Sri Lanka Situation:

 Inflation- 55% monthly inflation

 Lack of medicines
 Doesn’t have enough fuel for essential services—
 so In June,2022 banned sale of petrol + Diesel for non essential vehicles for 2
Weeks
 WFH to conserve supplies
 Power cuts
 Doesn’t have enough foreign currency to import
 Failed to pay DEBT interest
 Further erodes reputation with investors to borrow
Steps:
 Asking for loans
 debt restructuring
 $ 51Bn Foreign debt-- $6.5Bn (China)  Negotiating debt restructuring.
 Privatise Sri Lankan Airlines- Acting President said so
 Printing Money to pay employee’s salaries- Acting President said so
World Bank agreed to lend $600m.
India offered atleast $1.9 Bn.
IMF- Talks on for $3bn loan. But has condition that govt should raise interest rates + taxes.
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Reasons for the Crisis:
1. Affected Tourist Trade, one of the biggest foreign currency earner by
a. Covid Pandemic
b. Frightened public by series of Deadly Bomb attacks in 2019
2. Economic mismanagement
a. Imports>>Exports in Sri Lanka, never boosted foreign trade.
b. Big Tax cuts in 2019 => loss of $1.4Bn per year
3. Policy failures
a. Banning import of chemical fertilisers led to crop failures in 2021. Sri Lanka
has to supplement its food stocks from abroad, which made foreign currency
shortage worse.