Sri Lanka’s economic crisis was in the making from November 2019

Sri Lanka is facing its worst economic crisis since 1948, when the country gained independence; there’s no food, no fuel, no power, leaving people anguished and angry. Here’s a short summary of errors that led to this mess

Sri Lanka is famous for its pristine beaches, clean streets, heritage buildings, delicious cuisine and zestful people.

However, today it is plunged into chaos — it faces its worst economic crisis since 1948, when the country gained independence, leaving it on the verge of bankruptcy.

A severe shortage of foreign currency has left President Gotabaya Rajapaksa’s government unable to pay for essential imports, including fuel, leading to debilitating power cuts lasting up to 13 hours.

Critics say the roots of the crisis lie in economic mismanagement by successive governments that created and sustained a twin deficit — a budget shortfall alongside a current account deficit.

As of 4 April, the economic crisis devolved into a political one with Sri Lanka’s Cabinet of Ministers resigning with immediate effect.

What happens next is hard to predict, but here’s a summary of how things went so wrong for the island nation.

November 2019

After winning Sri Lanka’s presidential election and months ahead of a parliamentary ballot that would again test his popularity, Gotabaya Rajapaksa announced sweeping tax cuts.

The Cabinet cut the value added tax to eight per cent from 15 per cent and also abolished seven other taxes, including a two per cent nation building tax paid by businesses.

The sweeping tax cuts led to a credit rating downgrade in 2020, leading to Sri Lanka losing access to international financial markets.

Sri Lanka started dipping into its foreign reserves to meet its debt obligations. This resulted in foreign reserves plummeting from a healthy level of $8,864 million in June 2019 to $2,361 million in January 2022.


The COVID-19 pandemic in March 2020 made the situation worse. Tourist inflows and tourism revenues fell further; exports of tea and rubber declined due to lower demand; and remittances, another booster to the foreign exchange reserves, also fell as Lankans across the globe lost jobs.

The GDP declined by 3.5 per cent, the Current Account Deficit touched 7.9 per cent of GDP, and the fiscal deficit climbed to 11.1 percent.

Timeline  Sri Lankas economic crisis was in the making from November 2019

Sri Lanka had imposed strict travel restrictions and lockdowns to control the spread of coronavirus, which had a negative effect on the economy. AFP

April 2021

While suffering economic hardships, the Lankan government on 29 April 2021 decided to ban the import of chemical fertilisers and any other agrochemicals to make the Indian Ocean nation the first in the world to practice “organic-only” agriculture. The move was aimed at reducing pressure on forex reserves.

The president then had said that the move would help save around $200 million incurred on importing agrochemicals. Sri Lanka’s chemical fertiliser import in 2020 was 1.26 million tonne.

Agriculture experts strongly criticised the move as “ill-advised” and “unscientific”. The farming community expressed fears that such drastic policy shift could result in steep drop in yield.

November 2021

Facing protests and seeing a drop in agricultural output, the government blinked and said that it would partially lift the ban.

However, the damage was done. According to Saman Dharmakeerthi, professor of soil fertility and plant nutrition at the University of Peradeniya in Kandy, in a report published by The Week, the ban had led to a reduction in yield, which went down by 25 per cent.

Tea cultivation, which is one of the mainstays of the economy, was also badly hit. The output of pepper, cinnamon and vegetables went down by 30 per cent.

This forced the government to rely even more on foreign countries for rice and other staples.

Timeline  Sri Lankas economic crisis was in the making from November 2019

A girl uses a kerosene oil lamp to attend online lessons during a power cut in Colombo, Sri Lanka. AP

March 2022

The situation became even more dire by the end of March as a critical lack of foreign currency left the island nation unable to pay for vital imports, leading to dire shortages in everything from life-saving medicines to cement.

On 30 March, the island nation announced nationwide 13-hour daily power cuts. The country had been under severe electricity rationing since the start of the month and the monopoly said an earlier hike in power outage from seven hours to 10 hours was imposed because there was no oil to power thermal generators.

1 April 2022

The plunge into darkness, and the severe food shortages led to people getting furious and that anger spilled on to the streets on 1 April when demonstrators tried to storm the president’s home.

People chanted “lunatic, lunatic, go home”, before police fired tear gas and used water cannon.

The crowd turned violent, setting ablaze two military buses, a police jeep, two patrol motorcycles and a three-wheeler. They also threw bricks at officers.

Following the violence, a 36-hour curfew was imposed.

Timeline  Sri Lankas economic crisis was in the making from November 2019

Police uses tear gas to disperse protestors outside Sri Lankan president’s private residence on the out skirts of Colombo, Sri Lanka on 31 March 2022. AP

2 April 2022

A state of emergency was declared, giving security forces sweeping powers. President Gotabaya Rajapaksa said as per an AFP report, the emergency was declared for «protection of public order and the maintenance of supplies and services essential to the life of the community.”

Also read: Food shortage, 13-hour power cuts, and no paper: How Sri Lanka’s economic crisis has worsened

3 April 2022

On Sunday, authorities blocked access to social media platforms. «Confirmed: Real-time network data show Sri Lanka has imposed a nationwide social media blackout, restricting access to platforms including Twitter, Facebook, WhatsApp, YouTube, and Instagram as emergency is declared amid widespread protests. (sic),» NetBlocks said on Twitter.

4 April 2022

The crisis deepened after Sri Lanka’s Cabinet resigned en masse from their positions. All 26 ministers aside from President Gotabaya Rajapaksa and his elder brother Prime Minister Mahinda Rajapaksa stepped down.

Monday morning also saw trading on Sri Lanka’s stock exchange being shut down. Additionally, Sri Lanka’s central bank governor, Ajith Cabraal, announced his resignation.

With inputs from agencies

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