An economic crisis foretold ? Sri Lanka (Editorial)

An economic crisis foretold – Sri Lanka (Editorial)

News: The Sri Lankan economy has been facing a crisis owing to a serious Balance of Payments (BoP) problem. Its foreign exchange reserves are depleting rapidly and it is becoming increasingly difficult for the country to import essential consumption goods.

The genesis of crisis:
• The country’s Foreign exchange reserves were already strain after the Easter Sunday terror attacks of 2019 halted tourist arrivals and foreign investments slowed down.
• The Covid-19 pandemic’s impact on key foreign exchange earners – tourism, garment, tea exports, and migrant workers’ remittances – dealt a deadly blow to an economy already reeling from the shock of Easter Sunday bombings.
• In 2020, alone the GDP contracted by 3.6%. At macro level, a significant drop in export revenue, a high import bill (over $20 Billion in 2021) and impending Foreign debt obligations totaling nearly $7 Billion this year.
• The President’s decision from 2020 to restrict imports, including food items and inputs into agriculture, was aimed at conserving Foreign exchange. Driven by that logic, he banned chemical fertilizer imports in May 2021, forcing the country to switch abruptly to Organic Farming in 2021. This move has posed a serious threat to Sri Lanka’s food security.
• Import ban on fertilizers was not backed by corresponding boost in domestic production which could have stabilized food prices.

India’s help to Sri Lanka:
• The relief extended by India from the beginning of 2022 totals over USD 1.4 billion - a USD 400 currency swap, a USD 500 loan deferment and a USD 500 Line of Credit for fuel imports.
• More recently, India extended a USD 1 billion short-term concessional loan to Sri Lanka to help the country as it faces an unprecedented economic crisis.
• Indian traders have started loading 40,000 tonnes of rice for prompt shipment to Sri Lanka in the first major food aid since Colombo secured a credit line from New Delhi.40,000 tonne shipment is part of 3,00,000 tonnes India will supply to Sri Lanka in next few months.
• Indian traders are also likely to start shipping other essential commodities like sugar and wheat in coming weeks.

Why Sri Lanka matters?
• Helping Sri Lanka holds relevance to keep it out of China’s string of pearls game in the Indo-Pacific region.
• It is in our nation’s strategic, economic and political interests to contain Chinese presence and influence in the region.
• In addition to financial help, India can offer policy advice and investments in areas where Colombo needs help to do away with the crisis.
• The present crisis has already seen arrival of 16 persons from Sri Lanka to Tamil Nadu through illegal means. We must ensure that present situation is not used to step up smuggling activities and trafficking.
• The situation also offers a chance to find a solution to the Palk Bay fisheries dispute. Considering our neighborhood first policy, New Delhi must do everything possible in our capacity to help Sri Lanka realize its potential, to reap the rewards of a stable, friendly neighborhood.