As the economic crisis in Sri Lanka worsened on Monday, protesters in the country’s largest city, Colombo, held several small, peaceful demonstrations defying a nationwide curfew, while police scrambled to disperse student protesters in the central city of Kandy. Tear gas was used.
The neighboring country is facing its worst economic crisis since 1948, when it gained independence, leaving it on the verge of bankruptcy. President Gotabaya Rajapaksa had to declare a state of emergency as the country grapples with rising prices, shortage of essential commodities and power cuts. The government also imposed a nationwide curfew after the protests turned violent.
Historically weak government finances, poorly-timed tax cuts and the Covid-19 pandemic, which has hit the country’s lucrative tourism industry and foreign remittances, have wreaked havoc on Sri Lanka’s economy. Here is a timeline of the events that led to the current crisis.
pandemic in 2020
While the sweeping tax cuts announced by Rajapaksa caused a credit rating downgrade in 2020, it was the Covid-19 pandemic in March of that year that made matters worse for the island nation. The tourism industry went into major losses and credit rating agencies moved to downgrade Sri Lanka and take it out of international capital markets. Tea and rubber exports also witnessed a sharp decline due to low demand in the country.
As a result, Sri Lanka’s GDP declined by 3.5 percent, the current account deficit stood at 7.9 percent of GDP and the fiscal deficit reached 11.1 percent.
April 2021
On April 29 last year, the Lankan government banned the import of chemical fertilizers and other agrochemicals in an effort to make the country the first country in the world to practice “organic only” agriculture. While the move was aimed at easing pressure on forex reserves, experts criticized it as “unscientific” and said that such drastic policy changes would lead to a sharp drop in yields.
Rajapaksa, however, claimed that the decision would save around $200 million on imports of agrochemicals.
November 2021
By November, it became clear that the decision had backfired and agricultural production had declined. The government, facing opposition, had then said it would partially lift the ban.
However, recovering from the damage already done was not easy. In a report published by The Week, Saman Dharmakirti, professor of soil fertility and plant nutrition at Peradeniya University in Kandy, said the ban led to a yield reduction, which reduced by 25 percent. Tea cultivation, which is one of the mainstays of the economy, was also badly affected. Firstpost reported that the production of pepper, cinnamon and vegetables declined by 30 percent.
The immediate consequence of this was that the country became more dependent on foreign countries for rice and other staples.
February 2022
The year-on-year inflation for the food category rose to 24.7 per cent in February 2022 from 24.4 per cent in January 2022, and inflation for the non-food group rose to 11 per cent in February 2022, from the previous 10.2 per cent. Month. Inflation calculated for January 2022 was 16.8 per cent. The higher inflation in the month of February 2022 was mainly on account of higher price levels in both food and non-food categories.
March 2022
By the end of March this year, due to significant foreign exchange shortages, the situation turned so dire that the country failed to pay for critical imports, leading to shortages of everything from life-saving drugs to cement. As a result, the government announced a daily power cut of 13 hours across the country.
Foreign exchange reserves stood at $2.31 billion and the country was struggling to pay for important imports, including fuel, food and medicines. The government said it would approach the International Monetary Fund (IMF) on plans to help as foreign exchange crunches. Squeezed essential imports amid slack in debt payments.
April 2022
The crisis forced currency devaluation and affected payments for essential imports such as food, medicine and fuel. Sri Lanka announced that the overall rate of inflation for February 2022 stood at 17.5 percent, the highest since 2015.
The immediate effects of inflation were seen when Sri Lanka deployed troops to hundreds of government gas stations to help distribute fuel following a sudden rise in prices of key commodities, and shortages caused thousands to queue for hours. .
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