Srilanka’s Economic Crisis

Srilanka's Economic Crisis

What’s happening in Sri Lanka and how did the Srilanka’s economic crisis start?

Many believe Sri Lanka’s economic relations with China are a main driver behind the crisis. The United States has called this phenomenon “debt-trap diplomacy”.

Srilanka’s Economic Crisis a recent topic of Group Discussion for all SSB, MBA aspirants. This post is going to talk about the causes of the Srilanka’s Economic crisis and India’s role as the country’s immediate neighbour. On 31st August 2021, Sri Lanka government declared a state of economic emergency as Srilanka’s Economic Crisis was on its zenith.

Reasons for Srilanka’s Economic Crisis:

In January 2021, the Sri Lankan Government declared officially that the country was hit by the worst economic crisis in its 73 year history. The island nation of Sri Lanka is in the midst of one of the worst economic crises it’s ever seen. It has just defaulted on its foreign debts for the first time since its independence, and the country’s 22 million people are facing crippling 12 hours power cuts, and an extreme scarcity of food, fuel and other essential items such as medicines.

The current Sri Lanka’s economic crisis is the product of the historical imbalances in the economic structure, the International Monetary Fund (IMF)’s loan-related conditionality’s and the misguided policies of authoritarian rulers.

Srilanka's Economic Crisis Reasons

Recent Economic Shocks: Sri Lanka is heavily dependent on tourism. 10% of the country’s GDP (Gross Domestic Product) comes with tourism. With tourism, the country fills foreign exchange reserves and uses them to import goods.  But due to the Covid-19 pandemic, the tourism industry was hit very badly and that impacted Sri Lanka too. Moreover, as the number of covid cases and deaths is rising in Sri Lanka, tourism was even more negatively affected. That resulted in a shortage of foreign exchange reserves. The Easter bomb blasts of April 2019 in churches in Colombo resulting in 253 casualties, consequently, dropped the number of tourists sharply leading to a decline in foreign exchange reserves and added fuel to the fire in these conditions.

India’s Role in Srilanka’s Economic Crisis

Way Forward for Sri Lanka

Srilanka's Economic Crisis: Reasons GD Topic

The government should take measures for economic recovery of the country as soon as the shortage of certain essential commodities ends, which is expected before the start of the Sinhala-Tamil New Year (in mid-April).

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