Sri Lanka economic crisis 2022: Protests are taking place in Sri Lanka. Over the government’s handling of the country’s worst economic crisis since its independence in 1948. Nearly 50 People have been injured, dozens arrested. And an overnight curfew was imposed. after a mob tried to storm the home of Sri Lankan President Gotabaya Rajapaksa demanding his resignation.
What led to the current situation?
The crisis began in 2021 when authorities declared an economic emergency. after the country’s forex reserves hit rock bottom. This was coupled with a sinking currency and rising food prices. Since then, the crisis has only escalated. The country is heavily reliant on imports. Currently, there is an acute lack of foreign currency to pay for even the most basic, essential imports.
The Sri Lankan rupee has plunged to a record low against the US dollar. and inflation is at an all-time high. The country is unable to import fuel, essential food items, and medicine. 13-hour power cuts are becoming a routine. fuelling mass discontent among the people. Tourism, which is one of the biggest earners for the country accounts for 10 percent of the country’s GDP.
The tourism industry took a hit by a series of Easter bombings in 2019. which was further exacerbated by the Covid-19 pandemic. The government has estimated a loss of $14 billion in the last two years. In 2021, the government’s decision to ban chemical fertilizers and turn to organic farming. without prepping farmers also led to a surge in prices and food shortages.
Will an international bailout help?
Colombo imposed a broad import ban in March 2020 to save the foreign currency it needed to service its $51 billion foreign debt. The government is seeking a bailout from the International Monetary Fund and the World Bank. While asking for loans from India and China to potentially stabilize its financial situation.