Sri Lanka's simmering political crisis is a result of an economic crisis, despite the country having one of the longest liberalised economies in South Asia. It will take years to rebuild the economy. Meanwhile, with an economy that is all but bankrupt, resolving the severe social catastrophe brought on by the economic crisis will be a massive task. In this blog we will discuss the economic crises in Sri Lanka and its impact on import and export.
Know about Sri Lanka’s Economic Crisis
The suffering population of Sri Lanka has responded to the economic crisis with the right impregnation. The political elites in Sri Lanka have allowed the economic mismanagement that caused the crisis to fester. Several governments borrowed heavily. They allowed the public sector to become a liability by allowing deficits to grow. Both taxes and subsidies were increased. They made major changes to the agriculture system quickly and without much consideration. It will take years to rebuild the economy. Meanwhile, with an economy that is all but bankrupt, resolving the severe social catastrophe brought on by the economic crisis will be a massive task.
One of South Asia's first liberalised economies is found in Sri Lanka. Beginning in 1977–1978, economic liberalisation put an end to a state-capitalist economy that had existed for two decades and was driven by the industrialization of import substitution as a policy.
When the import-substitution strategy came to an end, liberalisation was implemented. The ethnic civil war that started in 1983 held down any progress in export-led economic growth, despite the fact that liberalisation had anticipated significant economic growth through export-oriented industrialisation fueled by FDIs and rapid expansion of the manufacturing sector.
The population currently experiences a severe lack of necessities like food, fuel, and medications. The value of the currency is declining daily. According to the UN, the crisis will permanently undo years of achievement in the fight against hunger and poverty. In situations like this, the majority of nations miss out on foreign consumers and are unable to complete orders. But in Sri Lanka, such is not the case.
Despite the crisis, exports are increasing
The economic crisis has a silver lining in that Sri Lanka's import and export initiatives are still succeeding. In June, Sri Lanka's exports to India increased by 21%. Additionally, exports to the US are up 46%. Textiles and items made from coconut are the main drivers of the increase. The transaction brings in much-needed foreign currency that will help control domestic costs.
President Ranil Wickremesinghe's administration is negotiating a $3 billion bailout loan with the IMF. According to reports, the negotiations resulted in an agreement at the staff level. The government has been instructed by the IMF to curb public sector spending, increase taxes, and cut subsidies. Although the tough measures are required to support foreign reserves, they will harm millions of people who are already dealing with extremely high inflation.
Possibility of structural change
The Sri Lankan issue is not the result of a single lousy administration or a single person's foolishness. Deficit budgets and populist changes have been treated with a systematic nonchalance that has caused the issues. The issue has undoubtedly been building for some time. However, the current situation necessitates structural changes that will significantly contribute to ending this crisis and averting the next one.
Administrative reforms including enforcing the rule of law and implementing anti-corruption measures ought to be given top priority by the government. To recover stolen property that has been stashed abroad, international collaboration is required. Increased privatisation is also necessary to reduce the excessive cost of public sector pay.
Progressive taxation and attracting foreign investment must be prioritised over short-term economic band-aids on the economic front. To avoid placing too much pressure on the population, the lowered subsidies must be implemented methodically. However, the government needs to rectify its "go organic" error and enact compensation for agricultural losses.
What is the crisis management strategy in Sri Lanka?
Rajapaksa, the president, resigned and moved to Singapore. He appointed Ranil Wickremesinghe, the prime minister, as interim president before resigning. While he worked to stabilise the situation, Mr Wickremesinghe proclaimed a state of emergency throughout the nation and enforced a curfew in the western region. The resignation of the president raises concerns about a possible power vacuum in Sri Lanka. To address the financial crisis, it requires a functioning government. The nation owes foreign creditors more than $51 billion (£39 billion), including $6.5 billion to China, which has started talking about refinancing its loans.
The G7 nations, which include Canada, France, Germany, Italy, Japan, the UK, and the US, have stated they support Sri Lanka's efforts to lower debt repayment obligations. India has contributed at least $1.9 billion, and the World Bank has agreed to give Sri Lanka $600 million. A potential loan of $3 billion (£2.5 billion) is being discussed by the International Monetary Fund (IMF). Any rescue may be postponed until a new administration is in place since it would require a stable government that could increase interest rates and taxes to help finance the deal.
The recovery of Sri Lanka depends on exports
By focusing on the vastness of its potential, Sri Lanka, known as the "jewel of the Indian Ocean," will accelerate its economic recovery. The lush countryside provides the best agricultural goods and teas. Young people present a wonderful opportunity for the development of a flourishing private sector. More funding for the tourism industry is urged by the beautiful beaches. The current administration must implement a revitalization strategy that emphasises export ready and encouraging foreign investment in order to stop the crisis. If you need any guidance regarding the export import data, global trade data or any business information, connect with Seair Exim Solutions. Our professionals are always ready to furnish you with quality services.
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