The island nation of Sri Lanka is going through one of the worst cases of economic crisis. The nation is struggling to pay for the import of essential goods.
The reason behind the economic crisis in Sri Lanka
Like many nations, the COVID-19 pandemic caused great harm to the nation’s tourism sector. However, it is not the only reason behind the economic crisis. Weak government finances, inflation, ill-timed tax cuts, and foreign remittances are some other reasons behind this crisis. The country is struggling as its foreign exchange reserves fell by 70 percent in the last two years. In addition to this, they are also facing a short supply of fuel, daily power cuts, and a food crisis. As a result, international rating agencies have lowered Sri Lanka’s ratings. Several experts believe that it cannot serve its $51 billion debt.
The Sri Lankan economy is currently in the doldrums and it has sought an extra line of $1.5 billion from India for importing essential goods. This is in addition to the $1 billion support extended by India. “Disturbed to see this news. Am asking High Commissioner Baglay to contact and discuss how India can help @IndiainSL,” tweeted S Jaishankar. Jaishankar is the Indian Minister of External Affairs.
More on the Srilanka’s crippling economy
Currently, electricity generation is highly impacted and they can only afford power for four hours a day. The nation’s printing industry has taken a hit, driving publications to reduce production, close or postpone school examinations. However, the crippling economy is the result of structural problems for a long time. The country’s foreign exchange reserves increased mainly because of borrowing foreign currencies. Chinese loans of over $5 billion were for low-return projects such as coal power plants, airports, and port constructions.
In 2019, the government introduced tax cuts and reduced its revenue. Sri Lanka is also facing $4 billion in debt payments this year. One of them is a $1 billion sovereign bond maturing in July.