Heavily indebted and with rising inflation, Sri Lanka has been grappling with its dwindling economy— an untoward situation never-before-seen in the country since its independence in 1948.
A 70% drop in foreign exchange reserves since January 2020 has left Sri Lanka struggling to pay for essential imports, including food, medicine and fuel, leading to growing unrest and even military deployments at gasoline stations.
The decision on Tuesday to deploy troops near petrol pumps and kerosene supply points came after three elderly people dropped dead during their wait in long queues.
Tension over the scarcity of supplies has fed sporadic violence among those scrambling to buy fuel and other essential items. Earlier, tens of thousands of people gathered outside the president’s office in Colombo on March 15, demanding his resignation.
Holding paltry reserves of $2.31 billion as of February, the country must repay about $4 billion in debt over the rest of this year, including a $1 billion international sovereign bond that matures in July.
In order to get rid of the crisis, Sri Lanka is expecting World Bank assistance in addition to an International Monetary Fund (IMF) rescue plan to be discussed next month, reports Reuters.
Shedding months of resistance, the country of 22 million people has also sought assistance from India and China.
In 2021, the Sri Lankan government declared an economic emergency due to rising food costs, a sinking currency, and rapidly depleting forex reserves.
Across Sri Lanka, families like are feeling the growing pain of the country's worst economic crisis. The situation turned so worse that Sri Lanka cancelled exams for millions of school students in the Western Province as the country ran out of printing paper last week.
Analyses and media reports have already pointed out the shortage of foreign currency is the main reason behind the overall crisis.
Historically weak government finances, badly timed tax cuts and the Covid-19 pandemic, which pummelled the tourism industry and foreign remittances, have wreaked havoc on the economy.
Even its major export destinations like China, and countries of the European Union, due to Covid-19, had issues with trade, thereby reducing Sri Lanka's foreign exchange earnings.
There are another four major reasons for the economic criris.
Dependency on import
The Indian Ocean nation relies heavily on its imports of petroleum, food, paper, sugar, lentils, medicines, and transportation equipment, among other essential items.
The lack of foreign currency means the country does not have the money to buy (import) these commodities.
Imports are so essential that the government had to cancel examinations for millions of school students because it ran out of printing paper.
Drops in tourism, FDI
The collapse of the tourism industry in the country, which contributes to around 10% of its Gross Domestic Product (GDP), is another major reason.
Tourism was anyway going down after the serial bomb blasts in Colombo in 2019, with the Covid-19 pandemic making it worse. Sri Lanka earned nearly $4bn from tourism in 2019 - and that has dropped by around 90% due to the pandemic.
Several countries including Canada recently warned their citizens over travelling to the Island country due to foreign exchange crisis. The UK, India and Russia are three major sources of inbound tourism for the Island country.
Another factor concerns Foreign Direct Investment (FDI). According to government data, the FDI into Sri Lanka has decreased to $548 million in 2020, compared to $793 million in 2019 and $1.6 billion in 2018.
If the FDI into a country plummets, so does the foreign currency in its reserves.
Chemical fertilizer ban
The government's decision to ban chemical fertilizers to make agriculture 100 per cent organic had a negative impact on the economy. Agricultural production is being hit by the new law as organic farming reduces production by half, as per the experts. The price rice of essentials including rice and sugar allegedly due to hoarding of essentials by "food mafia" added to the woes.
Debt burden
The country owes over $5 billion in debt to China alone. It is paying an additional $1 billion loan to Beijing that it took in 2021. It also owes big money to India and Japan.