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Why Sri Lanka Collapsed?

The Present scenario of Sri Lanka is that it is facing the worst economic crisis. Value of Sri Lankan Rupee has gone down ,Inflation has gone high sky rocketing, the prices of basic things like food, fuel prices, LPG gas cylinder has gone up remarkably high and because of this fear of refugee crisis in India has increased.

Finally, Prime minister of Sri Lanka Ranil Wickremesinghe declared that Sri Lanka is not in a position to pay any debt and its economy has collapsed. India, China, US, IMF many has tried to help Sri Lanka and hopefully the economy recovers.

But how the economy collapsed?

There were several reasons for this collapse but I have highlighted the main events which are responsible for this collapse:-

Easter Day bombings

It all started in 2019 with Easter day bombings when seven suicide bombers struck two Catholic Church and one Protestant Church and three luxury hotels, After these attacks tourists started vacating this island and tourism sector dropped by 70% in next month and 60% to next to next month. It caused a setback for the economy as 12-13% of Sri Lankan GDP depends on Tourism Industry.

Organic farming

President of Sri Lanka Gotabaya Rajapaksa promised in the elections that if he comes to power than the conventional farming method will be avoided and as much as Organic farming will be practiced gradually over a period of 10 years. We all know that Organic farming is good for Environment and our health but there are drawbacks to Organic Farming if it is not planned properly-

1- The Difference between organic farming and Conventional farming is that due to less use chemicals it is prone to decay if not consumed in time.

2- There is also one setback for Organic farming is that it is harder to market, difficult to transport within time and production yields are lower than conventional farming crops.

Sikkim is the 100% organic state in India which has planned and executed well but in Case of Sri Lanka it backfired because Government suddenly banned synthetic Fertilizers and pesticides and for this reason the Exporter of Wheat became Importer of Wheat within 6 months and Sri Lanka used to Plant Tea and because of this Tea plantation business also affected and Sri Lanka have to Import Tea. It caused a heavy burden on their forex reserves.

Tax-Cut Policy:-

Recently top officials of Government of India warned Prime minister of India for freebies given by state governments which will lead to serious economic crisis like Sri Lanka.

During the Campaign, President of Sri lanka promised that he will reduce the tax rates and when he came to power he reduced FDI rates to attract foreign investments and he reduced value added tax from 15% to 8% so that burden of people will reduce and they will consume more but it also fell apart and Covid-19 Pandemic came and people consumed less and tourism sector also crashed ,so burden on budget increased and it lead to this downfall.

Debt-trap Policy:-

Debt-trap policy is that lender extends money to borrower and if the borrower cannot pay money, they may capture there area, city or country.

The construction of Hambantota Port was financed by the Chinese Exim bank. The port was running into losses, so Sri Lanka leased out the port for 99 years to the Chinese merchants group, which paid Sri Lanka USD 1.12 billion. It was clearly evident that it was China’s debt-trap policy.

Hope u like the blog.

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