Sri Lankan economy has been simmering for a long time and it explodes like Volcano. Its effects have now spill-over not only at the domestic level but also at the International level too. Why did it happen?
Covid-19 Pandemic breaks its backbone— Tourism
The tourism industry has 10% contribution to the Sri Lankan GDP. Tourism from China, India, and Canada plays the quintessential role as most of the tourists come from these places. Covid-19 induced lockdowns, mobility restrictions and hindrances put a break on the tourism industry. This eventually results in the decline of foreign reserves and the crumple of currency value (Position in the world economy).
Myopic and tughlaqi farmans backfire itself
Sri Lankan government without thinking the consequences has put a blanket ban on the fertilizer used farming. THEY DEMAND FOR ONLY ORGANIC FARMING. This step was the biggest mistake by the current government who couldn’t think beyond short term benefits. It creates food shortage crisis for the essential items and disturbs the entire ecosystem of farming industry.
Debt and its interest is rising very exponentially. It has high debt from China which accounts around 10% debt. In the name of Belt and Road initiative, it gets in the grip of easy credit that is taken beyond the ability to handle. Now it has to pay $4 billion to bondholders across the world. That’t a good amount of debt for a small island nation.
Geopolitical tension and hostile environment
Ukraine-Russia war led to the rising of food prices globally as they create supply-chain disruption. The island nation imports a lot of essential products such as wheat, rice, etc. So it causes further erosion of foreign exchange and rise of current account deficit. This work as a double whammy.
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