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SRI LANKAN ECONOMIC CRISIS- EXPLAINED

SRI LANKAN ECONOMIC CRISIS- EXPLAINED

Context:

Recently, the President of Sri Lanka Gotabaya Rajapaksa had declared an economic emergency, due to rapidly depleting forex reserves, depreciating currency, and rising food prices in the country. The emergency was declared under the Public Security Ordinance to prevent the hoarding of essential items, including sugar and rice.

Step Taken By Sri Lankan Government:

  • The Sri Lankan government has appointed a former Army General as Commissioner of essential services who has the authority to seize food stocks held by traders and retailers and regulate their prices.

What is Happening in Sri Lanka?

  • Sri Lanka is facing an economic crisis for a number of reasons including declining forex reserves, inflation, and rising food prices in the country.

Causes of the Food Crisis in Sri Lanka:

  • Elimination of forex currencies, inflation, rising food prices.
  • Sri Lanka during the COVID-19 epidemic is severely affected by its tourism industry which contributes more than 10% of Global Gross Domestic Product (GDP) and brings in foreign exchange.
  • A setback in the tourism industry in the country has led to the elimination of forex reserves from more than% 7.5 billion in 2019 to approximately $ 2.8 billion in July 2021.
  • Due to the decline in fixed forex investments, the country had to increase its foreign exchange earnings. This increase has led to the depreciation of the Sri Lankan rupee by approximately 8% so far in 2021.
  • As Sri Lanka relies heavily on imports to provide basic food security in the country, declining incomes continue to lead to rising food prices.

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