The island nation Sri Lanka is witnessing the worst economic crisis since its independence from Britain in 1948. Now, the country is on the verge of bankruptcy, with nearly USD 7 billion of its total USD 25 billion in foreign debt because of the repayment this year.
The crisis has led to a major shortage of foreign exchange and it is unable to purchase imported goods. Hence, the Lankan public is on the roads and protesting, amid limited availability of food, items, cooking gas, fuel and medicine etc.
"Sri Lanka is in the midst of the biggest economic crisis in the country's history. The population has been severely affected by the depreciation of the Sri Lankan rupee as the performance of the currency is worsening," Pradeep Multani, President PHDCCI and Chairman, Multani Pharmaceuticals.
According to the Department of Census and Statistics, the inflation in the country for March 2022 under the National Consumer Price Index (NCPI) rose to 21.5 per cent from 17.5 per cent reported in February 2022.
"Also the inflation is shooting up and there is a shortage of critical products due to a lack of foreign reserves. In March 2022, foreign reserves dropped to USD 1.9 billion, which is insufficient to cover imports for two months," said Multani.
Talking about the food inflation, it soared to 29.5 per cent in March from 24.7 per cent in February. Meanwhile, the moving average inflation for March 2022 is at 10.6 per cent and prices increased to 29.5 percent in the past 12 months.
"The present economic crisis has been aggravated not only by the fall in tourism during the pandemic but also by external debt and price inflation. Not to mention, the sudden prohibition on the use of chemical fertilizers last year resulted in food shortages and the depreciation of the currency, ultimately leading to imperishable damage," said Naresh M. Gehi, Founder, Managing Partner, Gehis Immigration and International Legal Services.
Meanwhile, the Reserve Bank of India has extended the duration of the USD 400 million currency swap for the Central Bank of Sri Lanka (CBSL) which was concluded in January this year, informed the Indian embassy in Lanka on Friday.
"Sri Lankan economy is suffering from twin deficits- both current account and budgetary deficit. This is further aggravated by the depleted currency reserves. The country does not have the money even for funding the necessary imports like oil. The inflation is soaring and the economy is in a complete mess. IMF intervention, as well as changes in the political establishment, may ease some of the tensions. We are already seeing signs of social unrest," said Arun Malhotra, Founding Partner and Portfolio Manager, CapGrow Capital Advisors.
However, according to the experts, the ongoing situation will have less impact on the Indian economy.
"A marginal impact on the trade due to dependency on Colombo ports for trans-shipment of goods can be noticed. On the other hand, the Sri Lankan economy which is heavily dependent on tourism, tea, and some other agricultural products from India will be highly impacted," said Multani while talking about the impact.
Meanwhile, during her meeting with the group president of the World Bank, David Malpass in Washington DC, Union Minister Nirmala Sitharaman also said that there is a need for the World Bank to come to the rescue of countries facing debt stress. In particular, the World Bank needs to pay special attention to Sri Lanka, which is facing an unprecedented economic situation.
