The present scenario in Sri Lanka – by Dewni from Sri Lanka
Sri Lanka, is an island nation of 22 million people. Currently Sri Lanka is facing an unprecedented economic crisis. Its foreign exchange reserves fell to $ 1.6 billion at the end of November, just enough to pay for a few weeks of imports. As a result, the government has been forced to restrict the import of a number of essential commodities, including food items, in a desperate attempt to cling to essential dollar reserves. These measures combined with the increase in fuel and freight rates have led to a sharp rise in the prices of essential commodities such as milk powder and rice. This rapid increase in the cost of living is not just a problem for Sri Lanka. Several other Asian countries, such as neighboring India and Pakistan, are also struggling with rising inflation – with people across the continent having to tighten their belts to cover daily food and energy costs.
The situation in Sri Lanka is particularly acute as it is a small island nation that relies heavily on foreign imports to feed its population. For example, the country’s small dairy industry imports powdered milk because it cannot meet domestic demand. To allay growing public anger over rising spending, the government recently announced a $ 1 billion relief package – including an increase in salaries and pensions for public servants. It removed the tax on certain foods and medicines, and announced revenue assistance for its poorest citizens simultaneously. This is set
against a backdrop of high global oil prices, with the average cost of shipping a standard container from Europe to Asia rising from $ 2,000 in 2020 to $ 10,000 last year. The United Nations agency Unctad recently warned that the recovery of the global economy was threatened by high freight rates. It predicts that small island nations such as Sri Lanka – which depend on maritime distribution – could be hit hard by rising import prices.
Rising fuel and energy prices are affecting wholesale prices and carriers are raising tariffs. Annual wholesale price inflation in neighboring India hit an all-time high of 14.2% in November. As well as Sri Lanka is facing a deepening financial and humanitarian crisis, with fears of a record 2022 bankruptcy due to rising inflation and the rocketing of food prices and its coffers.
The collapse of the government led by the powerful President Gotabhaya Rajapakse is the result of the immediate impact of the Covid crisis and the loss of the tourism industry, but the erosion of government revenue by high government spending and tax cuts, exacerbated by large debt repayments. China and foreign exchange reserves hit a decade low. Meanwhile, inflation has risen as the government has printed money to pay off domestic debt and foreign bonds.
