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Sri Lanka’s current economy suffers severe setback in dollar crisis

Sri Lanka’s current economic situation became worse by the existing dollar crisis, soaring cost of living and a possible shortage of food in the coming year- has made people curse over the government’s broken promises when it assumed power. 

This economic crisis originated due to unprofessional, arrogant, egoistic, and childish and rent seeking governance by the regime in control of the executive presidency, several eminent economists said.  

It will further deter value-adding FDI flows, low growth, and high twin deficits, rating downgrades and possibly excessive stress on citizens of the  country heading towards a failed state , they claimed. 

Although decision makers conveniently blamed the unforeseen COVID pandemic for this economic downfall, economists believe that several other factors contributed to this situation.

The imposing of tax concessions and import controls have been erroneous policies that caused a reduction in Government revenue. 

While Sri Lanka is indebted to many of its allies, its foreign reserves have drastically reduced and the country has now opted to selling off its gold reserves. 

Apart from that the American rating agency Fitch downgraded Sri Lanka’s rating status to ‘CC’ – the lowest rating prior to default. 

As per the official statistics, the debt servicing during the next 12 months relating to both the government and the private sector has been estimated at USD 7 billion. 

According to the Central Bank, Sri Lanka only had US$ 3.1 billion foreign reserves as at the end of 2021. 

The reserve money increased compared to the previous week mainly due to the increase in cuThe total outstanding market liquidity was a deficit of Rs. 459.932 bn by end of this week, compared to a deficit of Rs. 424.448 bn by the end of last week.

During the year up to 13th January 2022, the Sri Lankan rupee depreciated against the US dollar by 0.7 per cent given the cross currency exchange rate movements currency in circulation, Central Bank’s weekly economic indicators report revealed. 

During the eleven months ending November 2021, domestic tea production increased to 278 million kilo grams notably in comparison to the corresponding period of the previous year from 250.2 million kilograms owing to favourable weather conditions, it divulged. 

 Production of rubber also increased in response to high market prices to 71.4 million kilograms during the eleven months ending November 2021 from 70.8 million kilograms in the same period in 2020 

Coconut production increased considerably due to the lagged effect of favourable weather conditions that prevailed during the latter part of 2020 to 2,852.9 million nuts during the first eleven months of last year compared to 2,561.6 million nuts in the same period in 2020. 

 The government revenue posted a slight increase during the nine month period ending September 2021 to RS.1 052.2 billion from Rs.1031.7 billion in the same period 2020  while expenditure stood at Rs. 2,185.4 in 9 months ending September 2021 compared to Rs. 2,380.4 billion in 2020. 

 Earnings from Tourism have recovered to some extent last year by posting a sum of US$ 261.4 million from $ 682.4 million in 2020.  Workers’ Remittances (Inflows) have declined to $325.2 in December 2021 from 812.7 in the same month 2020.

 Workers’ Remittances in 2021 was $5,491.5  compared to $  7,103.9 in 2020 due to decline in tourist arrivals during the Covid-19 pandemic period.  

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