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A 60 rupees of 400-gram milk packet is priced at 250 rupees currently in Sri Lanka. The inflation rate is at an all-time high of 17.5%, and access to primary needs has become close to impossible.
The country is surviving with 12 hours of electricity cut, scarcity of food, and no medicines.
But!!! What went wrong?
Low Foreign Reserves 🏦
Sri Lanka was always an importer of primary commodities. The country's economy is dictated by tourism and crops (tea, coffee, rubber, coconut, etc).
In 2018, Sri Lanka saw the highest amount of tourist arrivals with more than two million people adding their foreign currency. It was a $ 4.3 billion industry. But due to severe bomb blasts in 2019 and Covid lockdown in 2020. The industry had to face a maximum recession.
The situation is so worse now that Sri Lanka is not self-sufficient to feed its residents. The island has an active debt of $7 billion with almost 0 foreign reserves.
Nation's History 🇱🇰
Sri Lanka got its independence from Britain in 1948. This was the ideal country that people and other nations looked up to. Per-capita income was sufficient, in fact, more than India, South Korea, Indonesia, and other Asian states.
Here comes the Civil War. From 1983 to 2009, the island was in a war with the tribal groups living in the northern and eastern parts. For 26 Years the government had to shred money on national security. The country was not self-sufficient to build any infrastructure projects solely. They took loans from the World Bank, International Organizations, and Chinese banks (their biggest mistake) with no solid plan on how to pay back the amount. The government was taking more loans to repay their previous loans, adding more debt.
The other factor which might connect the dot now is the family dynasty ruling the country. The Rajapaksha family overlooks almost everything in the country. Most of the senior positions in the cabinet have been taken by the family members. The economy went exponentially down after certain promises which the Rajapaksha's made in the 2019 Presidential Election.
The Deadly Promises 🤝
If we win in 2019, we will reduce the VAT(Value Added Tax), reduce the imports, and provide free education, free electricity, and whatnot. Just f**king press our party's button on the machine.
The natives were convinced by their propaganda and they elected Gotabaya Rajapaksa as their new president. Gotabaya started fulfilling his promises. He waived the tax rate from 15% to 8%. The idea behind this was to increase people's purchasing power. More cheap products, more spending power, more money will revolve and will generate more money. The idea was good but Covid-19 broke in. The government had to impose strict lockdowns everywhere. Already promised free food, education, and electricity. The country had to sustain low tax returns, shredding more foreign reserves.
The other shocking decision was to go completely organic. President one day announces that the country won't be importing any fertilizers and chemicals from other nations. Maybe they were trying to reduce their imports burden. But this decision went wrong. Although organic farming is good for the environment and health. But the production efficiency is very low. The crops production rate fell through the roof and as a result, the country had to import rice and grains. Plus the government had to pay the farmers compensation for the failed organic drive.
Because of all these reasons, their foreign reserves are empty and now they are seeking help from the world.
This will add more debt to their list but no other option.
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Ciao
Nishchal from Team Rubric