By The News Desk

Long queues have been reported at food markets and prices of staples are trending upwards as Sri Lanka grapples with an economic crisis that has hit imports and now forced the government to declare an emergency. The COVID-19 pandemic is being seen as the immediate trigger, but experts say that deeper structural issues have led to the current situation in the Indian Ocean island nation of 21.8 million people.

What is the emergency declared in Sri Lanka?

On August 31, the Sri Lanka government announced it was invoking rules against hoarding of staple food items, which permit officials to seize stocks and decide prices at which they are to be sold. The government acted amid rising inflation as depleted foreign exchange reserves hit imports.

According to reports, Sri Lanka President Gotabaya Rajapaksa declared the emergency under the Public Security Ordinance with a view to stabilizing the prices of food items such as sugar and rice and maintaining their supply. A former army general has been tasked with implementing the orders.

“The authorized officers will be able to take steps to provide essential food items at a concessionary rate to the public by purchasing stocks of essential food items including paddy, rice and sugar,” a statement said, adding that “these items will be provided at government-guaranteed prices or based on the customs value on imported goods to prevent market irregularities”.

A spokesperson for the President later clarified there was no shortage of food in the country, and that the emergency orders were targeted against hoarders. “Certain local and foreign media are carrying out media stories that there is a food shortage in the country. There is no basis to these reports,” the spokesperson said.

What has caused the present crisis?

The COVID-19 pandemic has caused unprecedented economic disruption around the world and Sri Lanka has been no exception. The Sri Lankan economy — heavily dependent on tourism and tea exports — shrank by a record 3.6% in 2020 while rising foreign exchange rates meant that the country had less and less of dollars to pay for imports.

The country’s foreign exchange reserves had dropped to $2.8 billion at the end of July from $7.5 billion in November 2019, when the Gotabaya government took office. Data show that the Sri Lankan rupee has lost more than 20% er cent of its value against the US dollar during this time.

In fact, the Sri Lankan Department of Census and Statistics said that a strengthening dollar was the key driver of the import crisis. The COVID-19 crisis, and prior to that, the 2019 Easter Day bombings in the country, has caused a major setback for the country’s tourism industry, which is a primary source of foreign exchange. According to data from the World Travel and Tourism Council, the contribution of tourism to Sri Lanka’s GDP was 4.9% in 2020, down from 10.4% the year before. Employment in the sector fell by close to 25% while foreign visitor numbers had declined by about three-fourths.

But while COVID-19 may have amplified it, the crisis itself is being attributed by experts to economic policies and structural factors. As the country saw an economic boom in the post-LTTE years, it increasingly turned to foreign borrowings through the issue of sovereign bonds. But outside of tourism and certain exports, the country hardly managed to ensure it was attracting enough FDIs and foreign funds to meet its rising debt obligations. The national debt has soared from close to $48 billion in 2016 to $86 billion in 2021.

Reports now say that the country does not have reserves to pay for more than three months of imports even as it is staring at shelling out money to repay its foreign debts. Sri Lanka reportedly still has to clear foreign debts to the tune of $3.7 billion this year, but as its currency weakens against the dollar, such repayments will become more costly.

What’s it doing to address the issues?

Apart from triggering emergency provisions, the Sri Lankan government has initiated extraordinary steps to address the crisis. In a bid to save on precious foreign exchange reserves, it has added to an import embargo list with items like automobile spare parts and dietary staple turmeric, too, now off-limits for Sri Lankan consumers.

Associated Press reported that everything from toothbrush handles to strawberries, vinegar and wet wipes whose imports have been banned or made subject to special licensing requirements. Shortages as a result of such actions have pushed up prices in local markets and month-on-month inflation in August rose to 6% from 5.7% in July.

As economies open up across the globe, rising fuel prices, too, are an added burden for the country and the Sri Lankan energy minister is reported to have urged motorists to save on fuel so as to protect its foreign reserves for purchases of essential medicines and vaccine. A presidential aide is said to have warned that fuel rationing may be introduced unless consumption was reduced.

The country has also entered currency swap deals with China ($1.5 billion) and India ($400 million) that will allow it to temporarily tide over its foreign exchange liquidity crisis, but experts say that none of these steps represent the long-term or structural measures that Sri Lanka desperately needs to keep such economic crises at bay.

What has been the impact on farming?

The bid to cut down on imports is also being seen as one of the factors that influenced the government’s decision in April this year to announce that the country will become the first in the world to practise 100% organic farming. While the decision to throw out chemical fertilizers will help the country save on $400 million in annual imports, the plan has agricultural producers in the country worried over yields.

AFP said Sri Lanka’s no-chemical-fertilizers rule “threatens its prized tea industry and has triggered fears of a wider crop disaster that could deal a further blow to the beleaguered economy”. Apart from tea, produce like cinnamon, pepper and rice is also facing trouble.

Sri Lanka is a net importer of food and any steps that affect domestic production would further exacerbate the foreign exchange crisis that the country is now grappling with. Food and beverages imports stood at 7.2%  of total imports in 2018, amounting to $1.6 billion. 

What is the Covid situation in the country?

At the root of the present problems lies a worsening situation on the Covid front as the country finds itself struggling to rein in a third wave that has led to more than 200 daily deaths at its peak, although numbers have come down over the last few days. Peak daily cases during the third wave had touched nearly 6,000 whereas it was about 3,000 in the second wave and below 1,000 new infections during the first wave.

The country has recorded more than 470,000 cases and over to 10,000 deaths till September 7, 2021 due to COVID-19. As of September 3, more than 40% of eligible people in Sri Lanka had received their full dose of a Covid vaccine while close to 60% had been given at least one dose.

-This article was originally featured on news18.com