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Sri Lanka’s Economic Downspiral Explained In 5 points

Mass public agitations are taking place against the ruling Rajapaksa family.

Sri Lanka is currently experiencing a severe economic crisis, with the country’s government running out of foreign currency and unable to pay for basic imports such as fuel, food, and other necessities.

Here is 5-point explainer on what led to this:

  1. Sri Lankans have been struggling with soaring prices and shortages after the country devalued its currency steeply last month, just ahead of its talks with the International Monetary Fund (IMF) for a loan programme. The talks are still underway.

  2. Many blame the economic mismanagement of successive Sri Lankan governments for the current crisis. The country’s tourism sector – one of the biggest revenue generators for the economy – had been impacted hard by the 2019 serial bomb blasts across Colombo. The Covid pandemic worsened the situation.

  3. As the crisis deepened, the country’s economy was locked out of global markets. This led to the forex reserve falling by almost 70 per cent over the past two years. According to Bloomberg, Sri Lanka had a forex reserve of just $2.3 billion in February and external obligations close to $7 billion – a big part of them due in July.

  4. Also, the government’s move to ban chemical fertilisers in 2021 has led to a drop in rice crop this year. The debt has increased under the current government headed by President Gotabaya Rajapaksa. The President, however, has blamed the crisis on the pandemic.

  5. Sri Lanka has sought assistance from India and China. India recently extended a $1 billion line of credit in addition to a previous $500 billion line of credit given in February. India has also sent food and fuel to Sri Lanka. The Rajapaksa government has sought at least another $1 billion from New Delhi.




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