Sri Lanka, an island nation in South Asia, is going through an extreme crisis. There is only wailing in the country now. Ordinary people are rushing to buy fuel oil and food.
The country has never been in such a bad situation since independence in 1947.
The island's economy has been hit hard by a severe foreign exchange crisis.
Sri Lanka is burdened with foreign debt. The situation is such that they are unable to meet the cost of importing essential commodities. Commodity prices are skyrocketing now.
Authorities have been forced to cancel school-level exams in the country due to lack of paperwork. Because they do not have enough foreign currency to import paper.
The country is facing a severe fuel crisis. Thousands of people lined up to collect oil. The government has deployed troops at petrol pumps to deal with the situation.
Because, Sri Lanka does not have foreign currency to import fuel oil.
Sri Lanka has failed to pay 25 million for fuel oil imports from Iran. In return, Sri Lanka will export 5 million worth of tea to Iran every month. In this way the money will be paid gradually.
Unnecessary projects
In the last 15 years, Sri Lanka has undertaken several mega projects. Among these, seaports, airports, roads and various other projects have been undertaken.
Another city, Colombo Port City, is being built by rescuing land from the sea near the capital Colombo.
It will take 25 years to complete the work and the budget is estimated at about one and a half billion dollars.
It is said that the new city will compete with Hong Kong, Dubai and Singapore. Sri Lanka is implementing this project together with China.
Analysts in the country say that Sri Lanka has borrowed from various sources to implement these projects. Although huge sums of money were spent, many projects were not economically viable.
Srimal Abiratne, a professor of economics at Colombo University, told BBC Bangla that some big projects have turned into 'white elephants' for Sri Lanka. These include Hambantota seaport and airport.
Professor Abiratne said there has not been much foreign direct investment in Sri Lanka in the last 15 years. Instead of foreign investment, various governments have focused on borrowing.
Sri Lanka has borrowed 5 billion from China over the past decade. With this loan, Sri Lanka has built various infrastructures.
Professor Abiratne said that in this case, it is not enough to blame only China's debt.
"It's easy to borrow from China. That's why we borrowed from them. 10 percent of Sri Lanka's total debt is borrowed from China," said Professor Abiratne.
He said 47 per cent of Sri Lanka's total debt was commercially issued through various bonds.
Many experts say that the loan money has been used for many unnecessary projects. These projects are not going to benefit financially.
China is Sri Lanka's largest lender. Sri Lanka has also borrowed from various international currency markets, the Asian Development Bank and Japan.
Debt-ridden
The problem in Sri Lanka was not created overnight. This problem has accumulated over the last 15 years. Different governments of Sri Lanka have taken loans from different sources at home and abroad.
One of the sources is the sovereign bond. Since 2006, the country's government has issued sovereign bonds to raise funds.
Economists say such sovereign bonds are sold when the cost is higher than a country's income. Such bonds are sold in the international capital market to raise money. That is what Sri Lanka has done.
But he did not give much thought to how the money would be paid.
Debt settlement
Sri Lanka now owes 12.5 billion in international sovereign bonds.
Besides, the government has also borrowed from domestic sources.
In all, Sri Lanka will have to repay about 7 billion in debt this year.
Out of this seven billion dollar debt, foreign debt (international sovereign bond) is one and a half billion dollars.
According to various media reports, the country will not be able to repay these loans this year.
But Sri Lanka's central bank said in a statement that the idea was incorrect.
The country's central bank said it had repaid আ 2.5 billion in international sovereign bonds over the past two years.
Sri Lanka last paid 500 million in January.
As a result, the country's foreign exchange reserves have been strained. That is why the country is unable to import fuel oil and other essential commodities.
In September 2011, Sri Lankan President Gotabaya Rajapaksa declared a state of economic emergency in the country. As a result, the government has taken control of the supply of basic food items. Inflation in the country is now around 15 percent.
In January, Sri Lankan President Gotabaya Rajapaksa asked China to coordinate debt repayment.
Tax reduction
After coming to power in November 1919, the President of Sri Lanka decided to reduce VAT and taxes in the country. Many expressed surprise at such a move.
The rate of VAT has been reduced from 15 percent to 8 percent.
The main reason for the reduction of VAT was to give impetus to the economy.
After the end of the civil war in Sri Lanka in 2009, the then President Mahinda Rajapaksa (brother of the current President) took a similar initiative. As a result, the war-torn economy gained momentum.
In that light, incumbent President Gotabaya Rajapaksa took a similar step.
But within a few months, the coronavirus epidemic began worldwide.
Shrimal Abiratne, a professor of economics at Colombo University, told BBC Bangla that the reduction in income tax and VAT would reduce the government's revenue by 25 per cent. As a result, the government is forced to borrow more, he said.
"The tax cuts were a big mistake," the former senior deputy governor of Sri Lanka's central bank told Reuters.
Reducing taxes reduces government revenue. Again, the corona virus epidemic affected trade and commerce.
On the other hand, the government has to abide by the obligation to repay the loan. All in all, there is a lot of pressure on the economy.
Disaster in tourism and remittance sector
The largest source of foreign exchange in Sri Lanka comes from the country's tourism sector. The country is in dire straits as the tourism industry has been shut down for almost two years due to the coronavirus outbreak.
Before the onset of the epidemic, most tourists to Sri Lanka came from China. But tourists from China could not come because of strict coronavirus restrictions in China. This has led to a catastrophe in the country's tourism sector.
nother major source of foreign exchange in the country is the dollar sent to Sri Lankans working in various countries. But it was badly damaged during the coronavirus epidemic.
Professor Shrimal Abiratne said Sri Lanka used to earn 12 billion from tourism and remittances before the coronavirus epidemic.
Disaster in organic farming
President Gotabaya Rajapaksa, who came to power in 1919, introduced organic farming to the country. That is why the use of chemical fertilizers and pesticides in agriculture is prohibited. As part of this, fertilizer imports were banned in Sri Lanka.
This had a negative impact on agriculture. This reduces rice production by up to 20 percent.
At one point, Sri Lanka, self-sufficient in rice production, was forced to import 450 million worth of rice. The price of rice continues to rise sharply.
Organic farming had a negative impact on the country's tea production. Sri Lanka earns foreign exchange by exporting tea. There is also a big push.
The government pays 200 million in compensation to farmers. At the same time, food shortages are rampant across the country.
Professor Abiratne said not enough research has been done on the subject before the introduction of organic farming. This has had the opposite effect.
He said that the farmers of the villages have been severely affected due to the decline in production. As a result, food prices have risen and more foreign exchange has to be spent on food imports.
Trying to handle the crisis
Sri Lanka needs foreign currency to cope with the current crisis. That is why the country is facing many.
The country is in talks with the International Monetary Fund (IMF). The country has devalued its currency by up to 15 percent to obtain a loan from the IMF. At present, the Sri Lankan rupee is 230 against the US dollar.
Sri Lanka has also applied for more loans from China and India.
India last week lent Sri Lanka 1 billion to buy some emergency food, medicine and fuel.
Observers say the country will not be able to get out of the debt-ridden Sri Lanka suddenly.
Sri Lanka has foreign exchange reserves of just under 2.5 billion at the end of February, according to the country's central bank. This is the lowest in the last ten years.
Economist Shrimal Abiratne said Sri Lanka could emerge from the current crisis through medium and long-term measures. Therefore, the country's exports must increase.
"In order to increase exports, we need to diversify our products. This requires foreign investment. Because Sri Lankan businesses are small and it is not possible for them to invest more money," said Professor Abiratne.
Besides, in the medium term, the country's revenue and budget management should be improved as well as unnecessary expenditure should be reduced, said Professor Abiratne.