Why is Sri Lanka Facing Its Worst Economic Crisis? Check Reasons & Latest Updates!

Sri Lanka is undergoing a terrible fate currently as the country's economy has drooped beyond measure. Sri Lanka is under its worst economic crisis. Let us find out the reason for its situation below.

Tulika Tandon
Jul 14, 2022, 16:22 IST
Economic Crisis of Sri Lanka
Economic Crisis of Sri Lanka

Sri Lanka is facing its worst economic crisis since the country's financial crisis of 1948. The last time the country was in such distress was right after independence from the British. The prices of essential commodities are rising to the skies and many Lankans are fleeing their country to find refuge in India.

Sri Lankan President Gotabaya Rajapaksa declared a national public emergency on April 1, 2022, after violent protests over the country’s worst economic crisis broke out in the country. 

Take a look at the current situation in Sri Lanka through these tweets:

— Ambassador Julie Chung (@USAmbSL) July 10, 2022

The prices of milk, rice, food grains, and vegetables are skyrocketing and petrol and diesel are not available in the country. There is also news that the schools are unable to print papers due to its shortage which is why exams are not being conducted in the country. 

The Government of Sri Lanka has turned to India and China for aid. The Government had to order troops to prevent violence and maintain decorum at various petrol stations. People in the country have died waiting in queues for petrol and fuel. 

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What is the major reason for the economic crisis of Sri Lanka?

The reason for Sri Lanka's crumbling economy is the shortage of foreign currency. This has led to a huge reduction in imports of essential goods the country used to easily get.

As one knows, Sri Lanka relies on imports heavily. It imports petrol, diesel, food, sugar, lentils, paper, medicines etc. The country now has no money in its forex accounts to buy all this for its citizens. 

Such is the crisis that the island nation is not able to organize exams of students due to a shortage of paper. The Government suspended the operations at the oil refineries recently due to a shortage of crude oil stocks. 

There was a drop in tourism which was a major earning for Sri Lanka. The tourism itself brought much of Sri Lanka's forex. Prime Minister Mahinda Rajapaksa admitted in his address to the country last week that it is suffering a trade deficit of almost 10 billion dollars.

The country imported more than it could export. The Colombo Bomb Blasts in 2019 and Covid 19 caused a drop in tourism which contributed 10 % to its GDP. 

Also, the major export destinations like China along with countries of the European Union, ( after COVID-19), had issues with trade, which also reduced Sri Lanka's foreign exchange earnings.

Sri Lanka's FDI has also plummeted recently leaving the country with lesser foreign reserves. It decreased from $548 million in 2020 to 793 million in 2019 and 1.6 billion in 2018. 

How much is inflation?

The inflation in Sri Lanka hit 15.1% last month. The data released by the Government show that now the inflation has reached 25.7%. 

Citizens of the country are on roads in protest. The cooking gas cylinders are also being sold at a higher price than before. There is a hike of 1359 Rs on each cylinder within a week. 

India helps all its neighbours and has stepped in here as well. Sri Lanka amidst all this has refused to take help from IMF (International Monetary Fund). 

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