Skip to content
Search

Latest Stories

How Sri Lanka's economy went into a tailspin

How Sri Lanka's economy went into a tailspin

Sri Lanka is suffering its worst economic crisis since its independence from Britain in 1948.

Months of lengthy blackouts and acute shortages of food, fuel and medicines have infuriated the public, with huge protests demanding the government's resignation turning violent this week.


Eastern Eye reviews the origins of the snowballing economic calamity in the South Asian island nation:

- White elephants -

Sri Lanka has spent big on questionable infrastructure projects backed by Chinese loans that added to its already unsustainable debt.

In southern Hambantota district, a massive deep-sea port haemorrhaged money from the moment it began operations, losing $300 million in six years.

Nearby are other Chinese-backed extravagances: a huge conference centre, largely unused since it opened, and a $200 million airport that at one point was unable to earn enough money to pay its electricity bill.

The projects were pushed by the powerful Rajapaksa family, which has dominated Sri Lanka's politics for much of the past two decades.

- Unsustainable tax cuts -

President Mahinda Rajapaksa was voted out of office in 2015 partly due to a backlash against his government's infrastructure drive, which was mired in graft claims.

His younger brother Gotabaya succeeded him four years later, promising economic relief and tough action on terrorism after the island's deadly 2019 Easter Sunday attacks.

Days after taking office, Gotabaya appointed Mahinda prime minister and unveiled the biggest tax cuts in Sri Lanka's history, worsening chronic budget deficits.

Ratings agencies soon downgraded the country out of concern that the public debt was spiralling out of control, making it harder for the government to secure new loans.

- Pandemic hit -

The tax cuts were spectacularly ill-timed: just a few months later, the coronavirus began spreading around the world.

International tourist arrivals dropped to zero and remittances from Sri Lankans working abroad dried up -- two economic pillars the government relied upon to service its debt.

Without these sources of overseas cash, the Rajapaksa administration began using its stockpiles of foreign exchange to make loan repayments.

- Fertiliser ban -

Sri Lanka was soon burning through its foreign reserves at an alarming rate, prompting authorities in 2021 to ban several imports including -- critically -- fertiliser and agricultural chemicals farmers need to grow their crops.

The government sold this policy as part of an effort for Sri Lanka to become the world's first completely organic farming nation, but its effects were disastrous.

As much as a third of the country's agricultural fields were left fallow by farmers and the resulting drop in yields hit the production of tea -- a vital export earner.

The policy was eventually abandoned at the end of 2021 after protests from agricultural workers and skyrocketing food prices.

- Shortages and blackouts -

By late 2021, Sri Lanka's reserves had shrunk to $2.7 billion, down from $7.5 billion when Rajapaksa took office two years earlier.

Traders began struggling to source foreign currency to buy imported goods.

Food staples such as rice, lentils, sugar and milk powder began disappearing from shelves, forcing supermarkets to ration them.

Then gas stations started running out of petrol and kerosene, and utilities could not purchase enough oil to meet the demand for electricity.

Long queues now form each day around the country by people waiting hours to buy scant supplies of fuel, while blackouts keep much of the capital Colombo in darkness each night.

- Debt and default -

President Rajapaksa appointed a new central bank chief in April, who soon announced that Sri Lanka would default on its $51 billion foreign debt to save money for essential imports.

The move failed to shore up Sri Lanka's deteriorating finances, and it only had around $50 million in useable foreign exchange at the start of May.

The country is now in negotiations for an International Monetary Fund bailout.

Mahinda Rajapaksa, the prime minister, resigned on Monday in an effort to placate the public after weeks of protests over government mismanagement.

But central bank chief Nandalal Weerasinghe said Wednesday that unless a new administration took charge soon, the country was facing an imminent economic collapse.

"No one will be able to save Sri Lanka at that stage," he said.

More For You

India and Britain brace for impact of Trump tariff threat

India lowers duties on high-end motorcycles to 30 per cent

India and Britain brace for impact of Trump tariff threat

INDIA does not want to give any signal that it is protectionist, the top bureaucrat in the finance ministry said, after slashing import duties on high-end motorcycles, amid US president Donald Trump’s moves on tariffs.

Trump has ignited a trade war with sweeping tariffs on Canada, Mexico and China. None were aimed at India, although Trump had called it a tariff abuser during his election campaign last year.

Keep ReadingShow less
Asda-Getty

Asda, which is dealing with declining sales after a private equity-led takeover, denied any discrimination.. (Photo credit: Getty Images)

Asda staff move closer to £1.2 billion equal pay payout

THOUSANDS of Asda workers have won the latest stage in a long-running equal pay case, bringing them closer to a potential £1.2 blillion payout.

The Manchester employment tribunal ruled that 12 out of 14 lead claimants, part of a case involving 60,000 employees, had jobs of equal value to their higher-paid, mostly male counterparts working in Asda warehouses, The Guardian reported.

Keep ReadingShow less
Diageo-jw-reuters

The global beverage company is known for brands like Johnnie Walker. (Photo: Reuters)

Diageo faces challenges in life after Ivan Menezes

DIAGEO, the global beverage company known for brands like Johnnie Walker and Guinness, has encountered significant challenges following the death of CEO Sir Ivan Menezes in June 2023. Menezes, who had led the company since 2013, was succeeded by Debra Crew.

Under Crew's leadership, Diageo has faced a profits warning and adverse global consumer trends. The company's shares have declined nearly 30 per cent since her appointment.

Keep ReadingShow less
Nirmala-Sitharaman-Reuters

India's finance minister Nirmala Sitharaman presented the annual budget on Saturday, February 1. (Photo: Reuters)

Key points from India's 2025 budget

INDIA will focus on increasing the spending power of its middle class, encouraging private investment, and promoting inclusive development, finance minister Nirmala Sitharaman said on Saturday while presenting the annual budget.

Sitharaman said the budget for 2025-26 includes measures for the poor, youth, farmers, and women. She also highlighted "transformative reforms in taxation."

Keep ReadingShow less
Shoplifting surge costs retailers record £2.2bn

In the 12 months to September 1, 2024, a total of 45,000 cases involving violence or abuse were recorded (Photo: iStock)

Shoplifting surge costs retailers record £2.2bn

SHOPLIFTING across the UK has spiked in recent months costing stores a record £2.2 billion ($2.7bn) in losses, a leading retail organisation warned.

"Retail crime is spiralling out of control," the British Retail Consortium said in its latest annual report, adding that thieves were also becoming more violent towards staff.

Keep ReadingShow less