Sri Lanka economy crisis : Everything you need to know about it

Sri Lanka is currently experiencing a serious foreign exchange crisis, with reserves dwindling and the government unable to cover the cost of necessary imports. Due to soaring food prices, a weakening currency, and fast depleted forex reserves, the Sri Lankan government declared an economic emergency in 2021.

What caused Sri lanka economic crisis?

* The pandemic has taken a toll on the tourism industry, which accounts for 10% of the country's GDP. Several nations, including Canada, have lately issued travel warnings to their nationals about visiting the island country owing to the foreign exchange crisis, which again is a disastrous impact for the business. Inbound tourism to the island country comes primarily from the United Kingdom, India, and Russia.

* The government's decision to ban chemical fertilisers in order to convert agriculture to 100% organic had a negative economic impact. According to experts, the new rule will have a fatalistic impact on agricultural production because organic farming cuts production by half. The rising cost of basics such as rice and sugar, reportedly as a result of "food mafia" hoarding, has contributed to the hardships.

* A key contributing factor of this crisis is a massive foreign debt burden of about $5 billion with China alone. It is repaying Beijing for a $1 billion loan it took out in 2021. It also owes a significant amount of money to India and Japan. Foreign currency reserves accessible to the country as of November were approximately $1.58 billion, down from $7.5 billion when Rajapaksa took office in 2019.

* The supply of foreign exchange was harmed when forex reserves fell from over $7.5 billion in 2019 to roughly $2.8 billion in July 2021, increasing the amount of money Sri Lankans had to pay to buy the foreign exchange needed to import products. As a result, the Sri Lankan rupee has plummeted in value.

* Sri Lanka's strong reliance on imports for basic products such as sugar, pulses, cereals, and pharmaceuticals has exacerbated the nation's problems, as the country is short on foreign currency to cover import bills.