SRI LANKA ECONOMIC CRISIS
WHY IN THE NEWS
Parliament of Sri Lanka has approved a national emergency declared by the President of Sri Lanka(Gotabaya Rajapaksa) on 6th September.
As per the government, the emergency was required to check the rising prices of food and hoarding or accumulation of essential food items by so-called – ‘food mafias’, which leads to food emergency, due to depreciating currency and decline of foreign reserves.
It was declared under the Public Security Ordinance on the supply of essential goods. (PSO)
Section 2 of the PSO authorises the President to declare a State of Emergency in two situations:
a) for the interest of public security and in the need of protecting the public order
b) for the maintenance of essential supplies and services.
FACTORS RESPONSIBLE FOR SRI LANKA ECONOMIC CRISIS
- Sri Lanka is under huge foreign debt and is now unable to repay the loans due to a shortage of foreign exchange reserves, due to pandemic which leads to the decrease in exports, remittances etc. The loans in Sri Lanka is about $ 4 billion, and at the end of July of this year, the foreign reserves of Sri Lanka are $ 2.7 billion.
- In March 2021, Sri Lanka receives $ 1.5 Billion from China in a currency swap deal, last
Month Bangladesh has provided $ 50 million of the $ 250 million loan swap agreement.
- In April 2019, Sri Lanks was attacked by nine suicide bombers which were link to ISIS in which churches, luxury hotels, tourist places were destroyed drastically along with the death of 258 people. This had given the name – “Easter Attack”. This attack has drastically hit one of the sources of foreign exchange pullers, that is the tourism industry, even before the pandemic starts.
- Then after the pandemic, tourism was not only hard hitted in Sri Lanka but the whole world was hard hitted and leads that forex reserves have dropped from over $7.5 billion in 2019 to around $2.8 billion in July 2021 in Sri Lanka.
- Tea and garment industries have also been hit by the Pandemic.
- Depreciation of currency in Sri Lanka. Depreciation means the decrease in the value of a currency in terms of its exchange rate versus other countries currency. This year, the value of the Sri Lankan rupee has depreciated by around 8%.
- As we have understood the problem of depreciation of the currency in Sri Lanka. Sri Lanka is a country that was heavily dependent on imports even to meet its basic supplies such as Sugar, Dairy products, wheaty, medical supplies etc. Now due to a decrease in the value of the currency and low forex reserves, inflation increases in Sri Lanka.
- And, due to this, Sri Lanka has stopped the imports of many items like vehicles, edible
oils, toothbrushes and focused on the essential food items only.
MEASURES TAKEN UNDER EMERGENCY CRISIS
- The government will announce retail prices for essential food items and ban stocking the food items.
- The emergency law enables authorities to detain people without warrants.
- The military will supervise the action so that it is ensured that essential items are sold at government-guaranteed prices.