Page 82 - Final Magazine 2021-2022 original.cdr

Economic Crisis in Sri Lanka
Jyoti Choudhary
(S.Y.B.Com.)

(This Essay was awarded the Second Prize in 'Arth-Utsav', 2022' organized by the Department of
Economics, Nagindas Khandwala College, Mumbai)

IIn January 2021, the Sri Lankan government officially declared that the country was hit by the worst
economic crisis in its 73 years of history. How did a country which in recent years was doing well on all
economic fronts, as well as on human development indices, come to face such an unprecedented crisis?
Mul ple compounding factors like tax cuts, money crea on, a na onwide policy to shi to organic farming,
the 2019 Sri Lanka Easter bombings, and the impact of Covid-19 pandemic on the Tourism industry of Sri
Lanka are listed as the most likely causes.
In 2009, Sri Lanka's civil war ended and the country chose to focus on providing goods to its domes c
market, instead of trying to boost its foreign trade. This meant its income from exports to other countries
remained low while the bill for imports kept growing and as a result the country ran out of foreign currency.
In 2019, significant tax cuts were introduced draining government revenues. This was part of a populist
agenda that was used to win the 2019 Presiden al elec on and the subsequent 2020 Parliamentary
elec ons. The cuts in taxes led to 'budget deficits' soaring from 5% in 2020 to 15% in 2022. The monetary
policies led to infla on which in turn triggered unrest and protests as ordinary Sri Lankans could not afford
the high cost of living.
Worse s ll, the country was on the verge of bankruptcy, as the remaining foreign reserves of US $ 2.3 billion
(as of March 2022) were not enough to pay its debts. The na onal infla on rate increased to 17.5 % in
February 2022. Sri Lanka depends heavily on imports to meet its various needs such as petroleum, food, paper, sugar, len ls, medicines,
and transporta on equipment among other essen al items. Lack of foreign currency implies that the country does not have the money
to import these commodi es. The Sri Lankan government also claims that the tourists were frightened off by a series of deadly bomb
a acks in 2019. In 2020, the Covid-19 pandemic hit, severely affec ng Sri Lanka's tourism industry which accounted for 10% of Sri Lanka's
GDP resul ng in a further dip in the forex reserves of Sri Lanka.
Early in 2021, when Sri Lanka's foreign currency shortages became a serious problem the government decided to make their country the
first to produce their foodstuff from '100% Organic Farming' by banning imports of chemical fer lizers. Farmers were instructed to use
locally sourced fer lizers which resulted in widespread crop failure. Sri Lanka then had to supplement its food stocks from other
countries and this made the foreign currency shortage even more acute.
The economic crisis accompanied by a severe food shortage and a rise in food prices forced the government to impose an economic
emergency on August 31, 2022. The ongoing 'Russo-Ukrainian' conflict became another factor that affected the already precarious
economic condi ons of Sri Lanka as it has a large number of Russian and Ukrainian tourists and because Russia is the 2nd largest market
for Sri Lanka for tea exports.
Many experts blamed President Rajapaksa's economic mismanagement and hence in April 2022 protests began in Colombo demanding
President Gotabaya Rajapaksa's resigna on. In May 2022 food infla on increased by over 57% and in the following month the
Interna onal Monetary Fund (IMF) arrived in Sri Lanka to discuss a poten al bailout.
The Sri Lankan economic crisis has given a new life to the Indo-Sri Lankan es which have been under strain for decades. On March 18,
2022, India extended a USD 1 billion line of credit to Sri Lanka to help the country deal with the economic crisis and proved itself to be
more reliable than China as Sri Lanka had sought help in its crisis from both China and India.
Experts opine that Sri Lanka's forex reserves have reached bo om-low and it faces moun ng challenges in the form of rising
unsustainable public debts, low interna onal reserves, and the need for large financing in coming years. Thus, there is a need for
ambi ous fiscal consolida on based on high-quality revenue measures, raising Income Tax and VAT rates and minimizing exemp ons,
complemented with revenue administra on reform. Overall, the na on requires immediate economic reforms in order to have a stable
economic health in the long run.

Why Are We Brought Up Like This….
Isha Jain
(SYBAF)

Not showing it on the shell, Yet, burning inside like hell.
Figh ng out each day all aloneNot able to find someone one's own
Ba ling insecuri es and pretending to be strong For once can I just be on my own?
Does it ever get be er? Sooner than later.

At each stage I ques on myself Why are we never taught to care for ourselves?
To hide our pain is what we are always taught
2021 - 2022 Is this why in this world we are brought?
72 A HINDUJA HORIZONS