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Sri Lanka under Emergency: Island facing economic crisis

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On August 30, Sri Lanka President Gotabaya Rajapaksa declared a state of emergency in the island country. This was in response to the economic crisis the country has been facing in recent years. Along with a depreciating currency and depleting forex reserves, domestic food prices have risen with a record 72% inflation rate. Further, in the past year alone, the Sri Lankan rupee fell 7.5% against the US dollar.

The regulation for the emergency was passed in the Sri Lankan Parliament with 132 votes for it and 51 against. 

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The opposition party that voted against the emergency contested the move under Section 2 of the Public Security Ordinance. The central Opposition Party Samagi Jana Balawegaya claimed: 

“The purported declaration of a state of emergency has been made in bad faith, with the ulterior motive of further wrongfully restricting the fundamental rights of the citizenry and moving further in direction of authoritarianism.”

The President further designated the army to manage the crisis and take control of rationing essential goods. The emergency was declared as a result of an exponential increase in prices of basic commodities like potatoes, onion, sugar, rice, kerosene oil and cooking gas. 

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What led to this Economic Crisis?


As a result of the coronavirus, the global tourism industry has faced a massive blow. Sri Lanka has especially faced the brunt of the pandemic. The country’s tourism sector contributes a whopping 10% to the national GDP and brings in much of the foreign exchange. The foreign reserves have plunged from over $7.5 billion in 2019 to around $2.8 billion in July of this year. Low foreign reserves mean that the country has had to shell out large amounts of money to buy foreign exchange to facilitate their import needs. Sri Lanka’s condition has been particularly dire in this situation as it is heavily dependent on imports for basic necessities.

Shift To Organic Farming

On April 29, President Rajapaksa banned the import of chemical fertilizers. This made Sri Lanka the only country in the world to practice organic farming alone. However, this step, taken into consideration of environmental concerns, has backfired in terms of making the economic crisis worse.

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On an island where 90% of the farmers use fertilizers and only 10% know how to transition to organic farming, the step to do away with chemical fertilizers caused much disarray. As a consequence, 44% of all farmers experienced a decline in production and a large number of them also faced a fall in revenue. The tea industry, in particular, took a major hit. 

Further, in order to farm organically, the country needs a large supply of organic and bio-fertilizers. However, the current level of bio-fertilizer production hasn’t been nearly sufficient to sustain the current levels of agricultural production and demands of the population. 

Bad Loans

This issue goes back to 2008. The government wanted to build a port in Hambantota but the country had just come out of a civil war. As a result, the nation didn’t have the requisite funds. Considering their economic situation, no country or international body was willing to lend to them at the time.

In the end, China had issued $1.05 billion to Sri Lanka to build the port. But the port never generated sufficient revenue and the country fell under debt. 80% of the estimated GDP was dedicated towards repayment of the loans taken for Hambantota port and other requirements. In 2018, Sri Lanka defaulted on the loan and had the hand over the port to China. These factors have forced the country further into debt, especially considering the revenue hit their tourism sector has taken.

Read more news here.

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