How did 'Prosperous' Sri Lanka fail?

The economic crisis in Sri Lanka is deepening each passing day. Petrol and diesel prices reached 300 rupees equivalent a week ago and since then the whole country is out of diesel. Basic necessities like Rice and Sugar are skyrocketing. As per the latest figures, Rice is rupees 500/kg, while Sugar is around rupees 300/kg.

 

 

 

While almost all the economic indicators as well as social indicators showed that Sri lanka was in a much better position than India. Sri Lanka’s per capita income is almost twice as much as India's (Sri Lanka- $3682, India- $1900). Sri Lanka’s literacy rate is much higher than that of India. (Sri Lanka 92%, India 77%). Even the much talked about world happiness ranking of Sri Lanka is much better than India, (Sri Lanka 127, India 136). Then why did after all these indicators, Sri Lankan economy has collapsed and India is sending ships full of grains and other food items to Sri Lanka, while giving $1 Billion credit line as well?

 

 

 

There are two main answers to this, one is Debt to GDP ratio and GDP growth rate. Sri lankan Government’s Debt to GDP ratio is 101%, while India’s is 73%. If we look at this figure alone the problem doesn't seem too big. But one we look at GDP growth rate the problem takes the monstrous form which it has taken now. Sri Lanka’s GDP growth rate for the year 2021-2022 was -1.5%, while India grew at 8.5%. Because of this Sri Lanka’s capacity to even pay the interest on their enormous debt was reduced drastically. Which made Sri Lanka default on its loans, which started the vicious cycle of inflation, which made the Sri Lankan economy collapse. While India could not only pay off the interest on debt, but India’s credit rating actually improved in the same period. India’s food inflation in this period was at its 7 year high at 6%. Sri Lanka faced a food inflation rate at 30%. These 3 indicators are key to understanding this economic crisis in Sri Lanka.

 

 

On the other hand, Sri Lanka’s dictatorial, Socialist government, which happens to be a dynastic government as well, took enormous loans from China to develop infrastructure, at the same time, announced ‘Tughlaqi’ policies of Organic farming across Sri Lanka. The Sri lankan government imported organic fertilizers from China, which did not suit the Sri Lankan soil, which resulted in mass rot set in on the crops, which plummeted the Sri Lankan agricultural output. At the same time, Sri Lanka's primary industry ie., tourism was shut for two years due to covid lockdowns. Which restricted government revenue to purchase grains from other countries in order to compensate the domestic agricultural shortfall.

 

Also Read: Why The Kashmir files matters 

 

This Sri Lankan, crisis, can teach us 2 age old things yet again. To quote ex British PM Benjamin Disraeli, there are three types of lies; lies, damned lies and statistics. These statistics prove him right once again. Second lesson is, Socialism will inevitably lead to disaster, but Chinese debt on top of that will escalate the crisis rapidly.