Monday Market Musings >>> The Economic Crisis in Sri Lanka
Picture Source: BBC
Sri Lanka is undergoing an economic meltdown. Currently suffering Asia’s worst inflation, Sri Lanka is struggling to stay afloat. With inflation hitting 15.1% in February, food inflation is soaring to 25.7% according to the latest government data.
Just this Sunday, operations of the only fuel refinery has been suspended, due to crude oil stocks running out, according to Ashoka Ranwala, the president of the Petroleum General Employees Union. It has come to a point where the domestic life of citizens is in jeopardy, kerosene oil usage has hitched as a substitute for cooking gas among low-income earning families due to prices increasing by Rs1,359 for a 12.5kg cylinder (Laugfs Gas). Cooking gas is not the only commodity to experience price fluctuations, milk prices increased by Rs250 for a 400g packet on Saturday. Long queues have formed all over the country for groceries and oil.
Authorities have also expanded banned imports to include some milk products and fruits, adding to the existing ban on floor tiles, imported cars and other products, in order to suppress the outflow of foreign currency.
Amidst the frustrations of the continuous blackouts situated by the government and the rationing of essentials such as milk powder, sugar, lentils and rice, the fuel line death toll has increased. An incident took place on the 21st (Monday) at a petrol station in Mirigama (western province), police reports confirm that this incident would mark the fourth death within 48 hours. Posts on social media show citizens fainting from the heat while waiting in queues for gas, diesel and the other essentials.
Picture Source: Ahmedabad Mirror website
Earlier this month, the Central Bank floated the rupee, which caused the currency to depreciate by more than 30%, resulting in the rupee being traded for 275 rupees per USD.
It seems even the education system in Sri Lanka is affected, as one third of the student population in Sri Lankan schools had their exams cancelled indefinitely due to acute paper shortages. “School Principals cannot hold the tests as printers are unable to secure foreign exchange to import necessary paper and ink,” stated the Department of Education of the Western Province.
President Gotabaya Rajapaksa requested the nation in his televised address, to not be discouraged but to have faith in his steps to recover the current situation.
“Therefore, by limiting the use of fuel and electricity as much as possible, the citizens too can extend their support to the country at this time. I hope that you will understand the responsibility lies with you at this challenging time,” stated the President.
His televised address to the nation was met with widespread public anger. Amid accusations to the government of being responsible for the current economic deadlock, political parties as well as citizens have launched protests all around the country. They also gathered in mind-boggling numbers, lead by supporters of the opposition, near the president’s office demanding his resignation just last week.
- Protests in front of the president's office Picture Source: Financial Times Website
According to experts, Sri Lanka has approximately $7 billion in foreign debt obligations for this year, and the official reserves plummeted from $3.1 billion to $2.36 billion in January, according to Citi Research.
Sri Lanka’s public debt has gone from a 94% in 2019 to 119% of GDP in 2021, and the government will have to somehow rise up to the challenge of a bond repayment of $1 billion, due in July.
Experts are saying that this could very well be the worst financial crisis since Sri Lanka gained independence in 1948.
March 22nd 2022 | 4:15 PM