Sri Lanka Crisis 2022: Essential Goods Prices up 300-400%
By: Aviral Sharma
An unprecedented economic crisis has loomed over Sri Lanka. The Mahinda Rajapaksa government is struggling to pay for essential imports after a 70% depletion in foreign exchange reserves across the last two pandemic ridden years triggered a currency devaluation, sparking so-far failed efforts to seek help from global lenders.
Currently, Sri Lanka’s debt is 110% of its GDP. The inflation rate is at 15% - the highest since 2008. The country has also not been able to supply essential goods such as food, fuel, medicines etc., to its citizens. Moreover, the country is also facing an acute shortage of paper. Due to this, the government had to postpone exams which affected thousands of students.
Sri Lanka has loans from Asian influencers China, Japan and India, as well as subsidised borrowings from the World Bank and the International Monetary Fund (IMF) worth US$ 51 billion. Over the past five years, China has given Sri Lanka more than US$ 5 billion for the construction of roads, ports, airports and coal power plants, but the money is said to have been used only in white elephant projects though China has denied all of this.
Due to the COVID-19 pandemic, Sri Lanka’s tourism sector – which in 2019 had made around US$ 70 billion – is now struggling, leaving a large chunk of the working class helpless in this crisis.
“Based on staff analysis, the fiscal consolidation necessary to bring debts down to safe levels would require excessive adjustment over the coming years, pointing to a clear solvency problem,” an IMF statement said regarding Colombo’s debt crisis solution.
The crisis has reached such a tipping point that the country is running out of fuel and the Rajapaksha government in Colombo remains helpless. Since the state couldn’t pay for coal, it faces five to six hours of electricity blackouts daily across its area as the thermal generators keep running out of fuel.
The island nation has managed to pay off US$11.8 billion in sovereign bonds via the Asian Development Bank. The ADB itself has also paid up US$ 4.6 billion to Ceylon's Japanese and Indian debtors.
President Gotabaya Rajapaksa asked China to help with the debt repayments when he met Chinese Foreign Minister Wang Yi in January, but China has not responded to the request.
On the other hand, India has also extended its helping hand with a credit of US$ 1.5 billion to purchase food, fuel, and medicines to help the nation tackle the shortage of foreign exchange. In addition, New Delhi has also sent US$ 500 million in diesel.
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