The situation in Sri Lanka right now is giving alarming signs. People are seen in long queues to buy essential things. At the same time, due to the acute shortage of essential things, people are protesting from place to place and there is an atmosphere of unrest all around. Prices of goods and services have increased rapidly in the country, which includes food, fuel and travel costs. This situation has arisen due to many reasons, the first reason being poor economic governance.
Sri Lanka is slowly heading towards bankruptcy as the country's current monetary fund, which stood at 2.3 billion in March 2022, is not enough to pay off the $7 billion foreign debt. It also includes International Sovereign Bonds. Inflation is touching the sky in the country. According to the National Consumer Price Index, inflation reached 17.5 percent in February 2022 and foreign debt reached an astonishing $35 billion.
Despite the economic instability surrounded by political changes, the economy appeared to be under control till the November 2019 elections. However, things started deteriorating from 2020 onwards.
After this the Covid-19 epidemic caused further damage. Tourism and remittances, the two main sources of revenue in the island country, declined sharply. The current Russia-Ukraine conflict has also contributed to this decline as Russia is one of the top buyers for Sri Lanka's tea industry and the result of the war was that Russia had to reduce its purchases.
The country saw the return of the Rajapaksa brothers to power in the 2019 elections. After which Gotabaya Rajapaksa became the President, elder brother and former President Mahinda Rajapaksa became the Prime Minister and younger brother Basil Rajapaksa took the post of Finance Minister. This popular mandate was met for the improvement of the country's economy on many other fronts as well.
However, the tax exemption required by the new government for the people did not help in improving the situation. It was clear that the country is nowhere in a position to give such exemption in tax. The three brothers are still in their respective positions and are trying to rectify the situation, but it does not seem that any solution will be found immediately.
The country's ailing economy has deep roots. Poor monetary policy that has been followed for years can only be corrected through massive structural changes.
People in the country are queuing for food items and daily fuel. At the same time, in many places, the army is monitoring this crowd of people.
The Bar Association of Sri Lanka (BASL) has also given a petition in the Supreme Court and said in it that acute shortage of essential goods and services, fear of breach of law and order and threat looming on the rule of law made them approach the court.
Sri Lanka's economic concerns began because of foreign debt. China, which is infamous for its debt trapping arrangements with many other countries, accounts for about 10 percent of its foreign debt burden on Sri Lanka. These are concessional loans and apart from this, the burden of commercial loans through Chinese state banks is also on Sri Lanka.
The terms of these loans are difficult and Sri Lanka is facing how heavy it will be to fail to repay them. As part of the loan repayment process, Sri Lanka will have to give control of the Hambantota port to China for 99 years.
It remains to be seen how China will come out to improve this situation. At the same time, the International Monetary Fund (IMF) and other multilateral institutions should also take such measures with the help of which the country can come out of the crisis situation.
At such a time, India came forward and gave $ 400 million to Sri Lanka in January 2022 for the purchase of basic facilities such as petroleum products. This week India has sent 40,000 tonnes of diesel to Sri Lanka. On 17 March 2022, India once again gave a credit line of $ 1 billion to Sri Lanka so that the country can buy essential items like healthcare and food items.
Both the governments will have to work on a strategy regarding the cost of help. Due to the current crisis situation, many people have left Sri Lanka and came to India in the last few weeks. The government will have to take strong steps to get out of the current situation and also create the effect of visionary governance in a stable manner. For this, first the debt will have to be restructured, including the loan taken from China and so that the debt burden is removed for at least two years.
The government should talk to financial experts on this, they should include what will be the ways in which this situation related to economic policies can be handled. This will clearly require transparency and accountability in governance and decision making.
Most people in the country and some other nations are supporting political changes along with economic reforms in Sri Lanka. The repeal of the 20th Amendment to the Constitution and the Prevention of Terrorism Act (PTA) are considered extremely important to find a solution.
This will help in achieving an all-inclusive governance model. So that such communities who have a malicious intent, they will also be a part of these efforts of nation building.
As an immediate measure, arrangements should be made to provide relief to such citizens who have lost practically everything at this point of time. After the huge failure of organic fertilizers, farmers should be helped to grow crops economically.
Beyond this, attention should be paid to tourism and export of tea in a completely new way. After being postponed for some time from Covid 19, tourism in the country is slowly gaining momentum. With effective tariffs and services, the hotel and service industries can bounce back.
Needless to say, Sri Lanka needs reform at many levels and this includes both long term and short term reforms. The country will have to collectively prepare a roadmap for itself