Financial Emergency in Sri Lanka

Financial Emergency in Sri Lanka 2022 The acute shortage of foreign exchange has made Sri Lanka in trouble. The inflation rate in Sri Lanka is at its highest level.

Sri Lanka’s nationwide state of emergency has become a ‘time of emergency’ for the citizens. This beautiful island country had never seen such economic conditions. Ordinary citizens have taken to the streets against President Gotabaya Rajapaksa. The difficulties of the government have increased with thousands of protesters taking to the streets. The forex reserves in Sri Lanka are nearing exhaustion. The government is neither able to buy fuel nor is it able to provide food items to its citizens. Since the Sri Lankan government had devalued its currency to take a loan from the International Monetary Fund (IMF), inflation in Sri Lanka has increased so much that ordinary citizens are not able to meet even their basic needs. People’s purchasing power has run out.

Why was there a financial crisis in Sri Lanka?

No government in Sri Lanka had any development model. Governments have always failed to correct economic management. The financial deficit of the country kept increasing every year. This country has always been battling with a severe budget deficit and has never been able to pay off its foreign debt. The 2019 Asian Development Bank Working Paper even said that Sri Lanka is a classic double deficit economy. This was said because the national expenditure of Sri Lanka has always been more than its income. The production of tradable goods has also always been marginalized in Sri Lanka.

Why Sri Lanka’s foreign debt does not end?

Sri Lanka’s foreign debt never ends. According to a report by news agency Reuters, by February 2022, Sri Lanka had only $2.31 billion left in its reserves. Sri Lanka had to pay a debt of $ 4 billion in 2022 itself. Sri Lanka had to spend 1 billion on International Sovereign Bonds (ISBs) in 2021. It was supposed to mature in July 2022. The largest share of Sri Lanka’s foreign debt in ISB is $ 12.55 billion. Sri Lanka has been lent by major lenders like Asian Development Bank, Japan, and China.

From which countries has Rajapaksa asked for help?

Sri Lankan President Gotabaya Rajapaksa has also sought help from China and India. Sri Lanka has demanded from both countries that the supply of fuel should be increased. A diesel shipment arrived in Sri Lanka on Saturday under a $500 million line of credit signed with India in February. Sri Lanka and India have signed a $1 billion line of credit for the import of essential commodities including food and medicine. The Rajapaksa government has also sought financial help of at least $1 billion from New India. China is also considering giving a loan of up to $ 1.5 billion to Sri Lanka. India has started giving financial help to Sri Lanka.