Unaffordable food, transport force commoners to protest in Sri Lanka; what went wrong?
India Today
People in Sri Lanka have taken to the streets to protest rising food and transportation costs as the island nation faces its worst economic crisis in history.
Despite an unprecedented seven percentage point hike in interest rates on April 8, 2022, in Sri Lanka, the rate of inflation kept soaring. The rise in inflation was largely driven by transportation and food prices.
According to the latest available data from the Central bank of Sri Lanka, food prices rose by a whopping 44 per cent and transport by 68 per cent in April 2022, compared to the same month a year ago. Data indicated that economic fundamentals deteriorated further as the protest against the elected government in the island nation escalated.
Following the nationwide protest against the incumbent government over the ongoing economic crisis, Sri Lanka's Prime Minister Mahinda Rajapaksa resigned on Monday, May 9. The situation deteriorated to a point where the government gave shoot-at-sight orders against the protesters.
But, what went wrong?
The country’s reserves dried up and the currency weakened to a record level. The outstanding debt also outgrew the size of its GDP. The Sri Lankan rupee was trading at 364.76 against the US dollar on May 11. It traded at 202 on March 3.
The outstanding debt of the central government stood at 84.2 per cent of the GDP in 2018. It deteriorated to 86.9 per cent in 2019, almost equaling the GDP in 2020, and finally outgrew the GDP at 104.6 per cent last year.
Foreign reserves, on the other hand, stood at 9.9 billion dollars in 2018. However, it dried up to 2.2 billion dollars as of end-February 2022. It further fell to 1.9 billion dollars by the end of March, and to 1.8 billion dollars as of April-end. This level of foreign reserves is lower than that required to buy two months of imports. Due to this, the country is restricting itself from buying even essential commodities.
