Sri Lanka is facing its worst economic crisis in decades, with all cabinet ministers except the prime minister and the president resigning amid nationwide protests. The island nation is facing a severe shortage of food, fuel and other essential commodities. A record inflation, power crisis and acute shortage of foreign exchange have left PM Mahinda RajapakseThe country in the worst recession since its independence in 1948. The country also imposed a 36-hour curfew on March 31 to quell the protests. However, this crisis is not sudden, and was in fact escalating. For two years, several rating agencies have warned about such a situation in the past.
Here are 10 key things you need to know about Sri Lanka’s economic crisis:
– According to the news agency AFP, trading was halted in of Sri Lanka stock exchange on Monday morning. This was done just seconds after it opened on Monday, when the blue chip index fell 5.92 per cent, triggered by the resignation of the cabinet. The Colombo Stock Exchange said the S&P index fell more than the five percent needed to trigger a circuit breaker that halted trading for half an hour.
Not only this, all 26 cabinet ministers, Sri Lanka’s Central Bank Governor Ajit Nivard Cabral have also resigned. “With reference to the resignation of all cabinet ministers, I have today submitted my resignation as Governor of the Central Bank, Sri Lanka to President Gotabaya Rajapaksa,” Cabral tweeted.
Sri Lanka’s economic crisis led to a 13-hour power cut amid severe fuel shortages until India stopped supplying 40,000 metric tonnes of diesel to the island nation. The Ceylon Electricity Board (CEB) announced a two-hour power cut from Sunday, bringing some relief to the general public.
However, the Public Utilities Commission of Sri Lanka (PUCSL) has announced that some areas will experience five-hour power cuts on Monday.
Inflation is currently at its worst in Sri Lanka, where basic commodity prices are miles high. India Today reported that prices of vegetables have doubled in recent weeks, while staples such as wheat and rice are being offered at Rs 220 per kg and Rs 190 per kg.
Prices of other basic commodities are also skyrocketing, with a kilogram of sugar selling for Rs 240, while a liter of coconut oil costs up to Rs 850 in the country. Not only this, there is also a huge shortage of medicines.
Sri Lanka has been unable to import fuel on its own, as the government does not have enough foreign exchange reserves to pay for fuel imports. “We have already instructed officials to switch off street lights across the country to help save electricity,” Power Minister Pavitra Vanniarachi said.
– Sri Lanka’s economic crisis can be attributed to economic mismanagement by the persistent government, Reuters quoted analysts as saying. A 2019 Asian Development Bank working paper stated, “Sri Lanka is a classic twin deficit economy. Twin deficits indicate that a country’s national expenditure is greater than its national income, and that there is a shortage of tradable goods and services.” Production is insufficient.”
The current economic crisis in Sri Lanka can also be attributed to the huge tax cuts made by President Gotabaya Rajapaksa during the 2019 elections. The tax cut has only intensified the economic crisis of Sri Lanka, whose foreign exchange (forex) reserves have declined 70 percent in the past two years to February, to $2.3 billion. The country owes about $4 billion in debt payments during the rest of the year.
– Retail inflation, which skyrocketed to 17.5 per cent in February, was accelerated by Sri Lanka’s devaluation of its local currency last month. The country also imposed a number of restrictions on the import of hundreds of items that disrupted the value chain and increased consumer prices.
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