Sri Lanka faces worst economic crisis in history, sparking food and fuel shortages and protests | world news

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Sri Lanka is facing the worst economic crisis in its history, which has driven up prices and triggered food and fuel shortages across the country.

Since early March, the Sri Lankan the rupee fell almost 45% against the US dollar and its foreign exchange reserves fell to crisis levels.

Sri Lanka imports many essential items, but its inability to pay for them has led to shortages of food, fuel and baby milk.

While the country relied heavily on borrowing from China, which may have helped in the short term, it is now on the verge of sovereign debt default.

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There are now daily power cuts in Sri Lanka to preserve fuel supply

Power cuts used to alleviate the fuel crisis

The economic crisis has sparked protests across the country.

In February, essential food inflation rose 25% and headline inflation is close to 18%, as people were forced to queue for hours to buy fuel, amid soaring prices.

Unable to buy fuel, the Department of Energy announced a nationwide six- to seven-hour daily blackout, while supplies for buses and trucks were also rationed.

The war in Ukraine also caused global oil prices to rise, making it difficult for Sri Lanka to buy.

Members of the special task force push back people blocking the main road in front of the President's Secretariat during a protest organized by the main opposition party Samagi Jana Balawegaya against the worsening economic crisis which has led to shortages of fuel and soaring food prices in Colombo, Sri Lanka March 15, 2022. REUTERS/Dinuka Liyanawatte
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Sri Lanka’s economic situation has been worsened by a drop in tourism due to the pandemic

Why does the crisis occur?

Sri Lanka’s deep-rooted economic crisis went unaddressed for decades by successive governments.

Instead of tackling the problem head-on, he took the easier route by borrowing to overcome the problems and now has mounting debt and interest payments of nearly $12 billion.

This year, it must make $4 billion in such payments, further depleting its reserves.

Tourism generates more than $4 billion a year, but the industry has been hit hard by the covid pandemic.

The reckless and mismanaged economic policies of the Rajapaksa government have exaggerated the crisis and been blamed for the mess the country finds itself in.

Tax cuts, severe import restrictions and reluctance to introduce prudent economic reforms have laid bare the structural deficiency of the government’s economic policy.

With a severe balance of payments crisis, international agencies downgraded the country, further hampering any possibility of foreign investment.

Members of the Special Task Force stand guard at the main entrance to the President's Secretariat as people block the main road ahead during a protest organized by the main opposition party Samagi Jana Balawegaya against the worsening of the economic crisis that has led to fuel shortages and soaring food prices in Colombo, Sri Lanka, March 15, 2022. REUTERS/Dinuka Liyanawatte
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Sri Lanka set to seek help from International Monetary Fund

The country is in a “debt trap”

Sri Lanka has now asked China to restructure its debt payments and support credit.

The government has requested a $1.5 billion line of credit from India to import essential goods. This amount is in addition to the billion dollars granted by India last month.

The country is set to reach out to the International Monetary Fund (IMF) and other countries for help.

However, the magnitude of the crisis is such that these loans may not be sufficient to get out of the balance of payments problems, as the current deficit is gigantic.

But for now, it is ordinary Sri Lankans who will bear the brunt of soaring prices and shortages of essentials for a long time to come.

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