Scores of angry civilians broke into violent protests on the streets of Sri Lanka as President Gotabaya Rajapaksa fails to handle the economic crisis in the island nation. Scores of civilians faced the police as the latest news suggests the food crisis has hit Sri Lanka. There is an acute shortage of foreign funds that has left Sri Lanka no face to purchase essential goods, imports, and fuel which lead to a power shortage for more than 14 hrs. Civilians are faced with food shortages and power cuts and rising inflation after Sri Lanka did not evaluate its currency properly ahead of meeting with IMF for a loan to combat this economic crisis.
What happened in Sri Lanka? – Economic analysts said that past governments and current leadership’s mismanagement of the economy have created a twin deficit – meaning the budget reserves are less along with the deficit in the national account. As per the Asian Development Bank’s 2019 paper, ” Sri Lanka sets for a perfect twin deficits economy, where the country’s all-round national spending exceeds its overall national income and also its production of goods that are to be traded and services are in short supply. ”
The present downfall in the Sri Lankan economy was due to massive tax cuts by Gotabaya Rajapaksa in his 2019 election campaign, weeks before COVID-19 struck and affected the Sri Lankan economy. In response to this Sri Lankan debt management program depended on reaching out to those markets fell and foreign exchange money fell by 70 percent in 2 years. In 2021, Gotabaya’s ill-calculated decision to ban chemical fertilizers (later reversed) also affected the farm segment and saw a steep fall in the rice crop.
How will Sri Lanka answer to its foreign debt? – Sri Lanka as of February 2022 was left with $ 2.3 billion in its foreign reserves however faced debt payments of $ 4 billion in 2022, not forgetting the $1 billion in an international sovereign bond that matures this July. International sovereign bond accounts to Sri Lanka’s massive share in the foreign repayment at $12.55 billion, jointly with Asian Development Bank, China, and Japan among other major givers.
IMF in its last month’s review stated that Sri Lanka’s public debt has increased to ‘unsustainable levels’ and was deficit in its foreign exchange for debt payments.
According to a statement by the IMF spokesperson, IMF will start a fresh round of discussions with Sri Lankan leadership for a possible lending program in the coming few days.
