World :
Economic Crisis of Sri Lanka Due to Implementation of Liberal Economic Policies - Lesson for India
The availability of basic necessaries of life like food , cooking gas , petrol and medicines are primarily determined by imports in Sri Lanka . Therefore , severe foreign exchange crisis is transformed into life and death economic crisis of Sri Lankan people . The shortage of goods intensified . Black marketing aggravated . Prices are touching the sky . In addition , continuous power cuts . All this made the lives of people critical . Their violent cry resulted in the serious protests on the roads . On the other , they have no jobs , no earnings . This is highly terrible crisis in the history of Sri Lanka . The Peoples vociferous protests cannot be suppressed by curfew . The declaration of emergency and directing army to control black market so as to regulate the supply of essentials did not yield any results . What is Happening in Sri Lanka
The Sri Lanka is severely trapped in the external debt . This year alone it has to repay foreign exchange worth $ 609 billion . However , it includes one billion US dollars worth payments of Sovereign Bonds which should be repaid in July as well as interest payments to foreign lenders . The share of external debt in Gross Domestic Product in December 2020 is as high as 60.91 percent while the deficit in the current account of balance of payments is to the tune of $ 740.8 million in September 2021 . All this resulted in the rapid depletion of foreign exchange reserves which is just enough to meet payments of imports for one month . The restrictions imposed on imports failed to stop the imports of luxuries . The exchange rate of Sri Lanka ’ s currency deteriorated further as it is determined by market forces , 300 Sri Lankan rupees , now are equal to one US Dollar . Consequently , external debt burden doubled . In the first two weeks of March 2020 the 6 outflow of FDI is to the tune of 19.6 billion worth rupees . This resulted in the severe crash in the stock market .
Its sources of earning foreign exchange are 1 ) exports 2 ) tourism 3 ) foreign remittance . Still , Sri Lanka ’ s exports mainly consists of primary goods like Tea , Rubber , Textiles , Apparel and their prices started declining in global market since 2013 . The deterioration in the exchange rate of Sri Lankan currency , though results in the decline of prices of exports will not raise the demand in view of their nature of inelastic demand . Further , more quantity of export goods should be given for same amount of foreign exchange . Consequently , foreign exchange earnings from exports will decline . The foreign exchange earnings from exports in 2020 declined by $ 750 million . The devaluation in its exchange rate intensifies exploitation of labour in the process of producing export goods in the unorganised sector with cheap labour .
Another important source of earning foreign exchange is tourism . Numerous tourists will come from China , India , Britain , Russia , Germany , France , Australia , US , Canada , Ukraine and Poland . Travel Ban due to Covid- 19 resulted in the crash in this sector . Consequently , earnings from tourism stopped . The hotels , restaurants , casinos developed exclusively for tourists closed which resulted in the loss of employment . However , the foreign loans taken for this purpose doubled .
Like India , Sri Lanka is also talking about ‘ knowledge based economy ’ and established educational institutions to train their youth in the skills which have a demand in the foreign countries . The youth trained in that way migrate to various foreign countries such as Middle East , South Korea and Italy . Their remittances is another important source of foreign exchange .
In the past , the Imperialist exploitative forces who support free trade tried to focus the development of Asian Tigers through external trade . Recently , they started highlighting the superiority of Sri Lanka over Singapore . Moreover , they wanted to show the Sri Lanka as a superior model . Now , it is caught in crisis and became bankrupt . However , the migrated workers lost their jobs in foreign countries and came back home with empty hands . This is really a serious warning to India because our Central Government started highlighting the benefit of training our youth which is called as ‘ Demographic dividend ’ in the skills which are required by foreign countries . This process clearly ignores to train our youth according to our requirements and to generate employment so as to raise the quality of life .
Thus , self-reliance negated and dependency strengthened in the economic structures of Sri Lanka , this reality is revealed by Covid-19 pandemic .
The imports of Sri Lanka mainly consists of essentials which are characterised by inelastic demand . Therefore , the demand will not decline as their price increases due to devaluation of its currency . Further , payments for imports will increase and complicates the issue of inflation .
Thus , the experience of Sri Lanka once again proved that the devaluation suggested by IMF as a solution to foreign exchange crisis , in fact , aggravates the issue critically .
Sri Lanka has chosen to take additional foreign loans to come out from external debt crisis . India sanctioned credit worth $ 2.4 billion and sent 40,000 tonnes of rice as an aid . Sri Lanka is requesting India for another loan of $ 1.5 billion while the China has given loan to the tune of $ 2.8 billions and Sri Lanka appeals
Class Struggle