What led to Sri Lanka economy issues? Sir Lanka on verge of bankruptcy ?

[Futureized]

No diesel left in country, government don't have funds to buy petrol, tea is being sold at Rs 100/cup and people are on roads protesting against their government.

Few keypoints as per DNA:
1) Dependecy on debt for development:
2) Not spending the debt into the right direction:
3) Dependency on import: Sri Lanka never tried to become self-dependent.


What are your thoughts on this ?

 

[Rezep]

In Sri Lanka, an economic crisis foretold

The island’s economy, which was already reeling from the shock of the Easter Sunday bombings, was brought to its knees by COVID-19, an ill-advised agricultural policy and misguided economic decisions. Meera Srinivasan reports on how the government’s lack of a plan to deal with an impending...

www.thehindu.com

This article explains it quite well. Read it in the paper a week back (paywall here tho)

 

[bssunilreddy]

No diesel left in country, government don't have funds to buy petrol, tea is being sold at Rs 100/cup and people are on roads protesting against their government.

Few keypoints as per DNA:
1) Dependecy on debt for development:
2) Not spending the debt into the right direction:
3) Dependency on import: Sri Lanka never tried to become self-dependent.


What are your thoughts on this ?

One cause : China's involvement.

 

[kalph09]

Debt Trap Diplomacy doing what it is supposed to do.

The writing was on the wall already for SL when they lost Hambantota port and yet went to borrow some more billions to build a port city at Colombo + covid hit them hard where it hurts (tourism) + ban on certain fertilizers significantly reducing their crop output.

 

[bssunilreddy]

Next will be Nepal
Already completed with Argentina

 

[blr_p]

One cause : China's involvement.

Yes and the reason for that is after they finished off the LTTE, Sri Lanka found it difficult to attract investment.

In comes China with high interest loans instead of debt free FDI.

There was another crazy decision that was taken last year.

Over night it was decided they will all go in for organic farming

 

[raksrules]

In Sri Lanka, an economic crisis foretold

The island’s economy, which was already reeling from the shock of the Easter Sunday bombings, was brought to its knees by COVID-19, an ill-advised agricultural policy and misguided economic decisions. Meera Srinivasan reports on how the government’s lack of a plan to deal with an impending...

www.thehindu.com

This article explains it quite well. Read it in the paper a week back (paywall here tho)

Here you go, no Paywall...

https://12ft.io/proxy?q=https%3A%2F%2Fwww.thehindu.com%2Fnews%2Finternational%2Fin-sri-lanka-an-economic-crisis-foretold%2Farticle65282210.ece

 

[skoka123]

No diesel left in country, government don't have funds to buy petrol, tea is being sold at Rs 100/cup and people are on roads protesting against their government.

Few keypoints as per DNA:
1) Dependecy on debt for development:
2) Not spending the debt into the right direction:
3) Dependency on import: Sri Lanka never tried to become self-dependent.


What are your thoughts on this ?

Do keep in mind 100 SLR = 25 INR. One cup of tea in an Irani Cafe in Hyderabad is 15 INR.

The basic reasons are huge external Debts leading to huge interest outgo of Foreign currency. No tourism after the 2018 terrorist attacks followed by Covid. While tourism contributes only 12% of the GDP, it generates a lot of Foreign Currency. Being a small country, they depend on imports much like Singapore, which needs Foreign exchange. No foreign exchange = no imports. No imports = shortages. Shortages = hoarding, scalping, and inflation.

While India's debt to GDP is similar to Sri Lanka, we are large country with ample resources to meet our needs.

 

[FlyingVadapav]

In Sri Lanka, an economic crisis foretold

The island’s economy, which was already reeling from the shock of the Easter Sunday bombings, was brought to its knees by COVID-19, an ill-advised agricultural policy and misguided economic decisions. Meera Srinivasan reports on how the government’s lack of a plan to deal with an impending...

www.thehindu.com

This article explains it quite well. Read it in the paper a week back (paywall here tho)

use a paywall bypass
https://github.com/iamadamdev/bypass-paywalls-chrome works for Firefox as well

 

[blr_p]

Do keep in mind 100 SLR = 25 INR. One cup of tea in an Irani Cafe in Hyderabad is 15 INR.

The basic reasons are huge external Debts leading to huge interest outgo of Foreign currency. No tourism after the 2018 terrorist attacks followed by Covid. While tourism contributes only 12% of the GDP, it generates a lot of Foreign Currency. Being a small country, they depend on imports much like Singapore, which needs Foreign exchange. No foreign exchange = no imports. No imports = shortages. Shortages = hoarding, scalping, and inflation.

While India's debt to GDP is similar to Sri Lanka, we are large country with ample resources to meet our needs.

Those did contribute but there were also some stunningly incompetent decisions taken that compounded things further

Changing the constitution to give the president the ability to fire judges affects separation of powers. For a country that claims to be Asia's oldest democracy.

SL had an open economy but they brought in exchange controls that meant the SL rupee depreciated faster. Went from 199/$ to 235 and is presently or six months later 311/$

Not following the IMF's prescriptions which are usually tough and politically risky. IMF wants higher taxes, less subsidies, more spending cuts and high interest rates.

They halved GST when the IMF recommended the opposite. Income tax brackets went up so before you were liable for income tax if you made 5L annual now you did not pay any income tax until you made 30L. 2% GDP worth of taxes lost.

Stopping the import of fertiliser to reduce balance of payments crisis ended up losing 30% agri output with them having to import what they could have grown. Importing more meant the solution became the problem because balance of payments deficit went up and the currency further weakened. Now it costs more to import. Inflation goes up and is currently at 19% and food inflation is around 30% and rising. They are in a vicious circle.

Explaining Sri Lanka’s economic crisis

The country’s current situation is due to misguided policies and flawed external advice

www.thehindu.com

 

[dpandey]

No diesel left in country, government don't have funds to buy petrol,

People will find something to complain about in any situation. Do you know in that spite of this crisis, petrol and diesel are cheaper in Sri Lanka.

This cowpee hindu terrorist fascist nazi modi govt has ruined Indian economy.

Over night it was decided they will all go in for organic farming

I heard some Indian "intellectuals" also had a hand in this decision. Vandana Shiva being one of them. Unfortunately, these parasites will hide for some time and then go back to their usual destructive activism.

 

[blr_p]

I heard some Indian "intellectuals" also had a hand in this decision. Vandana Shiva being one of them. Unfortunately, these parasites will hide for some time and then go back to their usual destructive activism.

After i read the Hindu article i realised commentators who mention organic farming neglect to mention what preceded it ie.

The ban on import of fertilisers ostensibly to save on foreign exchange.

Now If that is true then this idea of switching to organic farming isn't the reason rather it would follow as a consequence,

Wanting organic farming was not the reason and quite frankly ridiculous as an explanation for the food crisis which always will be the ban on fertiliser.

Whoever came up with that 'organic farming' idea ended up with many people getting that idea stuck in their head.

If you see what i mean

 

[bssunilreddy]

Nowadays organic farming is costly than fertilizers because nobody presently uses it.

When I was little we used to have 10 buffaloes and their dung were being used for several purposes.

Plants became compost later on.

Nowadays these are costly hobbies compared with fertilizers & pesticides.

 

[blr_p]

Organic farming is widely used but it takes time for farmers to adapt to it. You cannot force people to make such a change over night or your production will drop.

As for how costly that depends on subsidies. In many states in India agri inputs like fertilisers are govt subsidised.

 

[bssunilreddy]

Organic farming is widely used but it takes time for farmers to adapt to it. You cannot force people to make such a change over night or your production will drop.

As for how costly that depends on subsidies. In many states in India agri inputs like fertilisers are govt subsidised.

Yes in Andhra Pradesh govt gives subsidies for fertilizers and pesticides also which in turn helps farmers to give more output in less time. As for as paddy is concerned farmers go for even 3 times per year to cultivate it. And I don't know about other states and about Sri Lanka even.

My uncle and my cousins cultivate Prawns in their land and this is once per year. Even then it gives 30 to 40 lakhs overall on 20 acres of land for them. I tell them to cultivate paddy because these prawn culture are degrading the soil also thereby when they want to cultivate paddy they have to replace the whole soil to get good harvest.

 

[blr_p]

As for as paddy is concerned farmers go for even 3 times per year to cultivate it. And I don't know about other states and about Sri Lanka even.

This is where there will be a difference between the usual way and the organic way. I'm not knowledgeable enough to tell whether you could cultivate three times a year with organic.

But the primary reason we can do that is because in India the climate allows it. We get two flowering seasons so this land can produce a lot of food. And the result is the larger population.

 

[rdst_1]

Nowadays organic farming is costly than fertilizers because nobody presently uses it.

When I was little we used to have 10 buffaloes and their dung were being used for several purposes.

Plants became compost later on.

Nowadays these are costly hobbies compared with fertilizers & pesticides.

How long have you been farming to come up with this statement?
Organic farming isn't and can't be more costly than chemical input based farming. And again, you don't need cow dung to do organic farming. Perhaps you should do some research before posting such comments as facts. Go and search for 'green manure' and no-till farming.

Also, in this case, the switch to organic farming isn't the reason behind the economic situation of Sri Lanka. Yes, it has aggravated the situation because of lower yields, but it is not the main reason. For a country so dependent upon imports in almost everything, if the money has stopped coming from tourism and it's other exports, it is bound to cause such big problems.

 

[TEUser2K1]

Sri Lanka crisis is India paying money to China, which is exploiting SL as a proxy.
SL is used to that kind of threaten begging. Our country's foreign policy and diplomacy is not focusing enough.

Had a visit there before Covid19, just few Kms. out of cities it looked like Kerala in 1980s.
Good fertile land, but there are societal issues there which cannot be explained easily. So, the leaders of that country are scamming the people.
Their president was celebrating their hard diplomacy about how to put countries like India in line out in their local media after taking few hundred millions from here, all the while acting like a humble neighbor when in India (or this is how media in both countries played it to their masses). Many of the native Sri Lankans have no clue about how big, diverse and resourceful India is, compared to them.

Ironic some reports were celebrating how life is better in Sri Lanka than India, how they scored better in some indices, etc.

India’s neighbours fare better on key human development indicators

India also has the worst gender inequality in the region

www.thehindu.com

India ranks lower than Sri Lanka and Nepal in human capital index

India figures at a lowly 103 rank in World Economic Forums (WEF) Global Human Capital Index for 2017 which has been topped by Norway. India also ranks among the lowest in the world when it comes to the employment gender gap, but has been rated at a mor

www.businesstoday.in

At 74 on the Human Capital Index, Sri Lanka leads South Asia

Investing in people early, and often, can lay a strong foundation for the growth and competitiveness of nations. At 74 on the new Human Capital Index, Sri Lanka leads the South Asia region.

www.worldbank.org

Sri Lanka, Bangladesh Rank Above India in Human Capital Index

India slipped five positions from last year, with Bangladesh, Bhutan and Sri Lanka ahead on the index.

www.bloombergquint.com

 

[blr_p]

covid hit them hard where it hurts (tourism)

Covid finished off tourism but the first blow to that sector came from the Easter day bombings which also targeted westerners.

One cause : China's involvement.

Is Sri Lanka Really a Victim of China’s ‘Debt Trap’?

Sri Lanka’s debt crisis and Chinese loans – separating myth from reality.

thediplomat.com

Sri Lanka’s debt problem goes well beyond China. It is related to a change in foreign debt composition and structural weaknesses of the economy, such as an overall reduction of trade, the rise of protectionism, and the reduction of government revenue.

By the end of 2017, only little over 10 percent of Sri Lanka’s foreign debt was owed to China and most of that was in the form of concessionary loans.

Instead, the largest portion of Sri Lanka’s foreign debt was international sovereign bonds, which amounted to 39 percent of the total foreign debt as of 2017. These are commercial borrowings obtained from international capital markets since 2007, and such bonds have resulted in soaring external debt servicing due to the nature of the debt. Unlike in concessionary loans obtained to carry out a specific development project, these commercial borrowings do not have a long payback period or the option of payment in small installments. When sovereign bonds mature, it results in a significant increase of external debt servicing costs, as the entire face value of the bond should be paid once as opposed to paying installments for concessionary loans.

The danger of rising external debt repayments is they require a large amount of foreign currency. To put it in simple terms, a country should have a sufficient amount of foreign currency inflows (through exports, FDI, or more external debt) to finance foreign debt repayments. Sadly, though, Sri Lanka has failed to increase exports or FDI by a sufficient margin to match its rising foreign debt repayment obligations

As for Chinese loans

The general belief seems to be that Sri Lanka was unable to pay off the loans obtained from China to construct Hambantota port in the first place, and therefore had no choice but hand over the port to Chinese control to pay off the debt. The Sri Lankan government obtained several rounds of loans to construct Hambantota port from 2007 to 2016. All these loans were obtained from China EXIM Bank, most at commercial rates. However, each loan had a grace period of around five years and a payback period of 15-plus years. For this very reason, the loan repayments for Hambantota do not amount to a large portion of Sri Lanka’s external debt servicing payments; some loan repayments have not even started yet. Debt repayments for the loans obtained for Hambantota port amount to only around 5 percent of Sri Lanka’s total annual foreign debt payments, and even less among total debt repayments.

So why was Hambantota leased out ?

The economic reality is that Sri Lanka leased out Hambantota port to China largely due to a persistent balance of payment (BOP) crisis resulting from the reduction of trade over the years even while external debt servicing costs have been soaring. Sri Lank faced a severe shortage of foreign reserves in light of the upcoming debt servicing payments, due to the maturity of international sovereign bonds. Therefore, the country had to look for various avenues to obtain foreign currency inflows. Leasing out Hambantota port was one of the ways to increase the country’s foreign reserves.

To service existing debt obligations (!)

 

[bssunilreddy]

Chinese tried to meddle with the following nations since the past 6 years.

Nepal, Cambodia, Thailand, Vietnam, Iran, Argentina, Sri Lanka, Philippines

Of the above only 3 nations became bankrupt.

Rest were saved either by India or US or by both.

The problem here is that such nations should allow us or others to help them without falling into debt trap which comes later.

Where as even China undertook development work in Pakistan worth 1 trillion but went back without completing because of pressure from our allies but this is its gift to Pakistan.

If anybody can red papers from world bank & IMF since the last 10 years then they will notice what is China upto.

In South Asia we are next after China and our allies want us to surpass China because all it did since 1960s is create a system that super powers will eventually depend on it or even capitulate when time comes.

So all others noticed this and result is the Trade War imposed on China which enables India and certain South East Asian countries to benefit from it or become an alternative in the long run.

So a CCP communist China always is a communist China no change what so ever even after it became global raw material hub.

No lessons learnt by them.

We need to help others who got affected by them and there by help each other in the process. This is the way to attain sustainable coordinated development by our neighbors with India.

PS: Regarding security issues China is helping and will help Islamist Nations to cause trouble to us or pester us always or cause hurdles to us. This is CCP China's mind regarding India.

That's why they offered help to nations around us to encircle us but this isn't going to happen in the end because big brothers always watches.

I hope they will keep China in check.