Sri Lanka is witnessing an unprecedented economic crisis - there is no diesel left in the country, the government doesn't have funds to buy petrol, tea is being sold at Rs 100/cup and people are on roads protesting against their government.
In today's DNA, Zee News Editor-in-Chief Sudhir Chaudhary analyses the factors that led to economic crisis in Sri Lanka.
Sri Lanka got its independence in the year 1948. The country witnessed a massive civil war between the Tamil and Sinhala communities between the year 1983 to 2009. However, Sri Lanka's economic situation improved in the post civil war era. In the year 2019, the situation reached to a level where World Bank declared Sri Lanka a "High Middle Income" nation. In this year, Sri Lanka's per capita income reached Rs 2.90 per year, whereas India's per capita income stood at Rs 1.57 Lakh per year at the same time.
Then what led to this sudden economic crisis?
There are three main reasons for the Sri Lankan economic crisis:
1) Dependecy on debt for development: The biggest mistake that Sri Lankan government did over the past few years was to make a humongous amount of international borrowings to meet its development needs. In 2016, Sri Lanka had a loan of $46 Billion (Rs 3.45 lakh crores) on its head. However, in six years, the same amount has grown up more than twice - to Rs 6 Lakh crore - which is almost equal to the size of its entire economy.
2) Not spending the debt into the right direction: The second mistake was not to spend the debt-money judiciously. Sri Lanka didn't spend the money on its manufacturing sectors that could have led to increasing the incomes of people. Sri Lanka's economy is dependent on three sectors - tourism, tea and textiles. However, all these three sectors were badly affected during the pandemic.
3) Dependency on import: Sri Lanka never tried to become self-dependent. The country exports even the minor day-to-day products. There are hardly any country-made products available in Sri Lanka which makes the economy dependent on imports.
