Sri Lanka declares public emergency amidst protests over worst economic crisis
- Sri Lankan President has declared a nationwide public emergency amidst a spate of protests over the worst economic crisis in the island nation. A special gazette notification was issued late on Friday night, declaring a public emergency in Sri Lanka with immediate effect from April 1.
Reasons for the current crisis:
|Country’s third-largest foreign exchange earner, came to a virtual halt after the 2019 Easter Sunday suicide bombings.
|Remittances from foreign workers, which was the nation’s biggest source of dollars, slumped 22.7% to $5.5 billion in 2021.
|Sudden shift to 'Organic Farming'
|The government banned chemical fertilisers last April. A survey showed that 90% of Sri Lanka’s farmers used chemical fertilisers for cultivation. The move led to a drastic drop in domestic food production, pushing up food prices. The decision was rolled back after months of mass protests by farmers but the damage was done. Food inflation soared to 25.7% in February.
|Low Industrial production
|Garment factories and tea estates could not function, as Covid-19 raged in clusters. Thousands of Sri Lankan labourers in West Asian countries were left stranded and returned jobless.
|Policy Failures of Government
|Food hoarding : The government declared emergency regulations for the distribution of essential food items. It put wide import restrictions to save dollars which in turn led to consequent market irregularities and reported hoarding.
|Continuous borrowing : Fears of a sovereign default rose by the end of 2021, with the country’s foreign reserves plummeting to $1.6 billion, and deadlines for repaying external loans looming.
|Earnings fell from $3.6 billion in 2019 to $0.7 billion in 2020, even as FDI inflows halved from $1.2 billion to $670 million over the same period.
Sri Lankan debts
Implications for India
- Colombo assumes importance for India since almost 70% of all container cargo for and from India is trans-shipped there, mostly at Chinese-operated terminals. Thus, a long-term economic crisis in Sri Lanka will threaten India’s strategic interests. Other implications include:
- Opportunity for China: The growing economic crisis in Sri Lanka offers more opportunities for China to increase its dominance in the Indian Ocean region. Allowing this to continue will adversely affect India’s strategic interests. The economic crisis may further push Sri Lanka to align its policies with Beijing’s interests.
- Problem for exporters: Decreasing forex reserves of Sri Lanka has Indian exporters worried about the possible payment of dues by Sri Lankan importers.
- History, cultural closeness, and the constraints of geography poise India and Sri Lanka as natural and permanent partners. They need to explore cooperation in new avenues to further their respective economic and developmental aspirations jointly.
- The present situation actually affords an opportunity to India. It can step up its aid to help rescue Sri Lanka from this economic crisis. Assistance given at this particular juncture will carry major diplomatic weight than the assistance given during normal times. This crisis can jumpstart a new chapter in India-Sri Lanka relations.
- Major ports and other locations
Q. China has been a major factor in driving Sri Lanka into a drowning economic crisis. Critically analyse.