Sri Lanka sinking| The debt crisis, causes and consequences

Sri Lanka is facing its worst economic crisis with the nation crippling under pressure with no exit in sight. Inflation is skyrocketing, Government finances are faltering and the island nation is going dark.

But this economic pandemonium did not come overnight and can't be pin pointed only to the pandemic alone. The nation has faced multiple shocks over the past 5 years

2017 drought: The nation surrounded by ocean faced it’s worse drinking water crisis in four decades as rainfall shortage led to draining of reservoirs leading to a 40% drop in crop production and leaving some 900,000 people facing food insecurity,

2018 political crisis: The President unseated the Prime Minister to elevate Mahinda Rajapaksa without any due process throwing the nation into a constitutional crisis.

2019 terrorist attack: The nation was rocked on easter weekend when bombers targeted three churches and three hotels, killing 267 people, and injuring about 500 people

The triple whammy already had our neighbour in a vulnerable state , then the pandemic struck almost like the straw of hay that was ready to break the camel’s back.. The covid crisis paralyzed Sri Lanka’s largest industry – tourism which usually contributes more than 10% of GDP. More than 200,000 people lost their livelihoods and half a million people sunk into poverty.

But covid was not alone to blame, arbitrary policies by Mahinda Rajapaksa Prime Minister of Sri Lanka added pressure to an already collapsing economy.

Rajapaksa sudden decision to ban all fertiliser and pesticides and force farmers to go organic without warning brought a formerly prosperous agricultural community to its knees and led to acute food shortage. Prices of fruits and vegetables almost doubled and inflation soared to an unthinkable 30 percent.

The govt could have stepped in and saved the day but it had no money, Rajapaksa traded in revenue for popularity in 2019 as he raised tax free income from 5 lakh to 30 lakhs and simultaneously cut state tax obligations by half. So already the coffers of the Lankan govt were depleting.

Then the Russia Ukraine war struck and the final blow came from crude oil prices. Fuel costs started to sky rocket and with it Sri Lanka’s foreign reserves started to vanish. Down 70% Rajapaksa’s dollar wallet has dwindled down to $2 billion

With no money for fuel the island nation went dark literally, with 10 hour power cuts, it faces its worst blackouts in 26 years.

Senior citizens have died waiting in mile long lines for fuel as cooking gas prices have become unviable jumping almost 50% and many moving back to cheaper fossil fuel

Rajpaksa who has close ties to China took on more loans from Beijing adding to it’s debt problem. Sri Lanka already has over $5 bn debt from China and the payments are coming knocking now.
In the past Sri Lanka has offered to pay Iran with tea for it’s oil but it will take much more than a tea party to solve Sri Lanka’s severe bebt crisis .