A few timely actions could have prevented the economic crisis in Sri Lanka that they are currently facing. Many reports suggest Covid lockdowns or the Ukraine crisis to be the cause of the economic chaos of the country but this was just a final blow to an economy that was surviving on a ventilator.
I cannot deny that the Covid induced ban on travel and the hospitality industry’s downfall due to incomes being affected globally was a big push to the economy towards a collapse. A country which is dependent on tourism for nearly 13 per cent of the GDP was severely affected leading to a decline of the foreign exchange reserve to 70 per cent in the past two years. The increase in oil prices can also be taken as another external factor leading to the crisis but these just acted as catalysts to the crippling economy that was a result of years of neglect and mismanagement.
The Sri Lankan crisis also teaches us to beware of the devastating effects of decisions taken in a haste and without any planning. As promised during the election campaign the GST was lowered from 15% to 8per cent, and the tax slab for “no tax” was raised from 500,000 to 3,000,000 LKR. Sri Lanka saw a 33.4% decline in the percentage of people paying taxes The tax cuts by President Rajapaksa caused a loss of $1.4bn (£1.13bn) a year in revenue. This caused a big financial burden on the country already under debt to be paid. When foreign currency shortages in Sri Lanka became a severe concern in early 2021, the government sought to stem the flow by prohibiting chemical fertiliser imports and advising farmers to utilise locally obtained organic fertilisers instead.
The move according to me was like adding kerosene to the flames. The policy of converting the country’s agriculture to organic farming led to a decrease in both imports and exports of food materials. The agricultural production came to as low as 30 per cent. The measure, which was made to lessen the country’s reliance on chemical fertiliser imports, ultimately led to the country being reliant on imports to feed its people, weakening its currency against the dollar and reducing its foreign reserves. The tea industry was one of the most severely affected industries because of this decision. Sri Lanka’s most important export is tea. Tea exports were worth $1.3 billion per year before the country’s economic turmoil. However, it has now fallen to its lowest point in 23 years.
After discussing a variety of policy issues and flawed decisions by the government that led to the crisis, I want to bring your attention back to the point from which I began. The crisis could have been avoided if a few timely steps had been taken. Sri Lanka has taught India and other countries that major structural fault lines should be addressed as soon as they are discovered. Moreover, a country’s ability to sustain itself during a period of crisis depends heavily on its ability to become self-sufficient. The promotion of schemes and programs that enhance local production needs to be more aggressively done so the country can prepare for any shortage that may occur. To conclude, I believe that all countries should incorporate Sri Lanka’s lessons in a way that is most appropriate to their economical structure.