Why did the Sri Lankan economy Fail?
Why does Sri Lanka face a huge economic fall?
We all see the severe condition faced by Sri Lanka due to the economic crises in its history. There are various reasons for the huge economic crisis in Sri Lanka.
Heavy tax cuts:
In 2019, in the presential election campaign, the Gotabaya Rajapaksa promised to introduce tax cuts. Later on, Cabinet approved a cut of VAT to 8% from 15%, abolishing seven other taxes including a 2% national building tax paid by businesses. The cabinet also announced that all religious institutions are exempted from taxes.
These cuts in tax were announced three months before the Covid-19 pandemic, which swept away the part of Sri Lanka’s economy. The improper planning and wrong timing in the execution of this idea poorly affect the economy of Sri Lanka leading to the major economic crises faced by the country.
Disturbance in Tourism Sector:
The tourism sector contributes a significant amount of income to the GDP of Sri Lanka. On 21 April 2019, the Easter bomb blast at five-star hotels and churches adversely affected the tourist that has declined the arrival of tourists in Sri Lanka.
Later on, the Covid-19 pandemic also affected the tourism sectors as the entire country was on lock down. As a result, there is a drastic decline in the tourism industry and the economy of the country.
Hasty Decisions:
The Sri Lankan government has taken various wrong decisions which leads to the economic crisis in the country. In April 2021, the Sri Lankan government announced the use of organic farming only. On 27 April, the government banned the use of chemical fertilizers and pesticides.
However, organic farming is a good decision as it is good for health and the environment but the sudden decision to ban other chemical fertilizers and pesticides makes it worse because the farmers face a shortage of fertilizers and a lack of support as it was the peak period of farming.
Any decision, no matter how good the idea is needs proper planning and time to get the success.
Russia-Ukraine War:
The Russia-Ukraine war has had a global impact on the economy of several countries. It also has a major impact on Sri Lanka’s economy as Russia and Ukraine both are important import and export sources for Sri Lanka.
Sri Lanka imports products like wheat, soybeans, and sunflower oil from Ukraine and semi-finished products of iron and steel, copper and potassium for fertilisers from Russia.
Sri Lanka exports fermented black tea to Russia and Ukraine for about 18% of its total exports.
The ongoing war between Russia and Ukraine has increased fuel prices and other commodities leading to the high growth in inflation.
These are some of the reasons which mostly affect the economy of Sri Lanka and the country has to face acute economic crises.
Work Cited
MALLAWARACHI, BHARATHA. “Sri Lanka’s new government announces tax cuts.” AP News, 28 November 2019, https://apnews.com/article/b6b96849ebe74c8dbeac461ff8418c28. Accessed 18 May 2022.