Sri Lanka Prime Minister Ranil Wickremesinghe declared the island nation officially bankrupt on June 22, 2022, saying "our economy has completely collapsed". Sri Lanka asked the International Monetary Fund to immediately enact "Bailout" plan. These collapses are caused by a variety of conditions. Recessions don’t happen overnight; rather, they are the result of years of failed policies. In 2009, the end of the civil war was celebrated with a hastily implemented development and reconstruction plan.
Sri Lanka Economic Statistics
Russia - The conflict in Ukraine has far-reaching global consequences, and Sri Lanka is no exception. Sri Lanka's economic crisis has been exacerbated by the COVID-19 outbreak and the ongoing Russia-Ukraine war. The global economic recession triggered by the onset of the COVID-19 pandemic has exacerbated the situation, with Sri Lanka's external debt increasing to 101% of its GDP1 by 2021, threatening economic disaster. As of April 2021, China accounted for about 10% of Sri Lanka's US$35 billion foreign debt , according to government data. The strategically located Hambantota International Port (HIP) was handed over to China Merchants Port Holdings on a 99-year lease for 11.2 million U.S. dollars in 2019 as the Sri Lankan government failed to repay financial capital loans to China. One hundred million U.S. dollars. According to Sri Lanka’s Ministry of Finance, repayments to China are estimated to be between $400 million and $500 million. Due to severe currency shortages, Sri Lanka is experiencing its worst financial crisis since independence in 1948. Colombo owes US$6.9 billion this year. As of the end of February 2022, Sri Lanka's foreign exchange reserves are approximately US$2.3 billion.
India and China: Geopolitics
After India proposed a $1 billion credit line to buy basic commodities such as food and medicine, China is close to reaching a deal with Lanka to provide $1 billion in credit. The credit is used to purchase basic commodities. Sri Lanka has $4.5 billion in debt to repay this year, starting with a $500 million foreign sovereign bond that matures on January 18, 2022. Hambantota Port achieved an operating profit of US$1.81 million after generating revenue of US$11.81 million and direct and administrative expenses of US$10 million in 2016. CM Port has committed approximately $1.12 billion to the port's revitalization as part of a public-private partnership.
Sri Lanka is experiencing growing financial difficulties due to Russia's incursion into Ukraine, which has wreaked havoc on two of the country's most important tourist attractions, analysts predict There will be a breach of contract. Nearly 30% of tourists come from Russia, Ukraine, Poland and Belarus, and this year's Russia-Ukraine conflict threatens to stifle this flow. Official records show that Sri Lanka generated a tourism industry of US$3.6 billion in 2019, and the epidemic dropped to less than a fifth two years later. In 2017, the Sri Lankan government spent 83% of its revenue on debt servicing, a quarter of which was spent on overseas borrowing. From 2019 to 2022, external debt repayments are estimated to have more than tripled, from $2.1 billion in 2017 to $3.3-4.2 billion annually.
Hambantota Port Location
Think Tanks’ Response to Sri Lanka’s Lankan Crisis
However, Verite Research, a well-known economic think tank headquartered in Colombo, stated in its February 2022 report that “in the past The interest that must be paid on debt has been a key driver of Sri Lanka's rising debt from 2015 to 2019." This piled up debt, mainly due to irregularities in loan repayments. As Prashant K. Chaudhary and Madhubrota Chatterji explain, “Inflation fell for the second consecutive month in December 2021 after hitting double-digit highs in December 2021, according to the National Consumer Price Index Soared to 14% month-on-month.This has led to exorbitant prices for daily consumer goods (the national consumer price index is 11.2%), which many Sri Lankans cannot afford. In December, food prices increased by 6.3%, while non-food prices increased by 1.3%.”
There are two potential responses to Sri Lanka’s economic crisis: short-term solutions and long-term solutions.
Immediate measures needed
The short-term solution for Sri Lanka's economy will be a bailout, as President Gotabaya Rajapaksa said his government is in talks with the International Monetary Fund on a bailout package. Experts have stressed a high-quality revenue strategy. The importance of bold fiscal consolidation. They recognize that given Sri Lanka's low tax-to-GDP ratio, there is room for higher income tax and VAT rates, reduced exemptions, and revenue management reforms
Long-term measures
Sri Lanka's economic problems. Long-term solutions would include restructuring the country’s broader economic, trade and industrial policies, namely diversifying away from tourism and tea exports
“For Sri Lanka to be competitive, it needs a tax and regulatory environment that positions it. as a business-friendly country. Explained by Dr. Ganeshan Wignaraja, Senior Research Fellow at ISAS and Research Assistant at ODI. He further explained that by the standards of other middle- and high-income economies in Asia, Sri Lanka ranks 99th on the World Bank Doing Business Index and ideally the country should aim to be among the top 35 or 40 in the world by 2025. This will require a major effort to cut red tape that affects business and digitize all government services. He expressed concern about the future employability of local graduates in the port city, "he said. "While it is possible to reverse the brain drain, there are still key challenges in the university system that must be addressed, including a talent mismatch. The president has acknowledged raised the issue and highlighted the need for a shift towards a curriculum suitable for the port city (including STEM subjects, IT skills and foreign languages). Angry behavior has been made illegal, but stronger enforcement is needed
similar to what our bodies need to continue. Assessment and care to improve, the economy is a living and dynamic system, therefore, the Sri Lankan economy must take short-term and long-term actions
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