External debt had created serious economic crisis in Sri Lanka. People are reported to have protested against huge rise in prices of essential goods.

What are the causes of the crisis?

Prices of essential commodities shoot up in Sri Lanka due to an economic crisis that hit the Island nation after the Russia Ukraine war which was already devastated with the pandemic. Sri Lanka depends on its import from other nations for its essential goods.

Petrol prices was rised by ₹ 49. Cost of 400gms of milk powder plunged to ₹ 790, rice costs ₹ 290 per kilogram. The prices are expected to keep rising in the coming days.

A trade deficit occurs when the value of a country’s imports exceeds the value of its exports—with imports and exports referring both to goods, or physical products, and services. Explained easily, Sri Lanka had to buy more goods and services than it is selling. Shortage of food, cooking gas, medicines, fuel etc. had steeped up since the begining of 2022. School exams have been postponed because of the scarcity of paper. Newspapers have stopped their print editions. Sri Lanka’s president said that the country has a trade deficit of $10 billion

The main cause of the crisis is that Sri Lanka faced severe shortage of foreign currency, that made it impossible to import the basic required commodities.

Inflation had escalated to 17.5% in February 2022.

The pandemic had hit a severe blow to the tourism industry in Sri Lanka, which had plummeted its foreign exchange earnings. Tourism amounts to 10% of its GDP. Services sector contributes to about 60% of the GDP in Sri Lanka.

Sri Lankan government declared an economic emergency in 2021 in view of rising food prices, a depreciating currency, and rapidly depleting forex reserves.

Sri Lanka’s economy contracted by 3.6 percent in 2020, the worst growth performance on record,due to the pandemic. Tourism, construction, and transport could not revive since then.

The Central Bank of Sri Lanka (CBSL) introduced financial sector regulatory measures, like a debt moratorium for COVID-19 affected businesses and individuals.

On Sri Lanka ,then Ceylon, “for its size, better circumstanced than any island in the world”.

Marco Polo, 13th-century Venetian traveller
External debt in Sri Lanka

India supports Sri Lanka

Sri Lanka wanted India to reschedule its loan as early as February 2020 when Prime Minister Mahinda Rajapaksa visited New Delhi.

Recently, India announced a $1 billion credit to Sri Lanka to procure food, medicines and other essential items. India also extended a $500 million line of credit to Sri Lanka to help it buy petroleum products.

Sri Lankans seeks refugee in Tamil Nadu

As many as 4000 people from Sri Lanka are projected to reach Tamil Nadu. Dhanushkodi, 24 kms apart from Sri Lanka, shares land border with Sri Lanka. As many as 16 people from Sri Lanka were reported to have already illegally sought refugee in Tamil Nadu.

This article will be updated frequently.
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