One of the main reasons for this crisis is that the country is now burdened with foreign debt. The situation is so dire that Sri Lanka does not have enough foreign exchange to import daily necessities. That’s why the price of daily goods in Sri Lanka is much higher now. The country is facing a severe fuel crisis. To cope up with the situation the Sri Lankan government deployed the military army in every patrol pump of the country. Sri Lankan government haven’t enough money to import paper so there school examination has already been canceled. With the country’s lucrative tourism industry and foreign workers remittances sapped by the pandemic, credit ratings agencies moved to downgrade Sri Lanka and effectively locked it out of international capital markets. In the last 15 years, Sri Lanka has undertaken several mega projects including seaports, airports, road construction and so on. The experts are saying, most of these projects are totally unnecessary. But most of these projects were not economically viable. Hambantota seaports and airports are among the projects that pose the biggest threat to Sri Lanka. Hambantota Airport is actually unused because most of the airlines do not want to go there.
The several governments of Sri Lanka have continuously taken debts from various domestic and foreign sources. For the last 15 years, they have focused on borrowing instead of investing. Over the last decade, Sri Lanka has taken debt about 5 billion dollars from China. Only 10 percent of Sri Lanka’s debt has been borrowed from China. Sovereign bonds are one of the main sources of Sri Lanka’s debt. According to economists, such sovereign bonds are sold when the expenditure exceeds from the income of a country. Where away, Sri Lanka will have to pay about 7 billion dollars this year. But they have only around 2 billion US dollars in reserves that’s why the country is not able to import fuel oil and other necessity goods. The total debt of Sri Lanka is around 45 billion US dollars. Sri Lanka is plagued by debt and President Gotabaya Rajapaksa has decided to reduce VAT and taxes in 2019. Everyone was surprised at this move. The main reason for the reduction of VAT and tax was to give impetus to the economy. But within a few days, the corona virus pandemic began to worldwide. Reducing income tax and VAT reduces the government’s revenue by up to 25 percent.
In 2019, the Sri Lankan government banned the use of chemical fertilizers in agriculture and made organic farming compulsory. This has a direct negative impact on agriculture. At that time rice production in Sri Lanka decreased 20 percent. Organic farming has also a negative impact on Sri Lankan tea production. Sri Lanka earned a lot of foreign exchange by exporting tea. Even they are also incur loss to tea production. According experts, before the beginning of organic farming they don’t do the enough research on it. At present, US 1 dollar converted about 300 Sri Lankan rupees. Still their currency values ??continue to collapse. They need to amplify their export income and they need push up their foreign investment. At that moment, there is no alternative for Sri Lanka to reduce spending in unnecessary sectors. Otherwise Sri Lanka will go the edge of bankruptcy.
Columnist and Student Department of Sociology, University of Chittagong.