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Sri Lanka: Worst Economic Crisis in 73 years


Sri Lanka, officially known as The Democratic Socialist Republic of Sri Lanka, is a small island in South Asia. The country is facing its worst economic crisis in almost 73 years, with a scarcity of water, food and paper. People are finding it difficult even to meet the basic necessity. On top of that, many employees have been laid off, or their salaries are half while the prices are soaring. 

All you need to know about the economic crisis in Sri LankaThe Economic Crisis

The island nation is facing an economic crisis due to a shortage of foreign exchange. The Sudden lack of food, water and fuel has forced people to wait in the queue for long hours, up to 11 hours of electricity cutdown. The Sri Lankan economy is under substantial public debt, reaching an almost unsustainable level.

The International Monetary Fund (IMF) has introduced many changes in its economy to tackle the situation of the nation. One of the vital reasons for the shortage of tourism is that the country’s economy is based on tourism, and it was severely hit during the COVID-19 pandemic when the whole world was shut down. According to economists, the Sri Lankan debt trap was already there even before the pandemic hit. The government issued sovereign bonds in 2007 without any plans to repay the loans, which exacerbated the foreign debt. 

During the COVID-19 situation, the government cut the tax slab, which led to its public debt rising up to 94 per cent in 2019 and worsening further to 119 per cent in 2021. The country’s official reserve fell by $779 million to $2.36 billion in January from $3.1 billion. The big challenge the country faces is to repay $1 Billion in bonds, which is due in July.

Explained: Sri Lanka's Foreign Exchange And Economic Crisis | BOOMThe International Monetary Fund has suggested many resorts. Still, the country refuses to follow them in the backdrop of the ongoing energy and power crisis and shortage of critical commodities.  

India came forward to help the nation by announcing a 1 Billion dollar line of credit to Sri Lanka as a part of financial help. Minister of External Affairs spokesperson Arindam Bagchi said, “India has always stood with the people of Sri Lanka and will continue to extend any form of help they can.” 

Due to the condition of the country, many protests have broken out across the island, demanding the resignation of President Gotabaya Rajapaksa. Demonstrators have accused the government of mismanaging the economy and making the public face the burnt of fuel. 

How can Lankan Crisis affect India?

Sri Lanka is not only India’s neighbour, but due to its strategic position in the Indian Ocean, it’s a significant island to the country. There are the top five ways the Lankan Crisis can affect India.

1. Threat of Chinese Influence- India has always been wary of Chinese influence in its neighbouring countries. In the economic crisis, the government had asked for 2.5 billion USD from China as monetary help. China had tried hard to put its influence on the island, but due to India’s diplomacy, it has not yet succeeded. Due to the island nation’s strategic location, India has to be careful.

2. Economic Aspect- India is not a major importer from Sri Lanka, with almost less than 1 billion dollars of goods are imported. There is a threat to India’s transhipment hub, which handles about 48% of international cargo. Due to the non-availability of labour and vehicles, India’s shipment lies in Sri Lanka. Not only that, but almost 22% of total Sri Lanka’s GDP comes from factors like India. 

3. Refugee Crisis- In the past, whenever there was a crisis in the country, India saw a large influx of refugees in the country. India may find it challenging to handle such a significant influx of refugees. It is estimated that they will be more refugees this time than back in the ’90s. Many refugees have already started infiltrating the country through Palk Strait and the Gulf of Munnar. 

4. Rise of rebel groups in Sri Lanka- Although the country state that it eliminated the Tamil rebels in 2009, there are still boiling inside. Tamil people are not yet satisfied, and this crisis may give rise to new rebels who will fuel up the situation. Not only Tamil Rebels, but many similar groups will try to worsen the already worse situation.

5. Humanitarian Crisis- Absence of food, water, medicines. No law and order, a large scale humanitarian crisis is looming over the country. The problem could lead to civil war or another emergency. The entire onus will rely on India as a medium of transfer international aid, which will put extra pressure on our economy.

Sri Lanka’s economic crisis is susceptible. India must work towards it carefully. Sri Lanka is an asset to the country, and we cannot let anyone take advantage of it. 

Sri Lanka declares worst economic downturn in 73 years – MDW Live! News  NetworkThe Solution to the crisis

In a speech, MP de Silva said that there is only one way to get the country out of the situation by requesting help from The International Monetary Fund (IMF). He further added that only IMF could assist the country to get get out of the situation. Agriculture Secretary warned that the government might seek international help to feed people. The Central Bank requested foreign currency, including foreign cash loose change left from any international trip in the past. It had restricted dealers for exchange more than 200 Sri Lankan rupees for US dollars. Since the crisis, the government has been working tirelessly to alleviate the situation in the country. 


In this dire time of need, all the countries should join hands and work to help one of their fellow nations. All the countries are directly or indirectly are connected for food, local products, medicines. The United Nations can lend help and send food, water or other basic necessity, including peacekeepers, to help the government in any war-like situation. Developed countries like the united states of America and European countries can do a lot from monetary help to providing basic necessities

Edited by Prakriti Arora



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