Sri Lankan Government To Sell National Airline, Print Money To Pay Salaries, 10 Updates
The economic crisis of Sri Lanka is deepening with each passing day. Prime Minister Ranil Wickremesinghe urged Sri Lankans not to join the long queues outside gas stations as the cash-strapped nation has run out of petrol stock.
News reports suggest that normal distribution of petrol will resume on Thursday, May 19 and diesel will be available in fuel stations from Wednesday, May 18.
Earlier, the country’s newly appointed Prime Minister had expressed concern over the situation in the country by tweeting. He said that the coming two months will be the toughest. The ongoing crisis in the country has persisted for a few years. The country has huge debt obligations and dwindling foreign reserves, and has been struggling to pay for imports, causing a shortage of essentials.
Citizens were forced to stand in long lines for fuel, cooking gas, and medicines. Sri Lanka’s new government plans to sell its national airline to stem losses. Here we look at the latest developments on the economic crisis.
What is the present scenario?
1. Sri Lankan government plans to privatize Sri Lankan Airlines, Prime Minister Ranil Wickremesinghe said in a televised address to the nation Monday. The carrier lost 45 billion rupees (USD 124 million) in the year ending March 2021, he said just days before the nation is set to formally default on foreign debt. “It should not be that this loss has to be borne by the poorest of the poor who have not set foot in an aircraft,” Wickremesinghe said.
2. Prime Minister Ranil Wickremesinghe, less than a week into the job said he was forced to print money to pay salaries, which will pressure the nation’s currency. He said the government’s revenue is around Sri Lankan Rupee (SLR) 1.6 trillion, while expenditure is currently SLR 4 trillion. This means that the budget deficit is SLR 2.4 trillion, which is 13% of GDP.
3. Sri Lanka’s foreign exchange reserves are almost empty. This helps a country pay for imports. PM Wickremesinghe tweeted saying that ‘getting 1 million dollars is also a challenge’. Interestingly, he noted that the country’s foreign reserves stood at USD 7.5 billion in November 2019.
4. PM Wickremesinghe said that Sri Lanka needs USD 75 million to pay for the fuel. For now, India has extended a credit line for diesel shipments. “We are working on getting dollars in the open market to pay for shipments,” he tweeted.
5. Sri Lanka is facing a shortage of medicines and medical equipment. However, it is already defaulting on its payments. Without going into details of a possible solution, Wickremesinghe said Sri Lanka will have to pay SLR 34 billion for four months’ worth of medical supplies.
6. Sri Lanka’s foreign debt is about USD 50 billion, of which China’s share is about USD 8 billion. China’s ‘hidden debt trap’ has been blamed for the worsening debt crisis as the country launched a series of Chinese-funded projects that failed. On April 12, the central bank of Sri Lanka unilaterally banned the repayment of foreign debt.
7. Sri Lanka had made many promises after the end of the 25-year-old civil war against the LTTE. The central bank said in 2010 that ‘recent trends such as low inflation, low and stable interest rates, strong external reserves, stable exchange rate, improvement in fiscal outlook are solid indications that the economy is returning to normalcy’.
8. Sri Lanka’s economy grew at a rate of 8.6% in the last quarter of 2010 and registered a growth rate of 9.1% till 2012. This was largely due to the massive push for public infrastructure projects and the revival of tourism.
9. Tourism became a major source of revenue, contributing at least 12% to GDP in 2019. In 2018, Sri Lanka welcomed 2.3 million tourists, the highest ever. The Easter bombings in 2019 and a year later the Covid-19 pandemic destroyed the tourism sector. Sri Lanka welcomed only 1.9 lakh tourists in 2021.
10. The ongoing Covid-19 pandemic has only aggravated the forex situation, with forex reserves falling by over 70% in two years. The decision to support organic farming also proved to be wrong. Critics claimed that this was due to the lack of foreign exchange. As a result, the share of agriculture in GDP declined by 2.4% in 2020.