The downfall of the Sri Lankan economy

There have been a few eye-opening events that took place in 2022, but the downfall of the Sri Lankan economy is one of the most major events to take place in South Asia. The situation of the country not only saddened its citizens but thousands who think of Sri Lanka as their home away from home as the country’s state was beyond believable earlier this year.

Sri Lanka's situation had been becoming worse, particularly after the COVID-19 pandemic. Like many other nations throughout the world, Sri Lanka was in a difficult predicament as a result of the lockdown and the strange circumstances that the epidemic had left everyone in. But it wasn't simply the pandemic that brought to the country's demise; the government also continued to take unreasonable and irresponsible decisions, which added issues until it eventually fell around June 2022. What precisely caused the nation's economy and way of life to finally collapse?

What happened?

The politicians governing the nation of 22 million people put the country in the situation over the past years. The 2019 election brought Gotabaya Rajapaksa as President, and soon he dissolved the parliament, and appointed several relatives and cronies to government posts. The majority in the parliament also enabled him to change the constitution and had given him more power.

In a country with a history of economic imbalances, government mismanagement, and external imbalances, the slashing of taxes by Gotabaya, only made things worse when the pandemic hit in 2020. When tourist arrivals stopped, it impacted the foreign currency revenue and reserves badly. To make things worse, Gotabaya banned fertilizer imports to save on dollar outflow, only hitting domestic food production.

Just as tourism started to recover late 2021 and early 2022, the Russia-Ukraine war pushed commodity prices up, and importing fuel and food became more costly to the country.

By this time, the country was also running low on fuel, which also meant that a large portion of the country was going through lengthy power cuts that lasted for up to 13 hours at a time. Farmers began to grow crops just to sustain their families while everyone else began to learn to ration, learning how to live with no electricity and getting in lengthy queues in the extreme heat of Sri Lanka in order to try and purchase some fuel.

By the end of June 2022, the country was running out of ways to cater to its 22 million citizens as the food, medicine and fuel of the country were at an all-time low. As expected, it put a halt to normal day-to-day life as people could no longer get to work or anywhere else and schools could not run with no electricity and lunch. Soon enough, the Government had to take the decision to close down schools and Government offices, forcing everyone to work from home – which also made no sense as no electricity meant no internet connection. Life as they knew it was officially on hold in Sri Lanka as July started and protests broke out calling for the Government to step down and accept their failures.

People took to the streets, and protests began to get larger by the day as people began to get weary of living in unimaginable conditions while the Government kept failing to help the country out of the hole they have dug itself into. And while everyone was expecting the Government to own up to their mistakes and step down willingly, on July 14th 2022, while everyone was getting some rest after weeks of protests, Gotabaya Rajapaksa fled his very own country, hoping to escape the backlash and accountability.

After fleeing to the Maldives, and facing severe backlash from citizens in Sri Lanka as well as citizens of the Maldives, Gotabaya Rajapaksa fled to Singapore and finally handed in his resignation on 15th July 2022, and soon enough Ranil Wickremesinghe was sworn in as the President of the country. While people were still unhappy about this choice due to the closeness of the two, protests and disagreements finally boiled down as the International Monetary Fund (IMF) finally intervened in order to help Sri Lanka in the time of crisis.

What are the updates on Sri Lanka as 2022 comes to an end?

While a lot of people followed the news regarding the economic downfall of Sri Lanka since the start of this year, many are unaware of how the country is coping now and the long-term impact the crisis left on the country.

According to the World Bank, the economic crisis in Sri Lanka increased the poverty levels in Sri Lanka as food, as well as day-to-day expenses, have hit an all-time high, mostly due to food inflation. Even though NGOs and other countries gave social support to Sri Lanka, the severity of the situation meant that the support provided did not cover the losses cumulated over those months.

The impact that the crisis left on the  country is extremely high as poverty rates of the country is expected to remain above 25 percent in the next few years. While it might be hard for people outside of the country to imagine the lived situation of the country, the Sri Lankan crisis is not even close to an end as they still have way to go before the country can return to normal.

On November 14, the Sri Lankan Government revealed that the budget for 2023 will mostly focus on those who have been badly affected by the crisis as well as trying to manage the debt situation of the country. While the country has faced an unimaginable amount of problems during 2022, the country still has a lot to take on in the coming year as the country still owes USD 30 billion in bilateral and bondholder debt.