Sri Lanka Economic Crisis Explained: Sri Lankan Refugees Flee To India As Country Faces Economic Meltdown: 10 Points

The Indian Coast Guard on Tuesday apprehended six Sri Lankan nationals including three children, all residents of Jaffna and Kokupadaiyan in the northern region of the island nation, who were reportedly fleeing unemployment and food shortage. They were rescued from an island near Rameshwaram in Tamil Nadu.

Sri Lanka ordered troops to petrol stations on Tuesday as sporadic protests erupted among the thousands of motorists queueing up daily for scarce fuel, news agency AFP reported.

Three elderly people have died waiting in queues to secure fuel since Saturday, police have said. Petroleum prices have skyrocketed amid the country’s foreign exchange crisis, causing inflation and a shortage of essential supplies. 

In a move that will adversely affect students, the island nation has cancelled all exams indefinitely due to an acute shortage of papers.

Sri Lanka’s financial crisis stems from a critical shortfall of foreign currency, leaving traders unable to finance imports. The country’s tourism sector, the primary source of foreign exchange, dried up during the Covid pandemic and reckless borrowing from China to finance infrastructure projects has caused its debts to spiral.

The 2019 serial bomb blast across Colombo during Easter had already hit the country’s tourism sector hard, directly affecting the economy and forex reserves. The pandemic only worsened the crisis. 

Experts say the country’s high dependence on imports for its essential items is also to blame for the crisis as it relies almost entirely on imports for its daily essentials such as sugar, pulses, cereals and pharmaceuticals. Shortage of foreign currency to foot import bills has also caused food shortage, they say. 

China refused to assist Sri Lanka which appealed to reschedule its huge Chinese debt burden in the face of the COVID-19 outbreak that has adversely affected the tourism sector, the Hong Kong post has reported. 

India had on March 17 announced a USD 1 billion line of credit to Sri Lanka for procurement of food, medicines and other essential items during Sri Lankan Finance Minister Basil Rajapaksha’s two-day visit to India. Last month, India extended a USD 500 million line of credit to Sri Lanka to help it purchase petroleum products. 

President Gotabaya Rajapaksa has said that Sri Lanka will seek an International Monetary Fund bailout to battle the crisis. He said last week that IMF help was needed to secure “a new method” to repay external debt and sovereign bonds this year with around $6.9 billion needed this year for debt servicing, news agency AFP reported.