As we all know Sri Lanka has entered into an economic crisis. There is a fuel shortage, a gas shortage, a power shortage and the inflation rate is higher than ever. People’s livelihood has been tampered with, there are people who are deprived of jobs and food. Organizations too face many difficulties while maintaining their day-to-day operations. Due to all these reasons the people are tired and restless, and they are out on the streets protesting demanding accountability by the government, they are demanding answers and a solution for the economic crisis the poor decision making has resulted in. Can Sri Lanka be truly saved? Is there a way out of this economic and political crisis? Is there a way out?
Why is Sri Lanka the way it is today?
The short answer is poor decision making or as many locals would like to call it “politics”. Since the end of 30 years of war which really took a toll on the Sri Lankan economy. The real catastrophe started when the government started to obtain bonds without considering how exactly to repay them. The reserves were built up by borrowed funds rather than earned income. That was one of the major reasons which led to the start of the Economic crisis. And on top of that, the obtained money was not focused on making investments that generate a proper cash inflow to the country hence poor mismanagement of reserves led to where we are today.
Things escalated when Covid 19 disrupted the country. Although many local businesses were able to adapt to the situation by going online, the most important sector for foreign income for Sri Lanka didn’t move. And that was tourism. The Tourism Industry of Sri Lanka was at an all-time low, which resulted in a poor dollar inflow to the country. Not to mention the import bans by Sri Lanka and various other countries were also adversely affecting our export economy. Hence the possibilities of getting dollars into the country were very low. The tourism industry did however start to gradually develop after several months but the damages were taking too long to recover.
The second catastrophe occurred when we lost several of our main global customers when Russia and Ukraine started the war. Sri Lanka generally exports more than 140 million USD worth of Tea to Russia and about 20 million USD worth of tea to Ukraine. And among the other exports, there is also Rubber and various other equipment and raw materials.
Hence the ongoing war between the two countries resulted badly in the Sri Lankan economy.
To make matters worse Sri Lanka must pay a large sum of its debt in the year 2022. The total value of the long-term debt of Sri Lanka is well over 50 billion USD. and a significant portion of that debt is to be paid this year (1 billion USD by June). Hence the Sri Lankan government spent most of its dollar reserves paying back the debt leaving little to no cash in the reserves to spend on basic commodities such as fuel and gas. This was the “dollar crisis” that Sri Lanka started to face during this year.
How to salvage the situation?
The protesters are in the streets day and night demanding a change. The people want all of the politicians to be removed and a new government, a new face to lead them through this time of crisis. But is that the solution that is ideal for Sri Lanka? What are the ideal steps that Sri Lanka can take to salvage or defuse this ticking time bomb?
The first thing the Sri Lankan government need to do is to take accountability. As of now, the government is only trying to save itself and the opposition is only trying to cling to power. So, the first step to saving Sri Lanka is taking accountability.
Secondly, Sri Lanka needs to go for a debt restructuring plan, and they should be transparent about the entire process. So that the businesses and economists are able to view them from the outside and add their inputs as well.
As we know Sri Lanka has many creditors, and the current condition of the country is not very reassuring for most of the creditors. Hence Sri Lanka must focus on instilling creditors or rather gaining back the creditors’ confidence in order to secure the short-term liquidity.
The best way to instil this confidence is by going to the IMF. There is a lot of scepticism around going to the IMF, but Sri Lanka doesn’t have any other choice left. The only way to save Sri Lanka is by asking the Creditors to push the deadlines and associate with the IMF and negotiate with them and find a way to pay back the creditors. The IMF will impose a lot of tough restrictions on the economy, and it will definitely be tuff to get out of this pickle, but it is possible.
Many of us believe that Sri Lanka is beyond saving and some of you are already planning on migrating. The country can be saved, it is still not too late. The best way forward to save Sri Lanka is to address the ongoing economic crisis immediately. And after finding suitable solutions and having a proper debt restructured plan and seeking ways to increase cash inflows and keep inflation at bay we will most definitely be able to get up from this situation and reclaim our name as the Wonder of Asia.
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