Sri Lanka is facing its worst economic crisis since independence, with long queues in front of petrol stations, steep rise in prices of essential commodities and frequent blackouts.
Many Sri Lankan nationals are also fleeing to other countries to escape the crisis.
Problem of Foreign Reserves or BOP
Lockdown Hits Tourism Industry
o The tourism industry has been bringing much of Sri Lanka’s forex but Covid-19 induced restrictions brought a drop in tourism which contributed 10 % to its GDP.
However, the 2019 serial bomb blasts in Colombo already impacted the tourism sector of the country.
Failed Policy of Organic Farming
o In its aspiration to become the world’s first 100-percent organic farming nation, the Sri Lankan government banned the import of agricultural chemicals and fertilisers last year.
o The island nation tried to reduce its dwindling foreign currency reserves but it emerged as a big blunder.
o The ban on fertilisers resulted in crop failure and massive protests by farmers against the government.
o According to a report, over one-third of Sri Lanka’s agricultural land was left fallow after the import ban last year.
o The country’s economy was already in a spiral of debt and the scheme added to the crisis as Food inflation in Sri Lanka hit a record 21.5 percent in January 2022.
Sky-rocketing Inflation
As per the data released by the Sri Lanka government, the country recorded 15.1% inflation in February 2022 and now has reached 25.7%.
The budget deficit was also expected at 10.7% of GDP in 2022 after an 8.9% of GDP deficit in 2021.
Spiralling debt
Other factors
-A lack of foreign currency means the country does not have the money to buy (import) these commodities.
-Forced tens of thousands of people to queue for hours outside petrol filling stations.
As part of its measures to tackle the crisis, the Sri Lankan government has sought India and china’s assistance
Indian intelligence agencies believe that as unemployment and skyrocketing inflation drive more and more people to desperation in coming days, the numbers of refugees are likely to only increase.
Can India handle it?
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