Sri Lanka's economy is in its worst crisis, which has forced it to default on its multi-billion dollar debt as a "last resort." On April 12, 2022, India Today reported that Sri Lanka’s Finance Ministry is awaiting a bailout package from the International Monetary Fund. It also announced that it would suspend normal debt servicing, and “orderly and consensual restructuring will take place in a manner consistent with an economic adjustment program supported by the International Monetary Fund.”
Sri Lanka’s external debt servicing obligations are over $6 billion. The country is experiencing food and fuel shortages, power cuts, and goods scarcity. Different factors accelerated the current crisis. The deep tax cuts promised by the Rajapaksa government during the 2019 elections, which took place several months prior to the COVID pandemic, are one factor. The pandemic severely affected the country’s tourism business since tourism accounts for over 10 percent of the country’s GDP.
The ongoing Russia-Ukraine war has also caused inflation in fuel prices. Although the decision to burn all chemical fertilizers in 2021 by the Rajapaksa government was reversed, it destroyed the country’s farm sector. Also, it led to a drop in the critical rice crop. India had given 100 tonnes of nano nitrogen liquid fertilizers when the chemical fertilizers got banned.
The government also ignored warnings and suggestions from economic experts and opposition leaders. It also refused to seek help from the International Monetary Fund. Consequently, people have been protesting on the streets for weeks and demanding the president step down immediately. However, the president has protested against it. According to the President, his conditions of stepping down are that there must be a party that holds 113 seats in the parliament. Hence, the country is facing a major political and economic crisis.
The government also imposed a curfew, emergency law, and ban on social media, but they withdrew them when they failed to control the protesters. The ruling government lost a majority in the parliament, and the opposition also refused an offer by the president, who had called to form a ‘ Unity Government’.
India also extended a billion-dollar credit line to help Sri Lanka import essential goods. India has sent vegetables, daily ration items, and 270,000 MT of fuel to Sri Lanka. Since January 2022, Support from India to Sri Lanka has exceeded $2.5 billion. New Delhi provided a short-term loan of$500 million to Colombo to purchase petroleum products. Sri Lanka has also taken loans from countries including Japan and Bangladesh.
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