic.twitter.com/IhMu0OWbDy
— Kavinthan (@Kavinthans) March 19, 2022
The nation’s forex reserves have been depleted by 70% in the past two years from $8 billion in 2020 to $2.3 billion in 2022 deepening the financial crisis and leaving the government grappling to pay for essential imports like food and fuel. A critical shortfall in foreign currency has left traders incapable of financing imports. The Healthcare sector has also been severely impacted as a result of the failing economy. With a hike in medicine prices, the majority of people are resorting to self-medication which could eventually lead to high morbidity (according to WHO).
Sri Lanka’s inflation has already hit 17.5 per cent in February along with a 30.2% food inflation in March. This has compelled supermarkets to ration staple foods including, but not limited to rice, sugar and milk powder.
Amid this heart-wrenching ordeal, thousands of protests are being carried out calling for the resignation of Sri Lankan President Gotabaya Rajapaksa. The protestors allegedly stoned two army buses that hindered entry into his residence in Mirihina and also reportedly set a bus on fire. Police resorted to tear gas and water cannon to disperse the mob.
Tamil Nadu CM, M K Stalin met Primi Minister Modi seeking permission from the Centre to provide humanitarian aid to Sri Lankan Tamils who are fleeing the nation and proceeding towards the state of Tamil Nadu through the sea route.
Sri Lanka has turned to the IMF seeking a bailout and has also reached out to China and India for financial help. Beijing and New Delhi are reportedly considering lending $1.5 billion in credit facilities in addition to loans worth billions of dollars as requested by the Rajapaksa government. The IMF will soon be initiating dialogues with Sri Lankan authorities on a possible loan program. Reports suggest that the island nation of 22 million people might also reach out to the world Bank seeking assistance following entry into an IMF program.
Power Minister, Wanniarachchi mentioned that Sri Lanka is expected to receive a diesel shipment under a $500 credit line from India on Saturday. The CSE (Colombo Stock Exchange) halted trade for the second day in a row. The CSE All-Share index ended down 4.21% at 8,903.87 points marking the worst quarter of performance since December 2008.
