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Sri Lanka Hit by Economic Crisis: High Prices, Low Supplies

Worst economic crisis since the country’s independence.

Sri Lanka is currently facing the worst economic crisis in the country’s history and the situation is quite bleak with no improvements in sight. Refugees are escaping the country and moving toward India to escape the horrible meltdown the country is currently facing.

Thousands of people have come to the streets either to protest or to get supplies that are priced over the top. So what exactly has transpired and how did it come to such a worst situation in Sri Lanka? Let us discuss:

What Happened to Sri Lanka?

It all started last year when the government of Sri Lanka decided to halve the rates of Value Added Tax (VAT) which messed up the management of debt by the country really bad. And then later on in April 2021, the government decided to ban the import of chemical fertilizers and pesticides from outside and forced the farmers to start doing organic farming overnight.

Although many agricultural scientists and experts warned the government that it was a bad idea to make such sudden changes overnight and such a change should be slow over a year where the farmers recondition the soil accordingly but their efforts were in vain.

The consequence of those actions is what we are seeing right now. The Easter Sunday blasts in April 2019, then the multiple Coronavirus waves and lockdowns, and not eh Russia-Ukraine war are also some of the leading factors of the current crisis in Sri Lanka.

The Consequences

Images are surfacing on the internet that shows the Sri Lankan citizens on the streets making long queues to get fuel like petrol and kerosene which is caused due to a major shortage of fuel. Just last week, the cooking gas prices skyrocketed by gas companies and now the gas cylinders are priced at 1, 400 Sri Lankan Rupees.

The fuel shortage in the country has also led to power outages and the major parts of the country have their power out for more than six hours every single day. India is receiving many refugees primarily in the state of Tamil Nadu.

Current Situation

Sri Lanka’s tourism has taken a massive hit and the import-export of the country is a huge mess. The foreign exchange reserve of the country has gone below 70 percent since January 2020 and the foreign currency reserves fell to $2.31 billion last month.

Sri Lanka is currently requesting a massive $1 billion credit line from its neighbor India and the country will drown in debt if a proper bailout package is not given to Sri Lanka by a country or a group anytime soon.

India has assured Sri Lanka that they are doing everything to help to at least meet the basic essential imports like rice, wheat, flour, pulses, medicine, sugar, etc. And India has already extended a $400 million currency swap and another $500 million credit line to buy fuels.

The common people are facing the biggest toll during this crisis and the public is protesting to have the finance minister resign.

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