With shrinking foreign reserves, it's on the verge of bankruptcy.
Sri Lanka, a small island nation in South Asia known for its pristine beaches and premium teas, is cash-strapped and struggling. The country is witnessing fuel shortage and a major food crisis, and its citizens are living with 13-hour daily power cuts. The worsening situation has brought Sri Lankans to the streets to protest the current government and demand the resignation of President Gotabaya Rajapaksa.
Inflation is at an all-time high and people are unable to afford everyday items. People are dying in queues waiting for food and fuel, and the healthcare sector is on the brink of a collapse. Doctors have been requesting aid as hospitals run out of medical equipment and drugs. In March, the country even canceled school exams for millions of students due to a shortage of paper.
Worst Economic Crisis Since Independence
For years, Sri Lanka overspent on infrastructure projects, and racked up foreign debts and sovereign bonds. According to the BBC, the country imports $3 billion more than its exports annually. Now the foreign exchange reserves have shrunk to $1.93 billion, as per March figures. It doesn’t have enough money to import food, medicines, and fuel, or pay back its lenders.
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The country is currently staring at a debt of $51 billion with $7 billion due this year. However, it has already announced that it won’t be making any payments towards this debt until the International Monetary Fund settles on a bailout. It owes money to China, India, Japan, and the Asia Development Bank, among others. India has extended a credit line worth $500 million for fuel, along with $2 billion in loans and currency swaps. It’s also looking at China to provide additional financial assistance after the country extended its loans and offered a $1.5 billion currency swap.
Economists have analyzed the situation in Sri Lanka and pinpointed multiple reasons (from ill-advised policies to the pandemic-induced situations) that have caused the worst economic crisis since the country’s independence from Britain in 1948.
R. Ramakumar, an economist at the Tata Institute of Social Sciences in Mumbai, explained the country’s ordeal on Twitter. After coming to power in 2019, President Gotabaya Rajapaksa imposed tax cuts that led to a foreign currency shortage. After the Easter bombings the same year, tourism—which is a major contributor to its GDP—fell. The pandemic made the matters worse as Sri Lankans across the world lost their jobs, and the country lost on foreign remittances. Tourism, which was finally picking up, stopped completely. Exports of rubber, tea, coconut, and spices also declined. All of this contributed to more decline in foreign currency.
Then, in an ill-advised move in 2021, the government banned imports of chemical fertilizers and encouraged the use of organic fertilizers to save precious reserves. But the move caused crop failures and a food crisis. The country had to import more food, bringing down its foreign reserves. Cultivation of tea was affected too, so it further reduced the exports and the foreign currency they brought. With the rising inflation (15% right now), the cost of living has shot up, making it hard for people to afford everyday essentials. The World Bank estimates that 500,000 people have been pushed into poverty since the pandemic.
Russia’s invasion of Ukraine also impacted the country that depends on the two countries for tourist dollars. Sri Lanka imports wheat, sunflower oil, and peas from Russia and Ukraine, and the two countries import Sri Lankan tea. The rising cost of fuel due to the war has hit Sri Lanka’s economy like an avalanche.
Political Turmoil
All these economic failures have shaken up the nation. Since March, people have been protesting across the country, especially in Galle Face Green, a park in the capital city of Colombo, against the ruling government, chanting slogans of “Gota Go Home.” They have gathered outside the President’s office, while the President and Prime Minister (his brother Mahindra Rajapaksa) attempt to control the unrest outside. The government imposed social media bans and announced an emergency, but the measures were soon revoked after backlash. Gotabaya has appointed a new cabinet with 17 ministers after his ministers quit, leaving out family members due to growing public agitation who accuse him of nepotism and corruption.
Ways to Help Sri Lanka
In the wake of the growing food crisis, Sri Lanka-based Sarvodaya has started a fundraiser in partnership with Kimbula Kithul to provide food packs to 10,000 families in eight districts across Sri Lanka. You can donate to the cause here. The Sarvodaya Shramadana Movement has a strong community network in Sri Lanka.
Doctors in Sri Lanka have been requesting help as the country runs out of essential medicines and equipment. This is a list of medicines and inventory by the Government Medical Officers’ Association—donate directly through the link. Or, you can donate to the Ministry of Health by following the steps here. There is also a fundraiser on GoFundMe that’s directing funds to the Sri Lanka College of Paediatricians, the Perinatal Society of Sri Lanka, and the College of Anaesthesiologists And Intensivists.
You can also donate to the Sri Lanka Red Cross Society, which is working on the ground to assist people. Two locals that we got in touch with also shared this document with various charities and organizations that are supporting people with donations, food, and rations. Make sure to use discretion before you donate—contact them and ask about their relief efforts.