The Reason for Economic Crisis in Sri Lanka

The Reason for Economic Crisis in Sri Lanka

Very upset to see the news coming from Srilanka. By seeing the prices of fuel and basic groceries getting a heart attack. The people of the country are really struggling to survive there due to the Unprecedented recession. 

How could a country not predict the economic crisis until so much happens? What are the reasons behind the Srilankan economy in the abyss? There is a lot to learn from their mistakes. 

Before seeing the reasons for economic crises, let’s know about Sri Lanka to understand the crises in a better way. Srilanka is an island located in the Indian ocean below the southern region of India. Agriculture, Garments, Fishing, and Tourism are their most important businesses for income.

Sinhalese, Tamils are the bulk populace in Sri Lanka. Buddhism is the broadly observed faith throughout the countryside. Along with them, Hindus, Muslims & Christians also are there.

If you take any country, the development projects and schemes that they make should be planned well and useful to their economic and social development. The Development projects implemented in Sri Lanka were not planned properly, hence it is unably utilized for their improvement. 

There are 8 main reasons for Sri Lanka’s economic crisis,

  1. Failure of Bureaucracy
  2. Ban on fertilizers and pesticides used in agriculture
  3. The discriminative approach based on religion
  4. Not modernizing the fishing
  5. Given more importance to the Private sectors
  6. Spending more on Army than Manufacturing sectors
  7. Corruption


Failure of Bureaucracy

The Bureaucracy fails when there are no appropriate officers in the positions as they do not know to handle critical situations. The appointment of secretaries in main industries like telecommunication, food manufacturing, central bank, and so on was entirely favorable to the relatives of the President. So they have removed skillful secretaries and appointed relatives, especially they preferred sinhales.   

After the war in 2009, during Mahinda Rajapaksa’s tenure, they built airports, a convention center, a seaport, and a cricket stadium in the Hambantota region with help of funds from china. Also, India helped them to build railway tracks in the northern region. 

The airport is unused and there is no gathering happening in the convention center. Also, they are unable to use the cricket stadium due to wind, and also it is laid on an elephant corridor.

Due to a lack of administrative failures, these all development projects became useless. Also, they are unable to predict and handle the situations.

Also, dairy production in Sri Lanka was 80% self-sufficient in 1977, only 40% self-sufficient in 2018. Now it is lower than that. As they did not have any schemes to improve the production of milk products. The result is that they are importing milk powder for about 400+ million US dollars per year. 

Ban on Fertilizers and Pesticides

After Gotabaya Rajapaksa became the president, he banned the usage of fertilizers and pesticides in agriculture, instead, he recommended organic farming. This sudden announcement hit the complete agriculture production in Sri Lanka. Hence the demand for almost all agricultural products increased. They started importing all these products due to high demand. 

For example, self-sufficient rice has become a demanded product. Therefore, the prices of all the products were increasing day by day.

Organic farming is a good concept to have healthy products, but it might not satisfy the demand of the country. Also, we can not expect all the farmers to be aware of organic farming, they need some sort of training to learn and implement it. The government did not give them the training and time to adopt the new policy. 


The discriminative approach based on religion

As we know that the majority of the population follows the Buddhist religion. The acts of government are mostly against the minorities in the country. Buddhist monasteries were established in many places by demolishing the Hindu temples.

If any group tries to spread hatred against certain groups, then the government can question them, punish them and make sure there is social harmony. But here the government itself is making these mistakes, then who will question them? 

This is evidence that If any country fails to treat its citizens equally, then it will pay for it one day. 


Not modernizing the fishing

Sri Lanka is an island laid on the Indian ocean. So fishing is one of the revenue-generating sectors. In this technological world, everything is upgraded and modernized to make our work easy. The fishing is not an exception to this, but Sri Lanka did not accommodate the updated techniques in the fishing. Hence it did not make much revenue as expected.

Also, they are importing fish even though they have great sources of fish.


Given more importance to the Private sectors

The Sri Lankan government did not have any plans/schemes to make the public sectors like food distribution, health centers, and so on. They were more eager to privatize all the sectors and had done it. 

Usually, the private sector will run on a profit basis, not in a services-oriented way. The result is that the government is unable to provide the service to their own people when there is a crisis.


Spending more on Army than on manufacturing sectors

This government was bent on doing military machinations even after the war. In the last 13 years, only 2 manufacturing industries started in Kilinochi with help of  India’s investments, but 50+ army camps were established in the same region. So they spent more on the defense sector.

When a country itself is not self-sufficient in basic sectors, what is the point of investing more in the defense sector? 



Corruption is another problem in Sri Lanka. As ministers were appointed inappropriately, they looted the public money as they wanted. 



As we all knew that the corona started at the end of 2019 and was getting spread worldwide in 2020. It affected the economics of many countries, even Sri Lanka is not an exception.  

There are 4 income earning sectors in Srilanka Garments, Tea Exports, Foreign Exchange and Tourism. These sectors were affected completely due to Corona and administrative failures.

The result is that Foreign exchange deficit which again made them get the loan from the other countries.


Other reasons

After the war, foreign investment did not come as they expected, so they could not create more employment.

Even the Russia-Ukraine war also affects Srilanka as both those countries are involved in import and export with Srilanka.  

The Sri Lankan government has also borrowed from domestic and foreign banks due to the foreign exchange deficit. So Domestic and Foreign Loans are getting more which they could afford to pay back.

Did not handle Corona properly like other countries. 

Usually, India was the first country to invest more in Srilanka, but China became the first country and India in the second position. 

Relied solely on the import of raw materials and pro-imperialist policy

The reason is that it has borrowed heavily from China and is not trying to become self-sufficient in GDP

Sri Lanka’s foreign exchange reserves are drastically lower. Foreign exchange reserves are 260 crores American dollars and its debt balance is 3800 crores American dollars. The reason is that about 80 percent of government revenue is spent on showing interest. Need to borrow more to overcome the lower foreign exchange reserves. 

It has completely stopped the structure of public sector enterprises but has given more importance to the private sector

There is no proper public distribution system in Sri Lanka. 



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