Sri Lanka’s economic crisis deepens with each passing day. Prime Minister Ranil Wickremesinghe urged Sri Lankans not to join the long queues outside petrol stations as the cash-strapped nation has run out of gasoline stocks. News reports suggest that normal gasoline distribution will resume on Thursday, May 19, and diesel will be available at service stations from Wednesday, May 18.
Previously, the newly appointed Prime Minister of the country had expressed his concern about the situation in the country through a tweet. He said that the next two months will be the most difficult. The ongoing crisis in the country has persisted for some years. The country has huge debt obligations and dwindling foreign exchange reserves, and has been struggling to pay for imports, causing shortages of essential items.
Read | 15-hour power outages, no medical supplies: Sri Lanka PM Wickremesinghe faces ‘scary facts’
Citizens were forced to stand in long lines to obtain fuel, cooking gas and medicine. The new Sri Lankan government plans to sell its national airline to curb losses. Here we analyze the latest developments on the economic crisis.
What is the current scenario?
1. The Sri Lankan government plans to privatize Sri Lankan Airlines, Prime Minister Ranil Wickremesinghe said in a televised address to the nation on Monday. The airline lost 45 billion rupees ($124 million) in the year ending March 2021, he said, just days before the nation formally defaults on foreign debt. “It should not be that this loss has to be borne by the poorest of the poor who have not set foot on a plane,” Wickremesinghe said.
2. Prime Minister Ranil Wickremesinghe, less than a week in office, said he has been forced to print money to pay salaries, which will put pressure on the national currency. He said government revenue is around 1.6 trillion Sri Lankan rupees (SLR), while spending is currently SLR 4 trillion. This means that the budget deficit is SLR 2.4 trillion, which is 13% of GDP.
3. Sri Lanka’s foreign exchange reserves are almost empty. This helps a country pay for imports. PM Wickremesinghe tweeted saying “getting $1 million is also a challenge.” Interestingly, he noted that the country’s foreign exchange reserves stood at $7.5 billion as of November 2019.
4. PM Wickremesinghe said that Sri Lanka needs USD 75 million to pay for fuel. For now, India has extended a credit line for diesel shipments. “We are working to get dollars on the open market to pay for shipments,” he tweeted.
5. Sri Lanka is facing a shortage of medicines and medical equipment. However, you are already defaulting on your payments. Without elaborating on a possible solution, Wickremesinghe said Sri Lanka will have to pay SLR 34 billion for medical supplies for four months.
6. Sri Lanka’s external debt is about USD 50 billion, of which China’s share is about USD 8 billion. China’s ‘hidden debt trap’ has been blamed for the worsening debt crisis as the country launched a series of Chinese-funded projects that failed. On April 12, the Sri Lankan central bank unilaterally prohibited the payment of foreign debt.
7. Sri Lanka had made many promises after the end of the 25-year civil war against the LTTE. The central bank said in 2010 that “recent trends such as low inflation, low and stable interest rates, strong foreign reserves, stable exchange rate, improving fiscal outlook are strong indications that the economy is returning to normal.”
8. The Sri Lankan economy grew at a rate of 8.6% in the last quarter of 2010 and recorded a growth rate of 9.1% until 2012. This was largely due to the massive push for infrastructure projects public and the reactivation of tourism.
9. Tourism became a major source of income, contributing at least 12% of GDP in 2019. In 2018, Sri Lanka received 2.3 million tourists, the highest figure in history. The 2019 Easter attacks and a year later the Covid-19 pandemic destroyed the tourism sector. Sri Lanka received only 1.9 lakh tourists in 2021.
10. The current Covid-19 pandemic has only aggravated the situation for currencies, with foreign exchange reserves falling by more than 70% in two years. The decision to support organic farming also turned out to be wrong. Critics claimed that this was due to a lack of foreign exchange. As a result, the share of agriculture in GDP decreased by 2.4% in 2020.