16 October, 2021

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Sri Lanka and Its Economic Crisis Due To Covid-19

A worldwide economic catastrophe has resulted from the COVID-19 epidemic. In 2020, the IMF predicts that the global economy would shrink by 3%, almost twice as bad as what occurred during the 2008-2009 financial crisis. It is probable that Sri Lanka’s economy would be severely affected, while the human cost is considerable.

A paper introduced by UNICEF on the effects of the COVID-19 pandemic in Sri Lanka summarizes findings from a series of Policy Briefs. The goal of these briefs is to provide evidence to support the Sri Lankan government’s social protection efforts in response to the economic crisis created by the pandemic.

This study explores the effects of the crisis in Sri Lanka and suggests implementing a social protection package for the country’s citizens, including low-income families, elderly people, and persons with disabilities.

  1. Ganeshamoorthy, an economist from the University of Colombo has said that “we can observe that prices are rising for all goods.” “It is almost impossible for a normal family to deal with this.”

The Gotabaya Rajapaksa administration has chosen a former army general to administer food reserves and control the pricing of items sold by merchants and retailers.

Depletion in Forex reserves

In order to pay for food and other imported goods, Sri Lanka must have foreign currency reserves.

According to the World Travel and Tourism Council, tourism is one of the country’s major foreign currency earners, accounting for nearly 10% of GDP in 2019.

While travel has been disrupted by the coronavirus epidemic, tourism has also suffered due to it. Due to the health issue and global travel restrictions, tourist arrivals in the country dropped significantly in 2020, which caused the Sri Lankan GDP to decline by at least 3.6 percent. In November 2019, according to ratings of Forex brokers, reserves plummeted from €6.3 billion to €2.8 billion in July 2019, leaving the country with a currency crisis. This decrease is “alarming” according to experts. According to Ganeshamoorthy, “The country’s foreign reserves have dwindled to an alarming degree.” According to the administration, imports are unable to flow into the nation.

According to the government, however, private banks have no more foreign currency to import food.

President Gotabaya Rajapaksa enacted emergency measures to control the stockpiling of basic staples like sugar, rice, and wheat, at a time of severe economic hardship in the country.

While unethical merchants have artificially manufactured a scarcity, taking advantage of customers, they have also coined a new term. Administration Information Director Mohan Samaranayake said in a written statement to Al Jazeera that by implementing these rules, the government has resolved the issue.

Under the rules, authorities have broad authority to confiscate food supplies from merchants, jail hoarders of vital goods, and regulate food prices.

As Commissioner General of Essential Services, Rajapaksa has appointed a senior military commander to oversee the delivery of rice, sugar, and other everyday commodities.

The price increases and lengthy lines at shops were due to shortages of milk powder, kerosene oil, and cooking gas, even though the nation was under a 16-day curfew.

One consequence of hoarding was the shortages of food products, and people suffered because of it.

Meanwhile, the 21 million people who reside in the nation are being affected by a coronavirus outbreak that is resulting in more than 200 deaths per day.

An all-time record 3.6% decrease in the gross domestic product (GDP) occurred in 2020 as a result of the pandemic, and in March 2017, the government implemented a policy to ban imports of vehicles and various other items, including edible oils and turmeric, a common cooking spice, in order to conserve foreign exchange.

General Samaranayake emphasized that the economic projection indicated a projected increase of four and a half percent this year.

Although this has been difficult, importers claim they have been unable to get foreign currency to pay for the food and medications they have been permitted to purchase.

Deep Economic Problems

For several years, the Sri Lankan economy has been weighed down by its heavy debt load. At a time when the country is in the midst of a slow recovery, it is much more difficult for the government to meet debt obligations and fund imports.

But thus far this year, the Sri Lankan rupee has lost 7.5% of its value. With a shrinking foreign currency reserve and a currency depreciation, Sri Lanka is in a worse position to import the goods it needs and to pay back its debt.

Foreign money is no longer available to importers, including food and medication.

As a consequence, many hospitals are having trouble finding critical medical supplies, like COVID-19, which are necessary to treat patients during this nation’s current crisis, which claims the lives of about 200 people every day.

Additionally, due to the country’s heavy reliance on imports for both gas and petrol, a shortage of these key energy resources may be on the horizon. The government is asking citizens to be sparing with their gasoline and has even warned that rationing may occur.

The fact that this is occurring under such bleak circumstances emphasizes the need for the International Monetary Fund to come in with an emergency financial aid package that is worth $787 million.

The administration is hastily mobilizing to grab commodities supplies already in the country to deal with the food shortage. Holding on to products so that they increase in price encourages importers to sell their goods at a higher price.

Private stores have been raided by the government to prevent this from occurring.

After combing through certain military storage facilities, the military commander in charge of the operation reported that approximately 13,000 tons of uncollected sugar had been found stockpiled outside of Colombo.

Foodstuffs that have been confiscated by the government will be released to the market, and the price paid to importers will be fair. While some business owners are concerned that the government’s policies would unjustly affect them, others hope the measures will help.

“We sell at the wholesale rates set by the wholesalers. Owners of small businesses must also earn a livelihood, therefore our profit margins are being cut nearly in half “. Shop owner W.A. Jayasekera told Reuters.

The government’s decision to proclaim a food emergency was strongly criticized by the Samagi Jana Balawegaya, which said that the declaration was made in bad faith and with an ulterior purpose of limiting the citizens’ basic rights.

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