The pandemic wrecked the world economy and Sri Lanka heavily rely on tourism, even it wasn’t spared. Sri Lanka is hit badly by one of the worst economic crises since its independence. The tourist economy is a sector that contributes 10% to Sri Lanka’s GDP.
Earlier the Srilankan government decided to go “100-per cent organic.”. This sounded like a suicidal move and in a bid to fully realize this vision, they banned fertilizers. This move has hit their biggest export commodity — Tea. And Sri Lanka hasn’t been the same since. This growing effect translated into a reduction in foreign exchange earnings and without enough money, the country was struggling to pay for imported goods – fuel, food, and other necessities.
You must be wondering how will Srilanka get out of it?
Well, Currently, Sri Lanka is an unpopular tourist destination amongst globetrotters. Considering the economic conditions of the country, Inflation is very high.
To take a realistic view of this situation and focus on Inflation you would see that currently, a pound of rice would cost 500 Sri Lankan rupees wherein in 2021 it cost somewhere between 100-150 Sri Lankan rupees. And it is not just rice but a pound of milk powder sells for around 2,000 Sri Lankan rupees as compared to 1,400 Sri Lankan rupees just last year.
The world has bleed tears of blood because of Warmongers and the ongoing war situation between Russia and Ukraine has bled the Sri Lankan tourist economy. About 25% of all tourists visiting Sri Lanka are from Russia and Ukraine. However, as the war intensified, that number dropped dramatically.
The tourism industry will therefore take some time to fully recover. In fact, many countries have also issued travel advisories that warned their citizens from going to Sri Lanka.
Sri Lanka needs help! The recession is at the doorstep and knocking on the doors of Sri Lanka. That could be a disaster – not just for Sri Lanka, but also for its neighbouring countries and trading partners – including India.
So how are the neighbouring countries helping Sri Lanka right now? India, China, and Bangladesh have pitched in to help Sri Lanka and their primary purpose is to stabilize Sri Lanka’s foreign exchange. The country needs extra dollars to import oil, food, and other essentials items. India has already helped the $ 1 billion credit line so far.
India has also drafted a $ 400 million currency swap agreement to boost reserves. Due to this, Sri Lanka will now be able to borrow up to $ 400 million and repay in Sri Lankan rupees.
This will help them to protect their previous foreign exchange reserves. Even China and Bangladesh enter into joint loans and currency swap agreements.
Will it be enough? Sri Lanka has their nose down into heavy debt which is about $ 50 billion. So this help won’t be enough to rescue them. They would probably need a bailout by the IMF. Similar to what was given to Greece. But such a bailout would come with its own restrictions.
Restrictions such as:
- Politicians need to reduce their spending plan
- Elimination of subsidies
- Opening borders to find more trading partners,
- Privatizing loss-making public sector companies,
- Change in banking act providing more powers to country’s central bank.
Definitely, this will help Sri Lanka in long term but that being said, these moves will likely be extremely unpopular in a country that’s already struggling. And it seems like Sri Lanka’s problems aren’t going away anytime soon.
Written By: Akshay Sharma , Tax Patrika