The Economic Crisis of Sri Lanka
Sri Lanka has declared a state of emergency, a curfew has been declared across the island and social media websites have been banned. The foreign exchange reserves of Sri Lanka are depleting rapidly, which results in difficulty for the country to import essential consumer goods. In addition to the food shortage, people have to suffer through petrol and diesel scarcity too.
What happened to the Sri Lankan economy?
If a country has a low foreign currency reserve, it is difficult for it to import goods.
Sri Lanka's foreign currency reserves in the month of February were around $2.3 billion compared to January 2020 it had fallen below 70%. Sri Lanka's economy relies on imported goods even for basic consumption products but because of the low foreign currency reserves, it is becoming increasingly difficult to import these goods which lead to rapid inflation in the prices of these basic commodities in the country. In the month of February Sri Lanka witnessed 25% inflation. People are facing difficulties in purchasing necessary things and on top of it there's an electricity problem, a power crisis too because fuel is also imported from other countries. People are facing so many power cuts in Sri Lanka. The power Minister of Sri Lanka has directed the officials to turn off the street lights to save power.
Lanka Indian Oil Corporation (LIOC) has given 6,000 MT of diesel to Sri Lanka so that there will be some relief in the situation. Cooking gas is supplied only once a week and the price of a gas cylinder went up from LKR 3,000 to LKR 4,200. There are long queues outside fuel stations, the situation is so much worse that it has affected the newspaper and printing industries because of the shortage in printing material newspapers, which lead to minimizing the prints. School exams have been cancelled because of a shortage of papers.
Due to this food and economic crisis, people have started fleeing the country. The first set of refugees were found near Rameshwaram. They were a couple with their 4-month-old baby, another woman with her 2 children. They were rescued by the Indian coast guards. They were handed over to the police who then took them to a refugee camp. They said that they had paid LKR 50,000 to the fisherman, to drop them off on an island in the Indian water. Then there were other groups which illegally arrived on Indian shores at different locations in Tamil Nadu's Ramanathapuram district. Tamil Nadu is preparing for more arrival of refugees.
On 17th March, Sri Lanka finance minister Basil Rajapaksa signed a credit line of $1 billion with New Delhi. The line of credit, to be used to import essential items from India for their country so that their situation could be controlled a bit. A $500 million credit line was signed for fuel purchases earlier in the year. India is supporting Sri Lanka in every possible way, India did a currency swap of $400 million. But India is not the only country from whom Sri Lanka has asked for help; they approached China for help too. Sri Lanka is deep in China's debt, Sri Lanka has requested to restructure the debts along with it, and they discussed a $2.5 billion credit line from China. There has been discussion with the IMF and the world bank.
What are the reasons that Sri Lanka's condition is this now?
Around 12-13% of Sri Lanka's economy relied on tourism bases. In 2018 Sri Lanka was one of the world's top destinations for tourism. It was a record-breaking year for Sri Lanka, around 2.3 million foreign tourists visited Sri Lanka. In 2019 there were multiple bombings in the country which is now known as the Easter day bombing, three churches and 3 hotels were targeted across several cities, and 290 people were killed among which 45 were tourists which wrecked tourism.