Since the independence of Sri Lanka in 1948, it has never faced such economic turmoil as it faces today. In the month of April 2022, a protest began in the capital of Sri Lanka, Columbia, and spread throughout the country in response to the country’s worst economic crisis; protesters demanded the immediate resignation of government officials. The crisis started with the shortage of fuel and gas, a shortfall of imported goods, especially food products, and the highest rate of inflation. Consequently, Prime Minister Ranil Wickremesinghe, the acting president of Sri Lanka, declared a state of financial emergency in the country. A crisis-like situation in the country resulted from an imbalance of payments, depletion of foreign reserves, debt servicing, a trade deficit, and a fiscal deficit. The current crisis is the result of a series of events that pushed the country into economic turmoil.
Foreign reserves declined by 70% from January 2020 (to around $2.3bn) to February 2022, while the country ought to pay $4bn in debt repayment in the rest of the year; foreign debt will reach $51bn by 2022, which is about 94% of GDP. Similarly, the inflation rate reached a record high (50–60%) in the months of July and August. Similarly, load shedding has reached 20 hours per day, and gas and LNG shortages have reached an all-time high. Likewise, the currency of the country has depreciated to a record high, and today, 1 USD is equal to 360 Sri Lankan rupees. Apart from the above, the country faces acute hunger and health issues.
The reasons behind this crisis are two-fold: immediate reasons and long-term reasons. The immediate reasons are the outbreak of the Russia-Ukraine War and COVID-19. while long-term reasons include flawed government policies, terrorism, climate change, dependency on foreign loans and aids, inefficiency in the agricultural sector, and a constant increase in the trade deficit.
The outbreak of the Russia-Ukraine War has adversely impacted the whole world, but especially those states that are dependent for their food products on foreign imports. Similarly, Sri Lanka is one of them; it exports hydrocarbons, gas, and electricity from foreign states. Besides energy products, Sri Lanka’s food imports include wheat, lentils, sugar, fruit, milk, milk products, oil, seeds, oil nuts, and oil kernels, fruits, and fish. Sri Lanka was once the world’s least rice-sufficient country, but today it is dependent on imported rice. So the Russia-Ukraine war disturbed the food supply chain because Russia alone imported 30% of global wheat and both states imported 70% of global sunflower oil, and such exports suddenly stopped across the world, thus many countries stopped food imports to secure their own states. Resultantly, the prices of food products increased, and thus Sri Lanka could not import food; therefore, the country experienced acute hunger and food insecurity. Similarly, the world is dependent for their energy on both Russia and Ukraine, especially European countries, so due to the war, the energy supply chain was interrupted and the price of petrol and gas suddenly increased, so Sri Lanka was unable to afford such a price hike and therefore experienced an energy crisis in the country.
Before the outbreak of the Russia-Ukraine War, Sri Lanka’s economy was hit by COVID-19. The world economy never saw such a setback after World War 1 as it did during the pandemic. Sri Lanka is among those nations whose economies are dependent on tourism as Tourism in Sri Lanka accounts for nearly 12% of the country’s GDP and is the third-largest source of foreign exchange reserves; however, tourism was severely impacted during COVID-19, and a significant portion of the country’s GDP and foreign reserves were lost; as a result, the country has been in economic turmoil since 2020.
Another reason that badly affected the tourism sector was the rise of insurgency in 2018. Different attackers attacked the country with suicide bombings. Various people were killed, and many others were injured. That uprising created fear and chaos in the country. Consequently, tourism was affected more than any other sector, as tourists preferred not to travel to Sri Lanka.
Besides the above reasons, some policies of government officials also pushed the country into economic turmoil, e.g., the policy of organic agriculture and tax reduction policy. According to the organic agriculture policy, government officials banned the import of fertilizers and pesticides to produce natural agricultural products at a minimum cost. The policy was not a bad initiative, but it reduced the production ratio because fertilizers and pesticides are mandatory for speedy and more production. Due to this policy, officials pushed the country from a rice surplus state to a rice-importing country. Similarly, the tax reduction policy was a good initiative to attract more and more investors, but it was implemented at the wrong time, and the country has been thrown into economic turmoil as a result.
Long-term reasons behind this crisis include consistent dependency on foreign labor and aid, an increasing rate of fiscal deficits, long-standing political instability, a poor sector of agriculture, and maximum dependency on imported food. In this way, both short-term and long-term reasons pushed the country into an economic crisis that has far-reaching impacts on the country both in the short term and the long term.
Great powers of the world especially USA, China, UK, India, and EU are primarily duty-bound to provide economic assistance to Sri Lanka immediately. Such aid must not be in the form of a loan but on the basis of humanitarian grounds to protect the people of Sri Lanka. Similarly, world economic institutions, especially the IMF, World Bank, and Asia Development Bank, are equally responsible for providing economic aid to the country under easy and simple conditions. Similarly, great leaders must think about where the world is moving. This is not only in Sri Lanka, what happening in Afghanistan, Palestine, Iran, Pakistan, and many other low-economic states. It is time to re-think, stop unnecessary wars, and protect humanity before it is too late.
Sri Lanka’s policymakers, on the other hand, must think and rethink their political and economic policies. They should ensure and provide maximum safety to tourists in order to promote tourism, which has the potential to boost the state’s economy. Similarly, the agriculture sector needs reforms, therefore the induction of advanced technology in the agricultural sector is the need of the hour to reduce food dependency on foreign products. The like-wise trade balance is needed at the minute to maintain the balance of foreign reserves. Moreover, the government must ensure and attract foreign investors to the country to attract more and more foreign reserves. And last but not least, the country ought to move toward green and clean energy to reduce dependency on oil and gas imports as well as protect the country from climate-related risks and disasters.
