On the morning of July 11, local time, Sri Lankan President Gotabaya Rajapaksa officially announced his resignation.
Since April 2019, Sri Lanka has suffered its worst economic crisis in years, leading to unprecedented levels of inflation, near depletion of foreign exchange reserves, shortages of medical supplies and rising prices of basic commodities.
The crisis in Sri Lanka peaked last weekend. On the 9th, a large number of protesters poured into the capital Colombo, broke into the official residence of Rajapaksa and occupied his office. Hours later, protesters attacked and set fire to prime minister Ranil Vikremesinghe's residence. Sri Lanka's president and prime minister, who is at the center of the turmoil caused by the economic collapse, said they would heed the calls of thousands of angry protesters and resign.
↑On July 9, in Colombo, Sri Lanka, a large number of protesters gathered near the presidential palace, and the scene was chaotic
It has been reported that Rajapaksa made a series of fatal mistakes in policymaking, including in the economic and agricultural fields, which led to such a serious economic crisis.
Terrorist attacks and covid-19 impact Tourism revenue has plummeted
Sri Lanka's economic structure is relatively simple, with tourism accounting for more than one-tenth of Sri Lanka's GDP. But the domestic terrorist attacks in Sri Lanka and the COVID-19 outbreak have halted the development of tourism, leading to a sharp decline in incomes.
On April 21, 2019, a series of bombings orchestrated by local militant groups in Sri Lanka struck three luxury hotels and three churches in Colombo, killing nearly 270 people, including several foreigners. The United States, Japan, Australia and other countries have issued travel warnings against Sri Lanka, reminding citizens to proceed with caution.
↑On April 21, 2019, bomb attacks occurred at 6 sites in Sri Lanka
In May of that year, the number of visitors to Sri Lanka fell by more than 70% year-on-year, and in June it fell by nearly 60%. According to the data, Sri Lanka's tourism revenue exceeded US$3.6 billion in 2019, down 17.6% from 2018. The bombings severely affected tourism and other industries, leaving many people unemployed. At the same time, the Central Bank of Sri Lanka noted in its report that the bombings also had a negative impact on foreign investment, many of which had been postponed.
Tax cuts and monetary policy failures
After the election of Gotabaya Rajapaksa as president in November 2019, he enacted a series of economic measures to try to solve the country's long-standing economic problems, but did not expect the problems to get worse.
↑ Sri Lankan President Gotabaya Rajapaksa, who has announced his resignation
The government under Rajapaksa reportedly cut taxes sharply, affecting government revenue and fiscal policy, causing the budget deficit to soar. Those cuts include raising the tax exemption threshold, which led to a 33.5 percent drop in registered taxpayers, a reduction in value-added tax to 8 percent, a reduction in corporate taxes from 28 percent to 24 percent, the elimination of a pay-per-revenue tax and a 2 percent "national construction tax" that finances infrastructure development.
The policy also prompted rating agencies to downgrade Sri Lanka's sovereign credit rating to near-default levels, meaning "the country lost access to overseas markets."
Sri Lanka's former finance minister, Mangara Samarawila, has opposed the tax cuts, arguing that their governments already have far fewer taxes than other countries, and that with their extremely high external debt burden, the tax cuts would be dangerous moves. He also predicted that "if these policies are implemented, the whole country will not only go bankrupt, but will also become another Venezuela or another Greece." ”
To pay for government spending, Sri Lanka's central bank did not heed the Advice of the International Monetary Fund (IMF) to "stop printing money and raise interest rates and raise taxes while cutting spending," but instead began printing in record amounts. The IMF has warned that continued printing will lead to an economic collapse.
Between December 2019 and August 2021, Sri Lanka's money supply reportedly increased by 42%. On 6 April 2022, sri lanka's central bank reported rs. 11,908 crore, the highest printed amount reported in a single day in 2022, according to the allegations. The total currency of the financial markets increased to Rs.43,276 crore in 2022.
↑On September 15, 2021, in Colombo, Sri Lanka, people lined up at state-run retail stores to buy necessities
The policy fueled the fastest inflation in Asia. In December 2021, Sri Lanka's inflation rate (annual) reached 12.1%, the highest level since January 2009, breaking a record of 12 years of single digits. In March 2022, the inflation rate (monthly) compared to the same period last year has increased to 21.5%.
On March 7 this year, Ajit Cabral, the former governor of Sri Lanka's central bank, reported that the regulators of the banking system were devaluing their national currency, and the official exchange rate of the rupee fell to a record low, with 1 us dollar convertible of 229.99 rupees. According to the analysis, the move is aimed at devaluing the currency in order to qualify for loans from the International Monetary Fund.
The policies of the Rajapaksa government have caused great trouble in the lives of ordinary Sri Lankan residents, "the prices of commodities in the market are soaring, but only wages are not rising".
Lack of foreign exchange reserves and excessive dependence on foreign capital
Sri Lanka has reportedly had a trade deficit for decades, leading to the loss of foreign exchange and preventing traders from paying for imports. Sri Lanka's foreign exchange reserves have been declining since 2019. In 2019, the country had about $7.6 billion in foreign exchange reserves, and in 2020 that number dropped to $5.6 billion. In November 2021, Sri Lanka's foreign exchange reserves fell to $1.5 billion, just enough to cover a month's worth of imports. According to data released by the Sri Lankan government, as of May 4 this year, the country's available foreign exchange reserves have fallen to less than $50 million.
↑ On May 4 this year, Sri Lanka's available foreign exchange reserves have fallen to less than $50 million
Meanwhile, Rajapaksa's government has been using foreign money to fill Sri Lanka's reserves rather than boost exports, adding more to the external debt. The International Monetary Fund (IMF) said Sri Lanka's public debt accounted for 94% of GDP in 2019, while that figure rose to 119% in 2021.
On the other hand, the economic policies pursued by Rajapaksa were not recognized by foreign enterprises, and foreign direct investment in Sri Lanka fell sharply. According to the Sri Lankan government, foreign direct investment was $548 million in 2020, compared to $793 million in 2019 and $1.6 billion in 2018.
Agricultural crisis: Organic farming policies are too aggressive
In addition to poor economic policies, the agricultural policies pursued by the Rajapaksa government have also hit Sri Lanka's economy hard.
According to reports, Sri Lankans, whose staple food is rice, have always been self-sufficient in production. On April 29, 2021, the Sri Lankan government announced a ban on the import of fertilizers and other agrochemicals, making agriculture 100% "organic". Rajapaksa said the move helped save $400 million on imported agrochemicals. The presidential media office said in a statement that the government would only distribute organic fertilizers and subsidize only organic farming.
•On April 24, Sri Lankan workers worked in a rice mill
Many experts argue that modern hybrid seeds cannot grow properly without timely application of appropriate mineral and nitrogen fertilizers. However, the Rajapaksa government's resolute "organic farming" policy has plunged Sri Lanka's agricultural sector into crisis.
Under this policy, smuggled urea and other fertilizers are sold at high prices in the country, and more farmers are unable to buy fertilizers, resulting in a decline in crop yields. In the first six months alone, Sri Lanka's domestic rice production fell by 20 percent, breaking the previous situation of self-sufficiency in rice production, and the country was forced to import rice for $450 million, which in turn increased import spending.
At the same time, Sri Lanka has long relied on the export of tea to earn foreign exchange earnings. The decline in tea production also caused an economic loss of about $425 million.
In November, after a sharp rise in food prices and weeks of protests, Sri Lanka abandoned plans to become the world's first organic farming country. The government announced the lifting of a number of measures, including the lifting of the urea ban and the use of credit lines to import 44,000 tons of urea in an attempt to revive the country's agriculture.
In May, the Sri Lankan government said it had failed to grow rice this year, harvesting only 50 percent of the maximum harvest and expecting to restore adequate supply until September.
Red Star News reporter Fan Xu intern Yin Keran
Edited by Zhang Xun
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