Analysis of the "Sri Lanka" Crisis

Just a few days ago, when some coast guards in Tamil Nadu, were on their duty, they saw around 16 to 17 people were entering India from Sri Lanka. When they caught hold of them and enquired, they got to know that all those people were from Sri Lanka, who without any proper documents, were trying to enter India. But this is not the first time that refugees have come to India from Sri Lanka. Even before this, at the time of the Civil war, a lot of refugees came to India. In around 107 camps in Tamil Nadu, around 60,000 refugees reside. And around 30,000 people outside the camps. But this time, the reasons are very different. When they were asked, why did they take this decision?

They responded, that they do not even have the money for food. The salary in which they were previously managing everything, today is not at all-sufficient. A lot of food items have become costlier by three times. Getting LGP has become very difficult. We cannot even cook our two times meals because of that. Don’t even talk about petrol and diesel, there are 2 Km long queues for that. and a lot of people are dying, standing in those queues. Over 10 hours back out in big cities and insufficiency of papers in school.

On September 1, 2021, the Forex crisis leads to a Sri Lanka foot emergency

In the country suffering a hard-hitting economic crisis, President Gotabaya Rajapaksa said he ordered emergency regulations to counter the hoarding of sugar, rice, and other essential foods.

On October 17, 2021, Sri Lanka seeks a $500 Mn loan from ?????????India for fuel purchase

On March 18, 2022, India extends a USD 1 billion line of credit to Sri Lanka. With this, Delhi has provided total financial assistance of $2.4 billion to Sri Lanka since January, but this will only partially help mitigate the country’s economic meltdown.

So, the current situation in Sri Lanka is can be called a man-made economic crisis.

The problem started in 1960 when the government starts using only 10% of the money received from the exports for development. And rest of the money was being spent on welfare schemes. Which they had perhaps promised at the time of elections. And they started giving a lot of things for free, all the money they earn by export has been spent on this scheme. And therefore, they could not spend much on long-term development. The government is always short-sighted they never think of the long-term. They did not think about things after 10-20 years. They only think how the public will be happy for 3-4 years and of the moments, Despite no capability.

In 1977, the situation was such that whatever income the government had through taxes or other sources, they were not able to pay for the schemes. And because of that, the government had to take loans or debt to pay for those schemes.

Sri Lanka's government understands the situation and its failure and starts working on it.

In the year 1983, the Civil war started in Sri Lanka, big MNC like Motorola and Harris corporation which are going to start their plant in Sri Lanka close their plans due to the civil war. Many other companies like Sony and the bank of Tokyo refuse to come to Sri Lanka due to the civil war.

This all ends in 2009 till then Sri Lanka is very much destroyed and companies had not invested even a single dollar.

until now, the International Monetary fund IMF has bailed out Sri Lanka 16 times.

But this time the reason for the crisis is quite different. In 2005 Sri Lankan government has started development work rapidly, in which one proposal was that they want to develop Hanumantota port. It was important in a view of Import and exports. Hence, they sent a proposal to the U.S, India, and various countries. Countries like the USA, Japan, and India rejected their proposal as they have not found this feasible for them. Sri Lanka proposes this to China and China agrees but in strict terms and conditions. The condition is, that the port that is to be built should be made by a Chinese company and if Srilankan fails to repay debt then China will take the port for lease for 99 years. And the story continues as the government fails and China took over control of the port. Srilankan Government has not learned anything from this case and they continue to take debt from China and other countries. About 70% of projects are now under the control of china and debt to the Sri Lankan government.

Today's situation is that the total earnings of Sri Lanka are less than the total debt of the country and 83% of government income is spent on debt repayments.

Due to Covid-19 and Church bomb blast in 2019 shaking and affected their economy heavily, tourism got almost ended and the export of garments in western countries is decreased by 60%. The forex reserves decrease rapidly, and the import of oil and other necessary items remains the same.

Hence, the situation now is that the government doesn’t have forex reserve to import items and the country is facing a crisis worst since its independence.

We have seen that the government of India is trying to help Sri Lankan government by giving a $1 billion line of credit for the import of necessary items and as a responsible country India is helping Sri Lanka at its best.