Records of economic disasters announced in Sri Lanka

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Posted on April 15, 2022 at 7:20 am

There is a line in front of the gas station from early morning, and it keeps increasing all day long. These are the most prominent symptoms of the economic crisis that is devastating Sri Lanka and the worst that Sri Lanka has known since 1948. Every day is a fight, “said Hiranya Cooray, a 35-year-old Colombo resident who came to a demonstration on the Colombo seaside promenade last weekend. Like the thousands of Sri Lankans who have been camping in front of Presidential Headquarters for nearly a week, she has ruled the islands of the Indian Ocean for most of the last two decades of President Gotabaya Rajapaksa and his family. I am seeking the resignation of the clan.

For months, Sri Lanka has been in a crisis spiral, which has been announced. The deadly Easter attack in 2019 and the coronavirus pandemic from 2020 have devastated the tourism industry and robbed the country of a significant plunge in foreign exchange. Foreign exchange reserves collapsed from $ 7.5 billion in November 2019 to $ 1.9 billion in March 2022. Sri Lanka no longer has access to international financial markets as rating agencies downgraded the country in 2020. Instead of restructuring over $ 35 billion in external debt to limit bleeding, the government has opted to limit imports on which the island is cruelly dependent and continue to pay creditors.

Lack of essentials

“The authorities considered the problem to be temporary. This indicates a lack of skills. This decision was not rational. Given its impact on the country, it is It’s a criminal miscalculation, “accuses Nishan de Mel, director of think tank Vérité Research. The island’s 22 million inhabitants are forced to live in a rhythm of power outages and a shortage of essentials, even alerting medical professionals. “We are forced to ask patients to bring their own catheters,” said a doctor at a public hospital in the capital.

Inflation was 18.7% in March and food reached 30%. In just one month, the currency lost one-third of its value. “Our savings are of no value. The government is ruining our future and playing in our lives. Enough,” says Hiranya Cooray. On April 12, Sri Lanka announced an external debt default, allowing it to focus on significant imports.

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Countermeasures against adverse effects

Was this crisis avoided? “When the government came to power in November 2019, we should have been aware of the emergence of an economic crisis,” said WA Wijewaldena, a former deputy governor of the Central Bank of Sri Lanka. To make matters worse, a series of counterproductive measures caused the sinking. In December 2019, the government pushed for a very attractive tax cut, robbing the state of significant cash inflows. “Revenue losses are estimated at about 4% of GDP, resulting in an increase in the budget deficit from 9% to 12% of GDP,” said WA Wijewardena.

Another mistake: The government suddenly banned the import of pesticides in April 2021 in order to save foreign currency and pretending to convert Sri Lanka to 100% organic farming. Since then he has turned back, but no damage. Agricultural production in Sri Lanka has plummeted, jeopardizing national food security. Self-sufficient in rice, he now has to import rice from his neighbors.

Next week, Sri Lanka will begin negotiations with the International Monetary Fund. “But if the government lacks legitimacy and stability, reaching an agreement between creditors and the IMF can be very difficult,” Nishan de Mel warns.