Sri Lanka’s Economical Crisis

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In this post lets talk about the collapse of Sri Lanka’s economy and try to figure out what went wrong and what are the root causes which led to this economical downfall.


The Beautiful land of Sri Lanka is filled with Luscious forests, long beaches, heritage buildings, delicious cuisine, zestful people which led to a heavenly place for tourists.

However, today it is plunged into Chaos, facing its worst economic crisis since 1948 after it got independence, is at the verge of bankruptcy.

The scarcity in its foreign reserves led the current government unable to import the daily essentials like fuel and food, and causing the power cuts up to 13 hours a day to save electricity and money.

People living there say the root cause lie in the economic mismanagement by the successive governments and their unplanned policies also its budget shortfall alongside a current account deficit.

As of April 4th all of the ministers from the current government have resigned with immediate effect.

Lets look at the timeline of Potential causes,

Which may have led to the crisis:

  • April 2019
    • On 21 April 2019, Easter Sunday, 3 churches and 3 luxury hotels in capital city of Colombo were targeted by a series of Islamic terrorist suicide bombings. Followed by smaller explosions later that day.
    • These series of attacks killed at least 260+ peoples and injured more than 500 in a single day which included many foreign tourists.
    • The result Sri Lanka’s tourism collapsed drastically.
  • November 2019
    • After winning Sri Lanka’s presidential elections and months ahead of parliamentary ballot, The New President announced sweeping tax cuts.
    • They cut the taxes to 8 % from previous tax rate of 15 % and also abolished seven other taxes including 2 % nation building tax paid y the businesses.
    • This led to credit rating downgrade and started dipping into its foreign reserves to meet its debt obligations following this the foreign reserves plummeted with Snow Ball Effect.
  • 2020
    • The COVID-19 took Sri Lanka’s bad crisis to worst.
    • Tourist inflows which were already reduced by Easter Bombings and the revenues even fell down drastically.
    • The main exports of the nation tea and rubber also took a big hit due to lower demand.
    • The GDP of the nation declined by 3.5 % and fiscal deficit climbed to 11.1 %
  • April 2021
    • In the midst of the worst economic crisis the Lankan government decided to ban the import and use of chemical fertilizers and other agrochemicals to switch for a “Organic Only” agriculture. This was aimed to reduce pressure on forex reserves.
    • Th bad luck continued here also as the sudden ban on the chemicals resulted in imported in the basic grains as rice too from other countries and the aim reversed and Lanka had to imports hundreds of million dollar worth of grains.
    • Agricultural experts strongly criticized the governments decision as “ill-advised”. Farming community had already advised the government that the decision will affect the yield but no one listened.
  • November 2021
    • After facing several protests and seeing the lower yield government finally decided to lift the ban partially.
    • Though the damage was done severely and was hard to recover. According to Saman Dharmakeerthi, professor of soil fertility and plant nutrition at the University of Peradeniya in Kandy, in a report published by The Week, the ban had led to a reduction in yield, which went down by 25 per cent.
    • Tea cultivation one of the flagship exports of the nation also took hit because of this ban. And the export of other Vegetables and spices also went down by 30%.
    • This resulting in nation to depend on foreign countries even more.
  • March 2022
    • The situation become even more dire after a leak of nations foreign reserves shook the nation to its core.
    • On 30 March, the island nation announced nationwide 13-hour daily power cuts. The country had been under severe electricity rationing since the start of the month and the monopoly said an earlier hike in power outage from seven hours to 10 hours was imposed because there was no oil to power thermal generators.
  • April 2022
    • The Plunge into darkness and severe food shortages left people no choice but to come on streets protesting against the government.

As of today situation is still not healed in fact it has even gotten worse.

Countries like China target the lower GDP nations like Lanka and make them trapped in the debt.

Just like how Lanka gave its Hambantota International Port to China for a lease period of 99 years and offering loan to already plummeted economy.

Though several countries have offered a Credit Line to Lanka like India, so that it can at least cover for the basic necessities and also offered several metric tons of oil and other resources.

Currently Real-Time network data shows that Lanka has imposed a nation wide social media blackout, restricting access to platforms including Twitter, Facebook, WhatsApp, YouTube, and Instagram as emergency is declared amid widespread protests.

Let us all hope that the situation heals and things get better for Sri Lanka

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