Sri Lanka Declares Economic Emergency

News: President of Sri Lanka declared an economic emergency on account to contain inflation which saw a huge spike after a steep fall in valuation of its currency caused a spike in food prices

Details:

  • Since November 2019, the value of Sri Lankan rupee has eroded by about 20%. High global market price due to the pandemic has escalated the prices of essential items.
  • Hoarding by traders has also contributed to Sri Lanka taking this emergency route to combat the crisis. Tourism which happens to be one of the main businesses of Sri Lanka has suffered due to the travel restrictions placed owing to the pandemic. Sri Lanka’s economy shrank by a record 3.6% last year.
  • The declaration of economic emergency will empower Sri Lankan government to:
    • Prevent the hoarding of essential items by traders
    • Ensure essential items are sold at government-determined prices
    • It will also help the government to realize import duties owed to the state by the traders

Inflation and the pandemic

  • Inflation is the rate of increase in prices over a given period of time.  Inflation has been rising consistently since the pandemic hit in multiple countries; primarily owing to supply and demand-side disruptions owing to the pandemic.
  • Rise in fuel prices. This is adding to the cost of production across multiple industries
  • Volatility in labour market has been hampering the normal conduct of business.
  • There has been a rise in demand; particularly for essential commodities amongst the masses owing to the fear of lockdown. This has led to the behavior of hoarding amongst common people. The menace of hoarding is still prevalent
  • Increase in global prices is causing the products to be diverted to these markets owing to the possibility of greater product; this is creating shortage of products in the domestic market
  • Erratic rainfall pattern has further exacerbated the inflation issue in some countries