Explained: Sri Lanka’s Worst Economic Crisis is here

India is being celebrated in Sri Lanka after the former promises to help in what has constituted to be the island nation’s worst economic crisis. Sri Lanka is severely under debt with its foreign reserves already exhausted. The Rajapaksa government faces stiff disappointment from the citizens over the mismanagement of the economy which has thrown more than thousands into the pit of unemployment. Sri Lanka’s geographical features have a lot to contribute to its economy, especially the ports and the fisheries. The once self-sufficient island nation is now finding it extremely difficult to even buy basic essentials let alone import any of the commodities. Inflation currently stands at 25%. 

COVID-19 most certainly has changed economies all over the world, but then Sri Lanka’s current crisis only got further aggravated by the same. There are daily power cuts which are ranging up to 5 hours a day and people have been limited to only 400 gm of milk. Food prices have been inflated nearly to about 14%. Some reports have also emerged whereby people are forced to walk miles to procure diesel and petrol. The situations have worsened to an extent that even two people have reportedly died too. Schools have cancelled exams due to a shortage of paper and have been postponed for an indefinite period. The two major newspapers running in Sri Lanka have shut down too and the reason has been the same as earlier cited.

What are the possible reasons?

Well, economists and analysts have claimed that Sri Lanka’s mismanagement of funds emanates from the low foreign reserve and the impacts of COVID-19 have started to show up on the economy. Being an island nation, Sri Lanka’s economy has depended mostly on foreign tourism which was halted due to the restrictions of the pandemic. Further, China’s investment could also add up to one of the major reasons that have not been drawn into the main narrative. China’s investments have always given low returns and finally, the debt trap scenario emerges. Most of the billion dollars projects gave low returns and these investments were into the major sectors of coal, construction of ports and airports. 

How is India aiding Sri Lanka?

India has yet again shown commitment to its ‘Neighbourhood First Policy’ and has assured the Sri Lankan Government that it will help the island nation in the crisis. India has written several Line of Credit, the most recent promised amounted to $1 billion. External Affairs Minister who is currently visiting Sri Lanka had also signed an MoU to help Sri Lanka set up 3 power projects which had earlier belonged to China. EAM Jaishankar has personally stepped in to address the issues of one of Sri Lanka’s renowned hospitals to meet the requirements.

Source: Twitter

Speaking of China, the country has not yet completely turned a blind eye. It is again trying to push Sri Lanka into debt by offering loans instead of LoCs, much different from India. So is Sri Lanka becoming a forefront between India and China to exhibit their rivalry? Perhaps not as India so far has engaged only through bilateral relations and committed to its foreign policies. As the situation in the crisis deepens, India emerges as a victor in terms of its promise to the ‘neighbourhood first policy’.

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The views and opinions expressed in this article are those of the author and do not necessarily reflect the views of The Kootneeti Team

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Arijita Sinha Roy

Arijita Sinha Roy is a former Associate Editor at The Kootneeti.

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