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How Sri Lanka Recovered from Its Grave Economic Crisis

The economic crisis reached so deep that imports were stopped. There was a cry for daily necessities, emergency medicine, fuel. Common people have to wait in long queues to buy essential commodities and fuel. Many people have fallen ill and died due to standing in the hot sun for hours. Due to lack of paper, teaching programs had to be stopped across the country.

 

The situation got so out of control that common people took to the streets to protest against the government. The president himself fled the country to escape public anger. But that country has turned around from the edge of the ditch within a year. Inflation in the self-declared bankrupt country is now in the single digits. Everything is back to normal. Many analysts say that it is not easy for a country to turn around from the edge of the abyss within a year. The name of this country is Sri Lanka.

 

History of Sri Lanka

 

Since the arrival of the Aryans in the Indian subcontinent, Sri Lanka has been Sujla-Sufla grain-shyamla. Sri Lanka is located at an important place on the East and West trade routes by sea. Because of this, the island nation has been visited by foreigners for thousands of years.

 

Archeological studies have revealed that the first human feet fell in Sri Lanka 125,000 years ago. The Portuguese first built a fort in Colombo in 1517 in the early 16th century. At that time Sri Lanka was divided into seven small states. The hostile relations between these states were taken as an opportunity by the Portuguese. After the construction of their fort, truces were a regular occurrence in Sri Lanka for the next century.

 

Meanwhile, the spread of Portuguese missionaries continued to increase the number of conversions in the island nation. Buddhists are proud of it. At one point the situation was such that the Buddhists were ready to seek help from anyone else to stop the Portuguese. At the very beginning of the seventeenth century, the king of Kandy sought help from the Dutch. However, this move proved to be wrong before the half of the century passed. By 1660, the entire area of Sri Lanka except Kandy was under Dutch control. The Protestant Dutch then began to persecute Catholic Christians. But they allowed Buddhists, Hindus and Muslims to live like themselves.

 

Meanwhile, the British panicked during the campaigns of French hero Napoleon Bonaparte. They thought that since Napoleon's France had taken over the Netherlands, Sri Lanka would also be taken over by the French. And if this happens, their business in the Indian subcontinent will be seriously affected. Because at that time, their cargo was passing through Sri Lanka by sea. It would not be good if such an important island fell into the hands of rival France. With this in mind, the British decided to occupy Sri Lanka. Sri Lanka was then known to them as Ceylon. In 1796, the British were able to easily occupy the coastal areas of Sri Lanka. And in 1802, the United Kingdom took control of most of Sri Lanka through an agreement with the Dutch. But Candy remains out of control. However, the British did not have to wait long for this. In the war of 1803, the British army captured the state in the war of 1815. And Sri Lanka lost its independence completely.

 

After the British took over Sri Lanka, they noticed that the highlands of the island nation were very suitable for growing tea, coffee and rubber. Then they started cultivating these in those areas. By the mid-nineteenth century, Ceylon tea had become an indispensable commodity in the United Kingdom.

 

The independence struggle in Sri Lanka began in the nineteenth century. In 1948, immediately after World War II, the island nation became independent from British rule.

 

But this journey was not very smooth. In 1971, armed conflict erupted in the country. A left-wing group called Janata Vimukti Peramuna carried out armed attacks and took control of important areas in the central and southern regions. But in the end, the Sri Lankan government was able to suppress this armed movement. Then, in the eighties, the Tamil Tigers rose to the occasion. The bloody conflict continues. Sometimes it took the form of riots, sometimes attacks and counter-attacks. In this way, on May 18, 2009, the country's government finally announced that they have been able to completely suppress the Tamil Tigers. Nearly three decades of conflict between the Sri Lankan government and the Tamil Tigers have claimed nearly 100,000 civilian lives alone. However, both the Sri Lankan armed forces and the Tamil rebels have been accused of war crimes in the conflict. Several human rights organizations, including Human Rights Watch, have also accused the Sri Lankan army of committing genocide.

 

Sri Lanka's transition to conflict-free Sri Lanka has been relatively smooth since the suppression of Tamil insurgents. However, political tensions continued. Sometimes this tension has led to the fall of the government.

 

What causes the economic collapse?

 

Sri Lanka is a predominantly agricultural country. Various agricultural products including tea, coffee are appreciated around the world. However, the country has never been able to earn significant foreign exchange through agricultural exports. Instead, the country's economy became dependent on tourism and expatriate income.

 

The World Bank has previously warned that the economy's dependence on tourism and expatriate income is unsustainable. Despite this, Sri Lanka's annual growth from 2003 to 2012 was over 6. But then gradually it started to decrease. At one point, the World Bank downgraded the country from the list of upper middle income countries to the list of lower middle income countries.

 

And then at the end of 2019, the coronavirus pandemic hit the world. Lockdown begins in the country, entry of foreigners is limited. Sri Lanka's tourism industry collapsed due to this shock. The global economy is in turmoil due to the pandemic. Cost-cutting has led to layoffs in many places. Unemployment is increasing. This also greatly affects the economy of Sri Lanka. Because the expatriate income has decreased and stopped at the bottom by that time. After more than two years of this, Sri Lanka's foreign exchange reserves have decreased completely. As a result, the way of importing the country's products started to be limited.

 

In February 2022, Russia began military operations in Ukraine. Various countries, including the United States and the United Kingdom, began to impose sanctions on Russia. The sanctions against one of the world's top oil and gas exporters hit the energy market. The price of oil increases. Due to this, a kind of instability is created all over the world. The price of goods is increasing, and the cost of living is increasing along with it. In this situation the Sri Lankan currency weakened further against the US dollar. As a result foreign exchange reserves further reduced overnight. This further obstructs the way of importation. At one point the fuel shortage in Sri Lanka was so severe that people had to queue for hours to collect cooking fuel. Meanwhile, due to the stop of imports, the medical sector also suffered. Life-saving medicines become scarce in Sri Lanka. Drug store shelves become empty. The crisis did not stop there. The price of goods rose so much that some goods became beyond the reach of the common man. It became difficult to buy daily food items.

 

At the end of August last year, UNICEF said that children in Sri Lanka are spending the night hungry. Because, due to the economic crisis, the people of the country are not able to buy even the main food products. UNICEF has appealed to the rest of the world to fund at least $25 million for Sri Lankan children. The organization said this amount would meet the needs of half of Sri Lanka's children.

 

Meanwhile, when the economic crisis became evident, the angry people of Sri Lanka took to the streets. Several ministers' houses were burnt. Amidst the clashes and attacks, the protesters stormed the Prime Minister's official residence. Mahinda Rajapakse was forced to resign from the post of Prime Minister last May. His brother Gotabaya Rajapaksa wanted to cling to power but could not. Sri Lankan protesters also entered the President's residence. At the time, pictures of protesters swimming in the president's swimming pool and taking selfies lying on his bed went viral. After two months he too had to move. He even had to flee the country.

 

On the other hand, unable to make any progress in the transition from the economic crisis, Sri Lanka said in April last year that they will not be able to repay the foreign debt. And if one wants the loan money immediately, then he has to take it in Sri Lanka Rupees. Sri Lanka has been in an economic crisis before, seeking 16 bailouts from the IMF. But this time it didn't work. The country officially defaulted in May last year.

 

According to analysts, corruption is one of the reasons for Sri Lanka's economic crisis. Sri Lanka had a score of 37 on Transparency International's 2021 Corruption Perceptions Index. A score of zero on the index means widespread corruption. And a score of 100 means corruption free. This score shows how widespread corruption is in Sri Lanka.

 

According to many analysts, Sri Lankan politicians from high-level to low-level civil servants are corrupt.

 

On December 26, 2004, a powerful earthquake struck the Indian Ocean. Due to its effect, the tsunami washed away in the surrounding area. Sri Lanka was also affected by that tsunami. At that time Mahinda Rajapaksa was the Prime Minister of the country. International donors quickly sent financial aid to help those affected and affected by the tsunami. But there are complaints that cooperation never reached the common people.

 

In May 2022, a documentary was shown on ABC Four Corners, an investigative journalism program on Australian broadcaster ABC Television. A hard truth comes out of it. In 2012, Mahinda Rajapakse was the President of Sri Lanka. At that time, the Australian based medical company Aspen Medical was involved in the Hambantoto General Hospital project. The documentary alleges Aspen Medical siphoned off billions of dollars from the project with the help of political influencers.

 

In the 2015 presidential election, Rajapaksa was accused of using security officers and staff and vehicles of the Sri Lankan state airline Sri Lankan Airlines for his campaign. However, Mahinda Rajapaksa lost that election. Maithripala Sirisena became president promising to eradicate corruption. Current President Ranil Wickremesinghe took over as his Prime Minister. However, they could not eliminate corruption, and they were also accused of corruption in various projects. Later, their government also fell due to the disagreement between the two leaders.

 

Experts opine that not only corruption but also ambitious projects have sunk Sri Lanka. Amid economic pressure, huge infrastructure projects were undertaken in the capital, Colombo, with Chinese cooperation and loans. Not only this, Hambantoto Port and Hambantoto Airport were also built with Chinese funding.

 

Regarding these projects, Bhavani Fonseka of the Center for Policy Alternatives in Colombo told Voice of America that these projects have only increased spending and debt. For example, Hambantoto Airport is said to be the most secluded airport in the world. Because it did not attract the trade as expected. Similarly the Hambantoto port did not raise much revenue. China accounts for 10 percent of Sri Lanka's international debt.

 

How Sri Lanka turned around

 

A year ago Sri Lanka was drowning, today the situation in Sri Lanka is completely normal. The supply of daily commodities in the market is normal, all the institutions are running normally, public life has also returned to the normal cycle. According to experts, Sri Lanka was able to return to normalcy so quickly because of the coordinated implementation of several strategies by the authorities. For example, President Ranil Wickremesinghe's government has opted for austerity and revenue raising. They have increased the rate of sending workers abroad. Besides taking loans from foreign sources, which will not create a debt trap. The International Monetary Fund (IMF) and the World Bank stand by Sri Lanka. India has also extended its hand of cooperation towards its neighbour. Meanwhile, Sri Lanka's tourism sector has recovered from the impact of the Covid-19 pandemic.

 

According to a recent BBC report, income from Sri Lanka's tourism sector has grown by 25 percent in a year. Remittances increased by more than 75 percent during the same period. Meanwhile, due to the increase in production in the agricultural sector, the supply of daily commodities has increased in the market. The export rate of tea has increased. Sri Lanka is also doing well in rubber exports. Inflation in Sri Lanka exceeded 50 percent last year. Within a year, that rate had dropped to 6 percent.

 

However, experts say that even if Sri Lanka's economy can turn around quickly, the country has to pay a price for it. For example, food, healthcare and house rent are still high in the country. The poverty rate in the country has doubled in the last one year.

 

Economist Rehana Thowfeek of the Colombo-based research institute Advocata Institute told Reuters that stability has come to Sri Lanka. Now there is no shortage of daily commodities like before, there is no need to stand in line for fuel. Now there is no need to shut down the power supply for 13 hours a day as before. But still inflation is hurting people. Inflation is still higher than pre-crisis conditions. A large part of Sri Lanka's poor population is laborers, who eat from day to day. They have suffered the most in the crisis.

 

Of course, the government is not sitting. The government has taken new initiatives to help the poor. Accordingly, it has been announced to provide direct financial assistance to 23 lakh poor families. However, experts said that it is insufficient. Kamal Padmasiri, a member of the state-run Welfare Benefits Board, said that 13,800 Sri Lankan rupees (about 42 US dollars) should be paid per person per month to support the poor. But it is not possible for the central bank to supply so much money.

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