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Sri Lanka’s return from the rubble

by Afonso
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In the new year 2023, there were many ups and downs and wars going on in global politics, but the South Asian country of Sri Lanka was very much an exception. The bankrupt tourism-dependent country has shown remarkable success in reining in soaring inflation. Not only inflation control, the country has also started increasing reserves to overcome the foreign exchange crisis. Along with repaying the foreign debt.

Political deadlock and violence started in Sri Lanka mainly from the previous year 2022 due to extreme economic recession, which grabbed the attention of the whole world. Due to the foreign exchange crisis, the Indian Ocean island nation went bankrupt in May of that year after failing to pay the loan installments of 78 million dollars. With this money, the burden of debt of about 5 billion dollars is pressed on the shoulders of the people of the country.

After gaining independence, Sri Lanka faced the worst economic crisis in the last 70 years. The then President Gotabaya Rajapakse and Prime Minister Mahendra Rajapakse were forced to flee the country due to anti-government protests, attacks and arson. A minister and many others were killed.

The economic damage caused by the corona epidemic and the high cost of energy put the country in a serious crisis amid the irregularities and mismanagement of the previous government. Due to the dollar crisis and high inflation, severe shortages of medicines, fuel and daily necessities are created.

However, to the surprise of the whole world, the new government of Sri Lanka was able to efficiently overcome the food and energy crisis and set the wheels of the economy in motion. They curbed inflation in just 15 months and gradually started to improve. Battered Sri Lanka is now turning around and getting stronger. This is like a big ‘war’ victory.

The country’s recovery from the rubble is a message of hope for other Third World countries at risk of economic collapse. Sri Lanka, which caused panic in the developing world by declaring bankruptcy, has finally become a ‘role model’ for developing countries.

The 17th Governor of the Central Bank of Sri Lanka, Apadmastak Banker Dr. Nandalal Weerasinghe. The question remains – how did the country achieve this impossible! Sri Lanka has achieved this impossible mainly through three main measures – keeping the foreign exchange rate stable, raising interest rates and strengthening the flawed market management. International Monetary Fund (IMF) loans are playing a major role in this effort.

Incidentally, Sri Lanka’s economic situation became fragile at the beginning of 2022 due to skyrocketing inflation. The prices of daily necessities go beyond the reach of the common man. There is disorientation in the energy crisis. As the queues of vehicles waiting at the petrol pumps grew longer and longer, public discontent grew. Even with double or triple the price, food and fuel could not match. As the reserves are close to zero, the country has to stop the import of daily necessities due to the lack of dollars. At the moment of the final disaster, Dr. took over as the governor of the central bank. Nandalal Weerasinghe.

According to data from Sri Lanka’s statistics department, the country’s inflation was 1.5 percent in October 2023. It was 1.9 percent in the previous month of September. And inflation was 4.6 percent in August. Sri Lanka’s inflation rate, which was around 70 percent in September 2022, dropped to just 6.3 percent in July 2023.

According to the Department of Statistics, the country’s total foreign exchange reserves stood at $1.9 billion at the end of 2022. From there, it almost doubled to 3.6 billion (3.7 billion) dollars at the end of October 2023. The IMF loan and the subsequent development of the situation, the country is now getting new loans from various countries and international organizations.

Foreigners are coming forward with investments in various sectors in Sri Lanka. Fuel supply has been normalized. Food prices are falling. On the other hand, income from tourism, the main sector of foreign exchange earnings, is increasing. The local currency has also strengthened somewhat. Gradually, the country started to repay the foreign debt. Sri Lanka took a one-year loan of $200 million from Bangladesh in September-October 2021 under the currency swap mechanism. The country has returned 50 million dollars of the loan taken in four installments to Bangladesh in the last week of August 2023.

Before this, after many discussions, the IMF provided $2.9 billion assistance to Sri Lanka in March 2023. After that the economy of Sri Lanka is gradually stabilizing. Sri Lanka’s government has made consistent progress on structural reforms, the IMF said. Progress has also been made in debt restructuring through internal debt restructuring and negotiations with external creditors.

On the other hand, the World Bank said on Sri Lanka’s economy, the bankrupt country has made considerable progress in reducing inflation. Along with this the income of the tourism sector has increased as well as the depreciation of the currency has also decreased. Sri Lanka’s economy will expand by 1.7 percent in 2024, compared to the previous forecast of 1 percent.


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