Sri Lanka’s Financial Meltdown

Sri Lanka is currently passing through its worst economic crises which it had ever witnessed since its independence. The pandemic marked the beginning of this financial turmoil and now the war taking place thousand miles away has completely crushed the economy of the island state.

Since the pandemic raged the world, Sri Lanka was severely impacted because a major chunk of its revenue share comes from tourism sector. Travel restrictions, lockdowns and other similar measures adopted round the globe to contain virus have heavily impacted their tourism revenue. The situation is further aggravated due to soaring oil prices which has given a final blow to their critical financial condition. Sri Lanka relies heavily on imports. From petroleum to food, medicine, paper, among others, the country imports nearly all the crucial essential items. But, owing to their weak foreign cash reserves (due to a host of factors, pandemic and war being the primary ones), the island’s economy is now standing on the brink of collapse. Their forex reserves stand at $ 2.36 bn in Jan 2022, according to Central Bank of Sri Lanka. And, according to PM Mahinda Rajapaksa, $ 10 bn is the Sri Lanka’s expected trade deficit this year which is undoubtedly, way too huge. Additionally, Sri Lankan rupee has plummeted by 45% since March 1 2022 as a result of which they are facing a double digit (galloping/jumping) inflation of 17.5% which is the highest in Asia. Since, the government does not have adequate foreign reserves to buy oil, blackouts and long serpentine queues have become the new normal there. The graveness of the situation could be understood from the fact that recently a motorcyclist was stabbed to death by another driver over a dispute over his place in long queue near Colombo, due to which, army has been posted at petrol pumps to prevent violence from breaking out.

Now, what’s standing ahead?

Sri Lanka is facing solvency issues because of risk stemming from huge debt levels. As a result, authorities have raised interest rates, devalued the currency and has placed curbs on non-essential imports. But the battle remains uphill. Few countries like India have stepped in to help them tackle this crises situation but it would be worth seeing how the island state would replenish its reserves and what steps will it take to bring its bad shaped economy on the right track because such abnormal conditions of pandemic and war are there to exist.

Source : The Hindustan Times