Sri Lanka used to be exemplary on its own accord. Despite the 26-year long civil war, the island nation in South Asia had significantly progressed in terms of literacy and economy. But the situation has now reversed with the country facing one of the worst economic crises ever.
No single reason is responsible for this misfortune. Rather, it is an amalgamation of multiple factors. First is the low foreign currency reserve. As per reports, the foreign currency reserve in Sri Lanka has now fallen by 70 per cent in comparison to January 2020. Being an import-based economy, its tumbled foreign exchange reserve has resulted in low import and high inflation in prices of basic commodities. Such goods have now gone beyond common consumers’ means.
A policy failure of the government is another leading cause behind the current challenging situation. President Gotabaya Rajapaksa’s decision to cut down value added tax (VAT) just to ensure greater economic growth backfired following an unexpected emergence of COVID-19 about 27 months ago. The government was forced to incur a considerable revenue loss. Rajapaksa’s another plan was to completely switch to organic farming. He wanted to reduce the import of fertilisers. So, a ban on synthetic fertilisers was put in place and agriculture production fell off drastically. A nation that was self-sufficient in rice production suddenly became import-oriented.
So just to sustain, the country became heavily dependent on public debt. Reports show that China’s share in total debt stands at about 10 per cent. In 2019, the nation’s debt accounted for 94 per cent of the gross domestic product (GDP). And the pandemic has added to the plight of an already disoriented economy.
There is a great frustration among the public. Many people have taken to the streets and are protesting against the incumbent government and its leadership. While the President has not resigned as of now, 14 ministers from his coalition government have resigned. Public pressure and anger has been cited as the main reason behind this mass desertion. The country is now seeking credit lines from different countries and international organisations. It has also asked China to restructure the existing debt.
Though numerous reasons have been responsible for such an economic crisis, everyone has to point fingers at the leadership at the top. The importance of visionary leadership can never be stressed enough. At times, glorified words and goals that sound good cannot be enough for a country’s overall development. Rash and abrupt decisions also do not help. Instead, well-researched and viable ideas are required to have good practical implications. Only careful planning can aid in growth and development.
With the Sri Lankan economic crisis becoming a topic of discussion these days, many in Nepal have begun questioning our economic future, too. They are fearful of a possible economic crisis. And this alarm is not unwarranted. Like Sri Lanka, Nepal too is dependent on tourism for its foreign exchange earnings. The country with continued political instability has also been dependent on debt. Learning from Sri Lanka’s deteriorating situation, Nepal must come up with more practical policies to prevent the potential economic slump. Every leadership requires more knowledge, vision and commitment to save their nation from awful economic crisis as faced by Sri Lanka.