Sri Lanka ,one the South Asian Nation , was in a deep economic crisis when Covid hit reducing foreign worker remittances and crippling the lucrative tourism sector of dollars for the economy, with lots of long queues in front of petrol stations , steep rise in prices of essential commodities and frequent blackouts.
Sri Lanka is in the throes of the worst economic crisis it has seen in decades , collapsing under the weight of its debt.
The economic crisis is accompanied by a severe food shortage . There was a rise in the food crisis that was caused by depreciation in currency. The army was deployed to help better manage food rationing following a series of protests by the local populace.
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 turn, Sri Lanka’s debt management programme, which depended on accessing those markets, derailed and foreign exchange reserves plummeted by almost 70 per cent in two years.
The government also racked up huge debts with countries including China, to fund what critics have called unnecessary infrastructure projects.
.
Several populist policies have also been blamed for worsening the situation.
Since then, the government has banned the import of a wide range of “non-essential” items – from cars to certain types of food and even shoes.
Ranil Wickremesinghe, the new prime minister, has announced the government will have to print money in order to pay salaries, which he says will lead to further depreciation of the rupee.
He’s also drawn up a plan to sell off the national airline in order to raise money.
Sri Lanka owes $6.5bn to China and the two are in talks on how to restructure the debt.
China earlier agreed to bolster Sri Lanka’s foreign currency reserves by swapping the Lankan rupee for its currency, the renminbi. Since then, it has signaled its displeasure over Colombo approaching the IMF for help.
