The prices of everyday necessary items have risen exponentially in the last few weeks in the Sri Lankan island. It has become very difficult for citizens to survive through this massive inflation causing an unprecedented economic crisis. The crisis Sri Lanka is going through is the worst the country has faced since it's independence.

You can get an idea about how bad the situation is by knowing the fact that examinations across the country have been postponed indefinitely as there is no money to purchase papers or the fact that to save fuel, electricity is supplied only 4 hours during day time, as well as the distribution of fuel is supervised by the army of the country.

Sri Lanka is a heavily import-dependent country where even the basic things like food, lentils, paper, petrol, diesel, medicines are imported into the nation. The problem is that Sri Lanka simply does not have money to purchase them anymore and it is also under a massive debt.

REASONS

Easter Bombings

On April 21st 2019, 3 churches and 3 luxury hotels in Comlombo were attacked in series of terrorist suicide explosions. It cause 270 casualties which even included foreign nationals.

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Sri Lanka is highly dependent on it's tourism industry to manage it's economic situation. Soon after this incident of Easter Bombings, the tourism in Sri Lanka saw a massive decline. As per a report, the tourism by foreign currency in Sri Lanka declined by 21% in just one year alone

VAT reduced from 15% to 8%

VAT or Value Added Tax is one of the major taxes the government collects in order to manage expenses and it does have a very significance value for any country.

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In December 2019, the government of Sri LAnka decided to slash the VAT from 15% to 8% which resulted in Sri Lanka's income getting reduced even further.

Covid 19

The pandemic is not an unknown topic or how it negatively impacted the economies all around the world and not sparing any sort of industry.

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For Sri Lanka, the Easter Bombings and the tax cut made things bad for it but Covid 19 just made it all a lot more worse. The lockdowns crippled whatever was left of the tourism industry in the country.

Decision of being 100% organic farming nation

In May 2021, the government of the country decided to be a 100% organic farming nation due to the the imports of agricultural chemicals and fertilizers were banned. Sri Lanka also thought that they would save some money by going this way but the reality was this method was counter productive to their thoughts.

This ban lead to crop failure because of which the agricultural output fell drastically and finally meant high prices for food items. The inflation touched a new high and making the already worsening situation even worse.

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When all of this piled up, Sri Lanka had

• Acute Shortage Of Foreign Currency
• High Prices Of Foof Items
• No policy to correct all these measures

At the same time the values of the Sri Lankan currency is depreciating fast, the foreign reserves are getting exhausted and one of the very important things which is hard to look away from in the case of Sri Lanka is definitely their debt profile.

The country has been borrowing from 2007 and here's the debt breakup -

• $11.8 Billion ( Sovereign Bonds )
• $4.6 Billion ( The Asian Development Bank )
• Over $3 Billion ( Japan & China )

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Sri Lanka has shown the world that how improper policies can lead a country to such a situation like the one it has being facing right now. It is correct that the case of Easter Bombings and Covid-19 was not in the control of the government but the decisions could've been better.

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