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Emergency in Sri Lanka! | Economic Crisis Explained | Dhruv Rathee - YouTube
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Hello, friends!
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State of Emergency has been declared in Sri Lanka.
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Social media websites have been banned.
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And a curfew has been declared across the island.
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Before this, thousands of people were out on the streets protesting.
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There's a scarcity of fuel and food in the country.
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People are enraged.
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And Sri Lanka is going through a major economic crisis.
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What are the reasons behind this?
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Come, let's try to understand.
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"The situation in Sri Lanka is very bad.
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Along with the Emergency, they've imposed a 36-hour police curfew.
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In addition to the food shortages,
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people have to suffer through petrol and diesel scarcity too."
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"The enraged people in Sri Lanka,
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tried to attack the President's residence."
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"There, they were met with water cannons and tear gas."
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"They are the people who can actually do something,
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but they just leave the country.
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But now, it's enough!"
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First, let's understand the situation in Sri Lanka right now.
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In February, Sri Lanka's foreign currency reserves,
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were at a mere $2.3 billion.
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Compared to January 2020,
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It had fallen below 70%.
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If a country has a low foreign currency reserve,
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it is difficult for it to import goods.
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With the present level of foreign currency reserve in Sri Lanka,
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it can import goods to meet one month's needs only.
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Apart from this, there is a debt payment of $4 million due from Sri Lanka.
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In India, we think of imported goods as luxury items,
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imported phones, imported laptops, imported cars,
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but friends, Sri Lanka's economy,
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relies on imported goods even for basic products.
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Sugar, cereals, pharmaceuticals.
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Thankfully, India and India's economy is so large,
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that these basic products are produced in India,
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and we can import it from different states,
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we don't have to import these from other countries.
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But Sri Lanka has to import these from other countries.
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Because of the low foreign currency reserve,
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it is becoming increasingly difficult to import these.
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Leading to rapid inflation in the prices of these basic commodities in the country.
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There's high inflation.
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In the last month alone,
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Sri Lanka witnessed 25% inflation.
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People are facing difficulties to purchase even the basic things.
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Rice, sugar, milk.
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A Sri Lankan activist told The Indian Express,
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that the price of rice in Sri Lanka can reach up to 500 LKR within the week.
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LKR = Sri Lankan Rupees.
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1 INR = 4 LKR approximately.
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Today, rice is at LKR 290/kg.
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Sugar: LKR 290/kg.
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Milk powder: LKR 790 for 400 grams.
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In some restaurants, a cup of tea now costs LKR 100.
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A Sri Lankan school teacher has said,
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they are a family of 3.
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Their family's monthly expenses used to be
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LKR 30,000 per month.
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But last month, their expenses were at LKR 83,000.
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There's a milk powder shortage too.
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It is becoming difficult for people to afford rice and lentils.
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On top of it, there's an electricity problem, a power crisis too.
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Because fuel is also imported from other countries.
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People are getting electricity for only 4 hours a day.
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There are so many power cuts,
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the Power Minister of Sri Lanka has directed the officials
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to turn off the street lights to save power.
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The government ordered their electricity board,
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to get diesel from
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the Sri Lankan branch of Indian Oil Corporation,
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the Lankan Indian Oil Corporation.
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LIOC has given 6,000 MT of diesel to Sri Lanka,
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so that there is some relief in the situation.
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Cooking gas is supplied only once a week.
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And the price of a gas cylinder,
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went up from LKR 3,000
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to LKR 4,200.
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It is around ₹1,200.
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There are long queues outside fuel stations.
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It has affected the newspaper and printing industries too.
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Newspapers have to minimise their prints.
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Because of the shortage in printing materials.
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School exams have been postponed.
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Due to this severe food and economic crisis,
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people have started fleeing the country.
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The first set of six refugees was found
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on an island near Rameshwaram.
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They said that they had paid LKR 50,000 to the fisherman,
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to drop them off on an island in the Indian waters.
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These six refugees are a young couple, their 4-month old baby,
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another woman, with her 2 children.
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They were rescued by the Indian coast guard,
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and were fed in the coast guard camp.
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Later, they were handed over to the police,
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who then took them to a refugee camp.
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Then there was another group of 10 refugees.
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They said that they had spent LKR 300,000,
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so that they could flee their country
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and reach India safely.
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You can see how desperate the people are.
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According to the intelligence officers of Tamil Nadu,
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2,000 refugees may come to India in the next few weeks.
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To discuss this, Tamil Nadu's Chief Minister MK Stalin,
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met Prime Minister Modi,
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asked permission to allow the State Government
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that the Sri Lankan Tamils that would come to Tamil Nadu as refugees,
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can be given humanitarian aid by the State Government.
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India is supporting Sri Lanka in other ways as well.
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On 17th March, Sri Lanka's Finance Minister
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signed a Credit Line of $1 billion with New Delhi.
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Earlier in the year,
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a $500 million credit line
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was signed for fuel purchases.
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India did a currency swap of $400 million.
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And now, Sri Lanka is requesting another credit line of $1 billion from India.
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So that they can import basic items for their country,
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and the situation could be controlled a bit.
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But India is not the only country,
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from whom Sri Lanka has asked for help.
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They approached China for help too.
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Sri Lanka is deep in China's debt.
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Sri Lanka had to make several debt repayments to China.
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Sri Lanka has requested China
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to restructure the debts.
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Along with it, they are discussing
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a $2.5 billion credit line from China.
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There have been discussions with IMF and the World Bank too,
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Sri Lanka's President will go to Washington DC next month,
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so that they could work out a rescue plan.
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To save the country.
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The biggest question here is that
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Why did this happen?
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What are the reasons that Sri Lanka's condition is this now?
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Friends, there are multiple reasons for this.
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In 2018, Sri Lanka was one of the world's top destinations for tourism.
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Hundreds of thousands of foreign tourists visited this country.
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Specifically speaking, 2018 was a record-breaking year for Sri Lanka.
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2.3 million foreign tourists visited Sri Lanka.
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About 12% to 13% of Sri Lanka's economy,
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relied on tourism.
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Then in April 2019,
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there were multiple bombings in the country.
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Now known as the Easter Day Bombings.
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Three churches and three hotels were targeted across several cities,
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269 people were killed in the bombings,
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45 of them were foreign nationals.
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So you can imagine why this one day wrecked tourism.
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8 suicide bombers were responsible for the bombings.
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Sri Lankan citizens, associated with a local Islamic terrorist group.
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Due to this, the following month,
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there was a large scale anti-Muslim violence in Sri Lanka.
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Homes, shops, cars of Muslims were attacked,
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and vandalised.
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To control this, more than 100 troops were deployed in Negombo town.
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Curfews were imposed,
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the government blocked Facebook and WhatsApp,
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to stop the rumours.
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But doing so only heightened the religious tensions.
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There were anti-Muslim riots in 2018 too in Kandy and Ampara.
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The government had to impose a State of Emergency in Sri Lanka then as well.
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They had blocked Facebook then too.
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It was found that Sinhalese Buddhist terror groups were responsible for the attacks.
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Later, when the Facebook Papers were leaked,
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it was revealed that Facebook had played a huge role in these riots.
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Apps like Facebook constantly encouraged communal propaganda,
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their algorithm spread it far and wide,
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creating hatred among people
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and eventually, these riots broke out.
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If you're wondering how it was possible
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how social media apps instigate these riots,
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because it seems unbelievable.
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Then, friends, I'd recommend that you watch this video on social media,
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I'll link to it in the description,
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watch it after you've watched this video.
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In it, I have explained it in detail,
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how Facebook spread hatred among people all across the world.
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In fact, Facebook had later apologised
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for these riots in Sri Lanka.
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All of these had a terrible effect on tourism.
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But, it was only the beginning.
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After this, in March 2020, the Covid-19 pandemic struck.
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Shutting down tourism all around the world.
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As I told you,
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12%-13% of the country's economy relied on tourism.
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The entire sector collapsed.
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But even a collapse in tourism shouldn't be able to cause this much damage.
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There are more reasons.
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The Government made mistakes too.
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The Sri Lankan President, Gotabaya Rajapaksa,
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won the election in 2019 and came into power.
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In his presidential campaign,
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he had promised to revive the economic growth in the country.
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Another promise was to cut down the Value Added Tax, VAT, to half.
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VAT used to be charged at 15% before this.
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The simple reason for the tax cut was that
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if people paid less tax, they would spend more.
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With the increase in consumption,
there would be economic growth.
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There's nothing wrong with the logic.
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This worked out successfully in many instances.
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But it needs to be executed with the right timing.
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With the right planning.
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After understanding the situation.
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This tax cut came into effect on 1st December 2019.
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3 months later, the Covid-19 pandemic hit.
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The logic was that people would consume more with a reduction in tax,
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But with the lockdown, and people unable to go out to consume things,
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there was no increase in consumption.
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There was no increase in consumption
and none in economic growth either.
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And the government had to incur a huge revenue loss.
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Sri Lanka's public debt kept on increasing.
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In 2019, the debt was 94% of GDP.
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By 2021, it had gone up to 119% of GDP.
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Their President came up with a "Masterstroke" too.
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In the 2019 elections, he had promised that
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he would convert the country's agriculture into organic.
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In his campaign, he spoke about
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how, over 10 years, he would shift agriculture to 100% organic.
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And then he came up with the sudden decision.
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Overnight, there was a nationwide ban on synthetic fertilisers and pesticides.
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He wanted the country to overnight become
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a country that practices 100% organic agriculture.
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There was another reason to make this decision,
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to cut down imports.
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Synthetic fertilisers and pesticides were imported into the country.
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The government thought to save some money by banning imports of these.
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Such decisions are lauded as bold by the fans of some politicians.
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A sudden, major disruption, must be good.
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But these sudden, bold decisions,
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are often without much thought.
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True change in the country happens slowly and with planning.
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The thing about organic food,
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it is good for the environment,
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for our health,
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it is more sustainable,
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but when it comes to organic farming,
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its short-term efficiency isn't good.
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It's said that in the short term, the produce may fall by 20% to 30%.
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Because of not using fertilisers and pesticides.
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This is what happened exactly.
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Sri Lanka was a country that was self-sufficient in rice production.
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Rice didn't have to be imported.
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But after the ban, within 6 months,
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the government had to spend $450 million to import rice.
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There was a large tea production in Sri Lanka,
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and the tea used to be exported to other countries.
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A major source of foreign currency for the government
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was the tea export.
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The ban destroyed the tea crop too.
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After listening to this, you shouldn't be thinking that
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switching to organic farming is the wrong decision.
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Organic farming is definitely better for your health,
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better for the environment,
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but any decision, irrespective of how good the intention behind it was,
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if it is made without thinking it through
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without planning for it,
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it would lead to such a catastrophic result.
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Here, I'd like to use Sikkim as an example.
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In India, Sikkim is a 100% organic state.
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Sikkim transitioned into being 100% after long deliberation.
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They began in 2003.
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And in 2016, they had declared
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that Sikkim had become a 100% organic state.
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In the short term, their production capacity dropped in some areas,
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but in the long-term, it is seen that
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there isn't s significant difference in the production.
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In fact, this gave a boost to Sikkim's tourism too.
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But we can discuss this later in detail, in some other video,
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how it was for Sikkim to transition to organic farming.
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The way it became possible.
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Another reason behind Sri Lanka's economic crisis is
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the Food Mafia.
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The government claims that the food mafia is hoarding the food,
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there's a black market for even the basic items.
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Rice, sugar and pulses.
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And then comes the final reason, Foreign Debt.
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This isn't a new problem.
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This has always been a problem for Sri Lanka historically,
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it's been going on for years.
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In 2017, Sri Lanka's total debt
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was $64 billion.
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95% of the government revenue,
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went to debt repayment.
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In 2020, the debt was at $51 billion,
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and Sri Lanka imposed an import ban on foreign currency to repay this debt.
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China is also blamed for this.
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It's said that China is using debt-trap diplomacy.
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China lends billions of dollars to countries
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so that they could fund, big infrastructure projects
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for highways, ports, airports
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to build power plants,
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and when the other country can't profit out of it,
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when they can't repay the debt,
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China then confiscates the project.
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Chinese companies take over.
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A major example of this is the Hambantota International Port, Sri Lanka.
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It was built in November 2010,
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at the cost of $1.3 billion.
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With a loan from China.
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But this port had to suffer huge losses.
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And Sri Lanka could not repay the debt.
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That's why the new government decided that
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80% of the stake of the port would be privatised.
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Sold off to private companies.
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After the bidding,
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which company bought the stakes in the port?
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A Chinese company named China Merchants Port.
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After the negotiations, in July 2017,
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this agreement was finally signed.
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70% of the stake was sold to China Merchants Port.
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Additionally, this port was leased out to this company on a 99-year-lease.
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In exchange, Sri Lanka received $1.2 billion in foreign currency.
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Many critics and opposition politicians had opposed this.
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Asking the government to stop selling the country.
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Due to these reasons friends,
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the value of the Sri Lankan rupee is deteriorating rapidly.
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At the beginning of March,
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$1 was approximately about LKR 200.
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Now, the conversion rate has dropped to $1 being about LKR 300.
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Because the value of their currency is falling,
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everything that they import,
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are becoming more and more expensive.
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This, in turn, causes more inflation.
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The latest update on the situation is that
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all the ministers in the Sri Lankan government have resigned.
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All the 26 ministers in the government,
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have submitted their Letter of Resignation
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to the Prime Minister.
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But their Prime Minister, Mahinda Rajapaksa,
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and his brother, the President of the country,
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against whom people are protesting out on the streets,
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neither of them has resigned.
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People are furious,
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people are coming out on the streets to defy the curfew.
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I hope that the credit line being given to Sri Lanka,
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would help Sri Lanka to make a successful recovery.
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and would be able to bring its economy back on track.
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For any country, crisis and instability
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is obviously bad for its citizens,
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but it leaves an impact on the neighbouring countries too.
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If the situation in Sri Lanka continues to worsen,
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there will be more refugees in India.
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There may be several effects of this on India as well.
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Click here to watch it.
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Thank you very much!
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