Sri Lankan Crisis

-Penned by Ayush Burman

INTRODUCTION

Maldives and Sri Lanka, both highly tourism-dependent nations. Both these economies have experienced a pandemic devastate the country finances. The borrowings of the government this year are expected to linger above 100% of GDP in the two nations. The Maldives was severely affected by the delta variant. In the month of May, the virus infection rate was almost.3% that means3 out of a thousand people were getting infected in one single day. On contrary to that Sri Lanka, which has a population of 21 million, has seen a manageable spike as compared to the Maldives, with only 0.28 new infections for a thousand people. And yet, the Maldives seems to have been coming out of the crisis with the arrival of tourists, with numbers last month exceeding the number for August 2019data. Sri Lanka was already facing the shock of the suicide bomb attack years ago hit tourism even before the pandemic, is falling behind.

Now that the Covid-19 is in the declining stage, and the country has vaccinated around60% of its population with the required two vaccine doses, thanks to the efficient healthcare of the country. Among other popular beach destinations. One of the problems of the Sri Lankan economy now is that the country is quickly running out of foreign exchange reserves— similar to the situation our country had faced pre liberalization period. Things like gold, however, there lies a deeper problem that has led to the downfall of the island nation

THE FRONTIER ECONOMY

Economists have given a special term to the Sri Lankan economy which is called the “Frontier Economy”. It is a kind of an economy that can neither be classified as underdeveloped nor it is big enough to be labeled as an emerging economy. These are the countries that are typically dependent on a few principal economic activities. Here in the case of Sri Lanka, the major economic activities are tourism, team, and other agriculture-related products. The tourism sector in Sri Lanka contributes around 10% of their Gross Domestic Product. We can very well imagine the impact that the country would have suffered due to the pandemic in the last one and a half years

Sri Lanka is facing a severe crunch in its foreign exchange reserves, with only the dollars remaining that could be sufficient to fund the imports in the next two months. By the end of July, the country had just $2.36 billion worth of foreign exchange reserves as compared to $6.93 billion in August 2020. The Sri Lankan rupee has depreciated by 7.5 percent against the US dollar this year. The Central Bank of Sri Lanka has increased the rate of interest to make their currency stronger and by doing this they have become the first country to tighten its monetary policy in Asia. The impact of the BOP crisis has led to the rise in prices of essentials like sugar, rice, onions, and potatoes, while long queues have formed outside stores because of shortages of milk powder, kerosene oil, and cooking gas. The military has been deployed to look after the action which gives power to officials to ensure that essentials are sold at government-guaranteed prices

WHAT HAPPENED EXACTLY?

When the country was fighting an economic downturn, its government decided to go “100% organic.” And in order to achieve the objectives, they completely banned fertilizers.

This decision of the government impacted the tea plantation business of Sri Lanka, which was a principal source of dollar earnings of the country, foreign exchange reserves took a hit once again. According to the study published by Al-Jazeera, Tea is Sri Lankas’ one of the biggest exports, bringing in the flow of foreign wealth of more than $1.25 billion in one year, making up almost 10% of the country’s export earnings and the decision not only affected the tea plantations and farmers dearly but also the allied services and financial sectors related to the tea plantation industry. As a result, the tea industry surrendered as did many other plantations. By the time the government did relax a few restrictions, the damage was already done and the country had lost out on much-needed foreign income

MEASURES TAKEN UNDER EMERGENCY

The emergency provisions allow the government to dictate retail prices for essential food Items and seize stocks from traders who are engaged in black marketing and hoarding.

The emergency law has given the right to the authorities to detain such people without warrants, seize their property, enter and search any premises, suspend laws, and issue orders that cannot be questioned in court. Further, officials who issue such orders are also immune from lawsuits. The military was deployed to oversee the action which gives power to officials to ensure that essential items are sold at the prices which are fixed by the government.

WHAT CAN WE LEARN?

The gradual slowdown and the crisis in the Sri Lankan economy complemented w with the growth of the ethnocracy and concentration of power in the country following the rise of the Sri Lankan Podujana Peramuna (SLPP), which was again launched in the year 2016 and is now led by the politically influential Rajapaksa family that holds the post of both president and Prime Minister.

Last year, the government passed the 20th amendment to the constitution, which further concentrated the powers in the hands of the president and encroached on the powers of the legislature and the judiciary. The government also withdrew from all the efforts that were aimed at reconciliation with the

Tamil minority. It has been alleged that the minority voters were intimidated during the last presidential elections. The Provincial Council elections have been repeatedly postponed to avoid power-sharing with smaller groups, including Tamils. The media and civil society organizations continue to be under pressure from the government.

All these are familiar issues in India, too, where minorities and civil society groups face similar predicaments. Like in India, the Rajapaksas have tapped ultranationalist and majoritarian sentiments to post decisive electoral wins. But unfortunately, despite the political gains of the Rajapaksas and the increasing concentration of power in the executive, the Sri Lankan economy has gone into a tailspin. The political dispensation holding power is in India, too, would do well to recognize the shortcomings of such ethnocratic policies and ensure full protection of constitutional rights to all disadvantaged groups

REFERENCES

https://www.bloomberg.com/markets/fixed-income

https://www.indiatvnews.com/business/news-sri-lanka- economic-emergency-what-caused-the-crisis-explained- president-gotabaya-rajapaksa-732053

https://www.thehindu.com/podcast/why-is-sri-lanka-in- an-economic-emergency-in-focus- podcast/article36380665.ece https://finshots.in/archive/understanding-sri-lankas- economic-crisis/

https://www.theweek.in/news/world/2021/09/13/explain ed-sri-lankas-economic-crisis.html https://theprint.in/opinion/sri-lankas-economic-crisis- worsened-by-hit-to-tea-crop-could-seek-india- help/733620/

https://www.business-standard.com/article/international/sri-lanka-is-facing-a- severe-foreign-exchange-crisis-says-finance-minister- 121090900002_1.html

Aishwarya | Ayush | Bhavya | Jayati | Shivika | Varshita

Apoorva | Jeevan | Priyank | Rajdeep | Sakshi | Shelly | Varnika

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