Here is a 10-point lowdown on the Sri Lanka economic crisis:
On Monday, Prime Minister Wickremasinghe tweeted out a long thread stating "unpleasant" facts about Sri Lanka's economic situation. He stated that the government revenue stands at around Sri Lankan Rupee (SLR) 1.6 trillion, while expenditure is currently at SLR 4 trillion. This means the Budget deficit stands at SLR 2.4 trillion, which is 13% of the GDP.
Foreign exchange reserves, which helps a country pay for imports, are nearly empty. "It's a challenge to find $1 million," tweeted the PM. Interestingly, he noted that the country had $7.5 billion in foreign reserves in November 2019.
Wickremesinghe added that Sri Lanka needs $75 million to pay for fuel. For now, India has extended a credit line for diesel shipments. "We are working on obtaining dollars in the open market to pay for the shipments," he tweeted.
Sri Lanka is also facing shortage of medicines and medical equipment. It is, however, already defaulting on its payments. Without going into the details of the possible solution, Wickremesinghe said that Sri Lanka has to pay SLR 34 billion for four months of medical supplies.
Sri Lanka's external debt stands at about $50 billion, with China's share estimated at around $8 billion. China's "hidden debt trap" has been blamed for the worsening debt crisis as the country embarked on a series of Chinese-funded projects that failed. On April 12, Sri Lanka's central bank unilaterally halted the repayment of external debt.
Sri Lanka showed a lot of promise after the end of the 25-year-long civil war against the LTTE. "Recent trends such as low inflation, low and stable interest rates, strong external reserves, stable exchange rate, improving fiscal outlook are solid indications that the economy is returning to normalcy," the central bank noted in 2010.
Sri Lanka's economy grew at 8.6% in the last quarter of 2010 and clocked a growth rate of 9.1% by 2012. This was largely due to a massive push for public infrastructure projects and revival of tourism.
Tourism, which contributed at least 12% to the GDP in 2019, became a major revenue source. In 2018, the island nation welcomed 2.3 million tourists, its highest ever.
However, the Easter Bombings in 2019 and the Covid pandemic a year later destroyed the tourism sector. In 2021, Sri Lanka only welcomed about 1.9 lakh tourists and earned a meagre $500 million in revenue.
The ongoing Covid pandemic has only exacerbated the foreign currency situation, with Forex reserves dipping by over 70% in two years. The decision to back organic farming - critics claimed it was due to forex shortage - led to poor agricultural yields. As a result, agriculture's share in GDP shrunk by 2.4% in 2020.