Explained: Protests in Sri Lanka, imposition of emergency & the economic crisis

People’s anger spilt out on the streets as unemployed, starved and exhausted Sri Lankans protested outside the residence of President Gotabaya Rajapaksha, who answered their calls with the imposition of a nation-wide emergency amid an economic crisis

Why is Sri Lanka facing one of its worst economic disasters?

The island nation’s foreign currency reserves have gone down by 70% since January 2020 to around $2.3 billion. Foreign exchange reserves are foreign currencies, bonds, treasury bills, and other foreign government securities held by a central bank of a country as a backup

Foreign reserves shortage means Sri Lanka does not have enough money to import food, fuel, medicines and other essential commodities.

As a result there over 10 hour-long power cuts in the country, long winding queues outside fuel stations. School exams had to be postponed due to shortage of paper and several publications have shut down.

One of the most pressing problems for Sri Lanka is its huge foreign debt burden, in particular to China. It owes China more than $5bn in debt and last year took an additional $1bn loan from Beijing to help with its acute financial crisis, which is being paid in installments.

Rajapaksha in order to boost growth and consumption cut down VAT to 8% from 15% and abolished some other taxes resulting in a decline in tax revenues and further burdened public finances.

Also watch: Sri Lanka economic crisis: former & current cricketers appeal for unity, slam govt

Sri Lanka’s tourism sector accounts for over 12% of the nation’s total economic output, according t theo Indian Express. The sector was dealt a huge blow , first because of the 2019 Easter bombings and then because of the Covid-19 pandemic.

Desperate and burdened by inflation, many Sri Lankans are leaving their country and arriving at Indian shores in hope of a better life.