The aftermath of Sri Lanka’s economic crash
- For nearly a year now, many in Sri Lanka have been fervently chanting three letters — IMF (International Monetary Fund).
- As the country’s familiar balance of payments problem escalated last year, citizens experienced crippling shortages and painfully long power cuts.
- They took to the streets in a staggering mass protest and ousted the Rajapaksas, who they held responsible for their suffering.
- The chant, seeking IMF support, persisted through these dramatic developments.
Factors for Sri Lankan Economic Crisis :
- The Covid-19 Pandemic that put the tourism industry on hold. It accounted for 10% of Sri Lanka’s GDP.
- Dip in other sources of revenue led to high cost in importing of essential items, including food.
- A depreciated currency, high dependence on imports and hoarding led to a steep rise in food prices in Sri Lanka.
- The Hambantota port was another white elephant project by the present government to shorten its economic woes. Instead it only further increased the debt problem that Sri Lanka faced as it had taken $1 billion from China.
- The ongoing Russo-Ukrainian Conflict also is a factor which is affecting the already precarious economic condition of Sri Lanka.
- The reason is that the both the Sri Lankan tourism relies on arrivals from Russia and Ukraine
- Russia is also the second biggest market to Sri Lanka when it comes to tea exports.
- Thus, the war in the Ukraine put a serious dent in the path of economic recovery of Sri lanka.
Looking for a bailout :
- Mr. Wickremesinghe recently announced that his government had completed 15 tasks prescribed by the IMF, in preparation for its assistance.
- The IMF’s provisional $2.9 billion package will come through by end of this month, he said.
- In fact, Sri Lanka had hoped to tap it by the end of last year, or at least in January this year, but the process had dragged on.
- One of the main reasons for the delay had to do with written financing assurances from China, Japan, and India, Sri Lanka’s top three bilateral creditors.
- The IMF had made its programme contingent on their cooperation.
- India took the lead and sent its assurances to the Fund this January, with the Paris Club group of creditors, which includes Japan, following suit.
- China’s written financing assurances alone are pending.
- The bankrupt nation that defaulted on its $51billion external debt last year hopes that with an IMF programme, it can borrow again.
- After falling into a cycle of indiscriminate borrowing, especially in the last 15 years, Sri Lanka finds itself in a position where its problem, and its solution, look eerily similar at this point.
Tackling corruption :
- It is corruption that led Sri Lanka to this precipice in the first place.
- Corruption, coupled with the state’s tendency to implement “populist” welfare programmes that are “unsustainable”, made the country’s economy fragile over time.
Food insecurity :
- Over the last year, poor families have been forced to reduce their food intake drastically.
- Soaring prices have kept eggs, fish, and meat out of reach for many, raising concern among medical practitioners over nutrition levels in the community.
- With inflation persisting over 50%, half of the families in Sri Lanka are forced to reduce the amount they feed their children, humanitarian organisation Save the Children found in a recent survey.
- Additionally, they warned of a “full-blown hunger crisis”.
- The World Food Programme, in its January update, estimated that 33% of Sri Lankan households are food insecure.
- The country is currently witnessing a new wave of protests, mainly by workers and professionals, as people’s economic hardships increase.
Syllabus : Mains; GS 2 – International Relations