Sri Lanka is currently in an economic and political crisis of mass proportions resulted in a default on its debt payments. The country is zero on their foreign currency reserves, decreasing the ability to purchase imports and driving up domestic prices.
Time line of events:
2009:
The civil war ended in 2009 and which resulted in peace in the country. There is big boom of tourism and economic development.
2019:
There was a drastic tax cut in the country which resulted in massive reduction in Government revenue.
2020:
COVID-19 pandemic hit the country severely. Tourism is the main revenue giving industry. Coivid-19 affected this tourism industry badly, which in turn affected forex reserves.
2021:
Fertilizer imports were banned since the forex reserve was depleting. This lead to increased usage of organic fertilizer. This resulted in failure of crop. Failure of crop lead to more food imports, which further depleted forex reserve.
2022:
War in Ukraine lead to increase in oil price and in turn increases the oil import charges. Fuel and food shortage increased. Forex reserve has also depleted to near zero. Violent protest started growing all across the country.
Top Imports of Srilanka:
- Petroleum – $ 3 Billion
- Textile – $ 3 Billion
- Food – $ 2 Billion
- Chemicals – $ 1 Billion
Going forward, Sri Lanka’s next steps in managing this situation will either serve as a useful example for other countries at risk or a warning worth heeding.