We all are aware of how hard the pandemic hit the world economy. The sudden arrival of Covid-19 disrupts the supply chain and livelihood of the people around the globe.
Many countries faced a lot of issues and economic crises due to the pandemic.
Sri Lanks is suffering from the disruption in their country’s state but after the pandemic, it got worse. Sri Lanka is facing a lot of problems recently and seeking help from the neighboring countries to resolve them.
What happened in Sri Lanka?
A scarcity of foreign currency is contributing to the situation The country is in horrible shape, and it cannot afford to pay for imports of staple goods and gasoline. All of this results in severe scarcity and exorbitant prices. Sri Lanka is running out of foreign currency to import basic supplies. The lockdowns had a significant influence on the country’s informal economy, which was practically shut down. The country’s informal sector, which employs roughly 60% of the total workforce, was hit hard by the lockdowns. The $4 billion debt includes $1 billion in overseas sovereign bonds, according to official reports.
Aside from the impact of the Covid-19 pandemic, the country’s economic growth has been hampered by massive debt, a drop in foreign reserves, inflation, and currency depreciation.
Sri Lanka requires about $4 billion to recover from its economic troubles.
In this tough period, neighboring countries such as India, China, and Bangladesh have come to Sri Lanka’s aid. The country is now severely short of foreign cash and has requested an emergency rescue from the International Monetary Fund.
Tourism is one of the most important sources of foreign cash, but the country’s economic growth was hampered by the unexpected pandemic.
During this time, the island is in the midst of a serious crisis, with overall inflation rising to nearly 30% in April from 18.7% in March.
What are the effects of the economic crisis in Sri Lanka?
- Power cut: Fuel shortages were already causing long-term power outages across the country. The shortage of fuel country forced 10-hour long power cuts. In Sri Lanka, electricity is generated through hydropower, and the shortage of fuel made it impossible to provide electricity in the country.
- Fuel Shortage: There is a shortage of fuel in the country which made it difficult to handle the people. Sri Lanka dispatched troops to the police station to deal with the crowds. Due to a lack of fuel, the country has been without power for several hours. Fuel costs have also been raised often, with petrol prices increasing by 92 percent and diesel prices increasing by 76 percent. Fuel shortages hampered the country’s ability to manage its resources. As a result, Sri Lanka expands its credit line with India for petroleum by $200 million. Later on, as per the demand, Sri Lanka is also looking forward to applying for a $1 billion extra credit line.
- Inflation: Colombo initiated a ban on imports in March 2020 to save the foreign currency needed to service its $51 billion in international loans. However, this has resulted in severe shortages of vital products as well as significant price increases. In February, retail inflation was 15.1 percent, while food inflation rose to 25.7%, the highest level in a decade.
- Devaluation of currency: The rupee has been devalued by up to 15% by Sri Lanka’s central bank.