Pandemic has taken a huge hit on the economy of many countries. Luckily, a lot of countries could recover fast from the financial and economical bruises that the coronavirus has caused. But one country that has found it difficult to rebound is our neighbouring country Sri Lanka. The one sector that had to withstand the wrath of COVID-19 is the tourism sector, a sector that contributed a whopping 10% to the GDP (Gross Domestic Product) of Sri Lanka.
At this time, a decision that Sri Lanka took for the greater good was another reason for the greatest loss of the country’s export. Sri Lankan government decided to grow all the vegetables and fruits in their country sans chemicals or fertilizers but organically. Everything good comes with struggle. And Sri Lanka was no exception. Sri Lanka had a bad hit on its most exported product – Tea. The struggles of Sri Lanka started to snowball.
Then came the inflation. Due to the effect of going organic, the country had witnessed a slashed rice crop production that had already turned the price of rice sky-high. With inflation coming into the equation, the price of rice is now around 500 Sri Lankan Rupees which was lesser than 150 Sri Lankan Rupees in 2021. The inflation in the country is currently at 17.5% and is predicted to go up to 18% in the upcoming quarter. The vicious circle of low crop production and increased demand is going to skyrocket the prices fuelled by inflation.
To add a cherry to the melting cake came the Russia – Ukraine war. It was found that 25% of the tourist that visited Sri Lanka were from Russia and Ukraine. Besides, the fuel price soared high due to the same reason. The question is – Could it be any more worse? The answer is a big YES! A big time!
Sri Lanka is tormented with a balance of payment crisis due to the sky-earth inequitable exports and imports. This had left a huge hole in the foreign reserve for Sri Lanka which makes them incapable of even exporting the basic necessities for the country. There is $2.31 billion that is left with Sri Lanka as of February 2022 and unprecedented debt of $4 billion.
To the rescue of the drowning island country came China and India. China provided a currency swap worth $1.5 billion and a syndicated loan of $1.3 billion. On the other hand, India endowed Sri Lanka with a $400 million currency swap and a $1 billion credit line.
The currency swap can help Sri Lanka to borrow in US Dollars and repay with their own Sri Lankan Rupees. That being said, the question is, is this money enough? No, not at all. Sri Lanka is knee-deep in debt of about $51 billion. They need a ship to be rescued, but they are now provided with a life jacket to keep the show running without drowning. The ship that can save them is the IMF (International Monetary Fund) which has promised to have a discussion with Sri Lanka in days to come soon.
But, there would surely be a catch. There would be a set of instructions that Sri Lanka has to abide by if at all IMF ever promises to lend them a helping hand. From the past circumstances, the probable conditions might be:
- The Sri Lankan government may be asked to slash down its spending on welfare programs and subsidies.
- The IMF will urge to provide the Central Bank with more muscle to control the finances of the country with new banking acts injected into the system.
- All loss-making public establishments may be asked to be privatised.
This might be the only way for Sri Lanka to stay afloat. But, for a country where people are already restless due to economic mismanagement, the probability of Sri Lanka riding this road is very unlikely. For sure, Sri Lanka will not be out of this crisis any time soon. That said, what do you think Sri Lanka can do to come out of this catastrophic quagmire?