SRI LANKA SITUATION RIGHT NOW:

ECONOMICS

In Sri Lanka, a tropical island nation just a few miles southeast of India, children never get a
snow day. Neither do they have to contend with earthquakes, volcanoes, or sandstorms. But
three million of its students now face a different kind of disaster: their schools can’t afford ink —
or even paper on which to print it. On March 19th, the education department of its largest
province announced the cancellation of all exams for grades 9, 10, and 11 for that exact reason.
Today, however, paper is the least of its concerns, as entire cities grind, as we speak, to a
dangerous and unprecedented halt. Prices for essential goods — everything from rice to fuel to
medicine — have doubled, then tripled, and continued rising. That, combined with power
outages lasting up to 15 hours a day, have Christian nuns, Hindus, Muslims, and Buddhist
monks, who just 10 years ago fought each other in a Civil War, all joining hands on the streets in
protest. Unfortunately, the worst is likely yet to come. As the last remaining supplies dwindle
away, the current 9-hours of electricity and severely overpriced groceries may soon be
remembered as the “good days”. And yet, Sri Lanka, experts warn, is just the tip of the iceberg.
Though unique as a country, the roots of many of its current problems are far too common. The
United Nations warned last month of a “perfect storm” brewing in the developing world. One
expected to leave, quote, “deep and long-lasting scars”. Sri Lanka, in other words, may simply
be the first domino to fall this year. And understanding how it got here — unable to afford even
paper — may offer a preview of what comes next. Sponsored by Storyblocks, where you can
find over a million high-quality videos for your creative projects, business, or, like us, YouTube
channel. This is an imaginary country. If it imports more “things” than it exports, we say it has a
“trade deficit”. Conversely, if it exports more than it imports, it has a “trade surplus”. Now,
because our frame of reference is personal finance, in which you’re told to spend less than you
save, or corporations, where “profit” sounds a lot like a “surplus” of money, it’s tempting to see
deficits as a bad thing. Of course, as you may already know, it’s much more complicated. The
United States, for instance, has a huge deficit. The slower-growing Japanese economy,
meanwhile, has a giant surplus. But what’s all too easy to forget is that the U.S., and, to a lesser
extent, Japan, are weird countries. China may “win” the trade war with the U.S., for example, but
what does it do with all that money? Invest in the United States! But, remember, this is a very
unique set of circumstances. It’s what economists mean when they say the U.S. has a
“privileged position”. When China sells things to America, it wants to buy, with that money, U.S.
dollars, not Somali shillings or Iraqi Dinars! …Or Sri Lankan rupees. To see why this is an issue
for a country like Sri Lanka, stop thinking in terms of imports versus exports and, for the sake of
simplicity, think instead about the actual, physical supply of Dollars. When it buys, say, milk,
from next door India, it generally pays for those goods with U.S. Dollars because that’s what
India wants. Likewise, when Sri Lanka sells its tea to the U.K., the British pay it in Dollars. You
should start noticing two potential problems here. First, if a country imports more than it exports,
you can see how it could just run out of USD — it would be effectively spending more than it’s
saving. And second, running out of USD is problematic because it’s what you need to buy
imports. In other words, for countries not named “the United States of America”, this balance of
payments really is important. Here, where a negative value equals a trade deficit, you can see
that Sri Lanka has been “in the red”, so to speak, for quite some time. It imports a huge amount
of rice, wheat, sugar, and medicine — not to mention all its oil. Now, all this might sound like
trade deficits are some horrible, no-good, very bad thing. But, as you can see here, most
countries run deficits. There’s nothing rare or necessarily catastrophic about having a negative
balance of trade on its own. What all these countries do to make up the difference is simply
borrow. If that sounds unsustainable, well, yes and no. In the case of Sri Lanka, its government
has a long history of gross mismanagement. Just last year, for example, the government
banned the import of all chemical fertilizers in a bid to become the world’s first “all-organic”
nation. To the surprise of no one but the president, crop yields were immediately cut in half. You
could make a pretty good case that Sri Lanka was destined for a crisis of some kind and that it
was only a matter of when. Yet, just a few short years ago, the country showed real economic
promise. It had other ways of getting its hands on Dollars. In 2019 tourism accounted for 22% of
its total GDP. Lonely Planet ranked the country the number one best place to visit that same
year. There are beautiful beaches, wild leopards, yoga retreats, and stunning natural
landscapes. Another source of foreign exchange was remittances. Workers would go overseas,
earn foreign currency, and send it to their families back home. But… you can probably guess
what happened in 2020. Tourism effectively fell to zero overnight. Actually, the decline in tourists
began even before the pandemic. In the Spring of 2019, terrorists bombed a string of churches
and hotels across the capital, Colombo. The tragic and shocking death of 269 people — at least
45 of which were foreign nationals — led to a 70% drop in tourist arrivals. Its $7.9 billion of
foreign reserves in 2019 fell to just $1.6 billion by 2021. And if that sounds bad, there's an extra
reason, on top of the normal badness, that makes it even worse. You may have heard that some
countries intentionally under or over-value their currencies. Sri Lanka is one of those places.
Let’s say a bag of rice from India costs one USD to import, and one USD is currently worth 200
Sri Lankan rupees. If Sri Lanka can convince everyone that, “no, actually 150 rupees is the
value of a U.S. Dollar”, well now that rice is effectively 25% cheaper. The Central Bank, in other
words, overvalued the rupee because the country depends so heavily on imports. By keeping
staple goods affordable, authorities in developing nations maintain economic, and therefore,
political stability. If you’re wondering why all countries don’t do this, the answer is what Sri Lanka
is going through now. Actually maintaining that artificial exchange rate involves buying and
selling — or borrowing — foreign currency, which, remember, Sri Lanka is running out of. Here
you can see where the central bank kept the rupee at roughly the same value until it suddenly
couldn’t, when it's real, market value took over. The government, meanwhile, was still
pretending that 1 USD was worth, for example, 150 rupees, when everyone else had decided it
was worth 200. Here’s what that means in practice: Walk into a bank, hand them one USD and
they’ll give you back 150 rupees. Walk, on the other hand, into a private shop, hand them that
same dollar bill, and they’ll give you, say, 200. It doesn’t take long before word gets out: don’t
deposit your foreign currency in the bank — “it’s a scam”. Migrant workers quickly learned not to
send their remittances home through official channels. Because of this, the central bank has
even less foreign currency, making it even harder to maintain its fake exchange rate. And this is
when things get really ugly, really fast. What Sri Lanka is experiencing now are the effects of
three, interconnected problems. First, because the country is running out of Dollars, it can’t buy
enough imports to keep up with demand — meaning there just isn’t enough rice, paper, or fuel
to go around. Second, at the same time, people’s savings are suddenly worth far less today
than they were yesterday. Years of hard work — gone overnight. And third, not only is the
Rupee rapidly depreciating in value, but no one knows where, exactly, the bottom is. It doesn’t
take a rocket scientist to see the trend. Last week I could afford a dozen bananas. Today, half as
many. Every rational household starts stocking up on essential goods — leading to chaos,
confusion, and chronic undersupply. Lines at gas stations were so long that two men collapsed
and died waiting. Needless to say, the pandemic plus poor governance had placed the country
on tenuous ground already. Then the war in Ukraine began. The conflict and the subsequent
sanctions are currently causing the largest commodity shock in half a century. Here you can
see, for instance, the price — and just as importantly, its volatility — of wheat and maize, which
Russia and Ukraine produce 28 and 15% of the global supply of, respectively. Ukrainian exports
alone previously fed 400 million people. Some countries get nearly all their wheat from one or
both. These are just the places which source at least 80% of their wheat from Russia and
Ukraine. On top of this, Russia also supplies 15% of the world’s fertilizer, and, just as
importantly, the fuel used to make fertilizer. If you drive a car and live on planet Earth, you
probably don’t need to be told that oil prices are off the charts. Many countries have or will react
by banning food exports — further exacerbating the situation for net importers like Sri Lanka.
Now, like trade deficits, developing countries being unable to pay back their loans is not all that
uncommon. There’s a system for this sort of thing — the equivalent of “bankruptcy” for nations.
Normally, organizations like the IMF and World Bank step in. Sri Lanka last received a bail-out
from the IMF for $1.6 billion in 2016. But this time is different. Bail-outs, you see, are conditional
on things like having a functional government and implementing economic policies which are
often unpopular. The IMF doesn’t just write checks on a whim — it wants to know that the
country won’t end up in the same situation 6 months later. These are conditions Sri Lanka
simply can’t meet. While citizens are very justifiably angry at their government, the unfortunate
truth is that political turmoil and social unrest will likely only discourage foreign assistance.
Protestors are right that the country’s economic woes didn’t come from nowhere. The
groundwork for the current crisis can be traced back decades — when Sri Lanka began paying
off old loans with new ones, in what the World Bank has compared to a Pyramid scheme. While
it’s easy to connect the dots between an unprecedented global pandemic and a sudden
economic collapse, so too is it easy to blame Chinese loans, but neither theory captures the
whole truth. Only about 10% of Sri Lanka’s debt is owned by China, and its leaders have been
pursuing disastrous policies for years before any of the recent events. In 2019, it cut taxes
precisely when it needed public revenue the most. Poor governance is not the only but it is an
important ingredient to the cocktail of calamities it’s dealing with now. What’s surprising is not Sri
Lanka’s poor leadership, but how quickly it all unraveled. In a matter of weeks, millions of Sri
Lankans went from living a fairly middle-class lifestyle — cars, college education, and leisure —
to wondering whether they can eat dinner. This is how countries spiral out of control. A shock,
or, in this case, a trifecta of shocks, exposes a nation’s weak governance. From there, there’s
no limit to how bad things can get. For which other country or countries will the confluence of
the pandemic, financial tightening, and a drastic increase in commodity prices soon expose a
weak foundation? When the Fed raises interest rates, as it’s doing now, developing countries
have a harder time paying off their loans. This requires that they choose between servicing their
debt or spending what little money they have saving lives at home. Some experts are pointing to
Pakistan — whose currency is currently in rapid decline — as a possible next domino to fall.
This domino, however, is nuclear. The war alone is expected to decrease global GDP growth by
1% this year. Put simply: a global pandemic, a change in interest rates, and the largest armed
conflict in Europe since the Cold War, would each, by themselves, be hugely significant. But all
three at the same time? That’s why the UN calls this a “perfect storm”. Here you can see the last
15 years of agriculture, commodity, and grain prices. While high prices don’t guarantee social
unrest, they tend to correlate. This, for example, is the Arab Spring. This, meanwhile, is where
prices were before the war in Ukraine. This is where they’re at now. What for the rich world will
be an inconvenience — high gas prices, inefficient supply chains, and, possibly, even recession,
will, for the developing world, mean the undoing of decades worth of progress in healthcare,
education, and general prosperity. Now, you may be wondering why Sri Lanka has been the
focus of this video, when this is really a global issue. The reason is simple: What’s happening in
Sri Lanka is tragic, visible, and all too real — which makes it a useful way of humanizing what
are, ultimately, numbers on a graph.

ENERGY

Sri lanka has sharply hiked fuel prices to a record high causing further pain to the country's 22
million people in its worst economic crisis since independence sri lanka has pretty much run out
of fuel and that's been reported widely but what we haven't seen so far is the desperation that a
common person is facing because of the drop in supply how every single day in the country has
become a battle for so many people a battle for survival dw's manira chaudhary and sharik
ahmed spent a day with auto rickshaw driver dylan simpson in colombo since the fuel shortage
has started in sri lanka it's very difficult to find fuel so i have stayed without fuel for two to three
weeks and it's very hard to run my day to day life even if i have to get fuel i have to stay the
whole night to get fuel there is no petrol in this petrol station so i have a went and asked from
them they were like no petroleum and because of the fuel to be honest i didn't get passengers i
was like staying in the queue for the whole week to get petrol like if i get petrol today tomorrow
tomorrow i'll run the day and day after tomorrow i have to stay in the queue again because of
that reason so i have to anyway skip one day to stay in the queue so i have lo i will be losing
passengers for the one whole day but okay and yeah that's a big loss for me since the fuel price
has gone high we also had to increase our fare so when we increase the fare the passengers
they can't they can't also afford the price everything in sri lanka has gone high the prices so like
normally like every day we used to buy bread to have with the tea in the evening the price of the
bread has been double now we don't eat like we used to eat before i i stop at my friend's place
to have a small chat so it's also a auto driver i have plenty of friends to drive out over here they
also have shut their heart when kept at their place because they couldn't find fuel right now at
my house we are using kerosene oil to cook custard so very soon we'll end up kerosene so very
soon we'll also end up doing boots like him i've done engineering and it's hard to find a job i
won't get my degree yet because i have a pending payment to be done so i thought i could
afford by running an auto and since this problem has been come up it's very difficult for me to
pay the course fees some of my friends like they'll have a watch out uh during the petrol station
like if they see any petrol station pumping petrol they'll quickly inform us we all will get together
and go and stay in the queue to get better i have come here to pump petrol so my friend gave
me some fuel and that wouldn't be enough for me to run the whole day and i have parked my
water there i think i'll have to wait the whole night to get fuel so if i'm lucky i'll get the fuel by
tomorrow morning i never thought that my country will end up like this right now there is no
future there will be a future in sri lanka but will take some time for the country to recover

INNOVATION AND INFRASTRUCTURE

Let's recap this week's headlines from sri lanka bankrupt sri lanka asked citizens abroad to send
home cash 13 lunken banks placed on rating watch negative sri lanka defaults on 51 billion
dollars external debt there is trouble in the island paradise there is no food at least 500 000 sri
lankans have fallen into poverty in the last few months there is no fuel there are no medicines
critical surgeries are being cancelled doctors say the economic crisis may kill more lunkens than
kovit did there are daily power blackouts and wide-scale protests on the streets what's
happening in sri lanka is much more than an economic crisis it is a humanitarian crisis the
question is how did it happen how did colombo lose all its money we will answer these
questions tonight hello and welcome to gravitas plus i'm palki sharma the lunken crisis has
numerous explanations there is a problem with the country's policy then there is politics factors
beyond lanka's control what people like to call fate and then there is china the root cause of
many problems in sri lanka and elsewhere we'll start with policy what's happening now is a
result of years of mismanagement you see there's a fundamental problem with sri lanka it
imports more than it exports it spends more than it earns there is a trade deficit there's also a
budget deficit this double debt is a perfect recipe for disaster sri lanka's response to this disaster
has been disastrous instead of trying to narrow down the deficit the country expanded its debt
colombo borrowed heavily from countries and agencies today sri lanka's debt to gdp ratio is 111
percent meaning it owes more than it produces in 2019 the asian development bank flagged this
problem it said the country's national expenditure exceeds its national income and that its
production of tradable goods and services is inadequate 2019 was also the year gote by
rajapaksa was campaigning for presidential elections among his election promises were deep
tax cuts basically you vote me to power and i will ensure that you pay less tax well how will the
country make money then the voters never asked and go to bayern never bothered to warn in
november 2019 he was elected to office with more than 52 of the vote a series of drastic tax
cuts followed ratings agencies raised an alarm they realized sri lanka state coffers will soon be
bleeding and the country may soon run out of money so lanka was downgraded to near default
levels as a result investors fled the country and it became difficult for sri lanka to access
international markets but gotabaya was not done he made another blunder in april 2021 he
banned all chemical fertilizers why good for health he said critics rolled their eyes they realized
the real problem was not health but shortage of dollars sri lanka was saving foreign reserves by
banning importer fertilizers the move went on to kill farm output this white rice is a staple in sri
lanka its production fell by 50 percent around june 2021 sri lanka was forced to import rice
something like this had not happened in years in july came more bad news sri lanka banned
import of luxury goods by now the country was scrambling to save dollars headlines like these
made it clear that sri lankans needed to brace for storm well one could also say that sri lanka
walked into this storm to an extent what's happening now is gotabaya and company's brand of
politics backfiring this family's return to power was made possible with the support of sinhala
buddhists the rajapaks has tried extra hard to not lose their support in the last three years
sinali's sentiments were kept in mind when making decisions involving national and international
affairs from a pro-market approach sri lanka switched to a welfare driven mode it invested in
infrastructure why because the monks preferred this approach to development sri lanka also
avoided forming closer ties with india the rajapaks has chose to move closer to china they've
always tried to do that they used bilateral debt to fund infrastructure and expand the lunken
military colombo bet on china to drive the sri lankan economy china did send some money but it
also exported a wuhan virus while sri lanka was never good with money it was china that
ensured colombo goes bankrupt by 2019 sri lanka's tourism sector was already suffering the
eastern bombings had scared of europeans who would holiday in the island nation then came
the wuhan virus when borders closed tourists completely stopped arriving and so did the
revenue from tourism sri lanka depends on tourism for 13 percent of its gdp tourists are also a
source of foreign currency in 2020 sri lanka managed to welcome just 173 000 tourists in 2018
the number was 2.3 million you see the gap by 2021 sri lanka's tourism revenue was down to
2.8 billion dollars as against 7.5 billion dollars in 2019 the wuhan virus also hit remittances
lunkens abroad stopped sending money so late 2021 the revenue from tax had fallen agriculture
production which accounted for eight percent of the gdp had also fallen tourism revenue had
fallen so had remedies and to top it all there was a raging pandemic and foreign agencies were
not lending money to sri lanka what did colombo do it turned to its neighbors in june 2021
bangladesh loaned sri lanka 200 million dollars in february 2022 india lent 500 million dollars sri
lanka could not sustain in march gotobar rajapaksa devalued the sri lankan rupee the idea was
to encourage remittances and qualify for a loan from the imf the international monetary fund but
as the sri lankan rupee plunged against the dollar the people's purchasing power took a plunge
too today one dollar is equal to 320 sri lankan rupees the currency has fallen 32 percent since
the beginning of this year back home prices have soared inflation is up 30.2 meaning the price
of food has increased by more than 30 percent a coconut that would previously cost 50 lunken
rupees now costs 91 rupees prices of onions have gone up from 80 to 158 lunken rupees for a
kilo the price of rice has increased 93 chicken costs 55 more lentils 117 so there is soaring
inflation huge piles of debt bleeding foreign reserves and a tanking currency everything that
could go wrong with the country's economy has gone wrong with sri lanka so much for all the
politics and appeasement today sri lankans across ethnic lines are coming together every day to
scream go go to go the monks have turned against the rajapaksas how much money do you
think sri lanka currently has less than 1.94 billion dollars this is as of march and that's a little
over the net worth of kylie jenner the 24 year old american model but sri lanka needs to feed
clothe and give security to 22 million people with that money it also needs to repay loans sri
lanka has about 8.6 billion dollars in debt payments that's due this year it's supposed to pay
some 78.2 million dollars as interest payments on the 18th of april that's monday colombo has
announced that it would be defaulting earlier in april it announced a nationwide emergency as
we speak sri lankans are fleeing to india as we speak sri lanka is in dire need of 20 billion
dollars that's how much it would need for essential imports like food and fuel and to restart
exports the question is where will this money come from sri lanka is hoping the imf will bail it out
but all money comes with strings attached whichever way the story goes there's more pain in
store for the people of sri lanka.