Sri Lanka might be a small economy but it was not a poor country in the 1950s, even at Sri Lanka was much ahead of many Asian countries like India and China after its independence in 1977. Until the second half of the 1950s, the Sri Lankan economy enjoyed a trade surplus owing to rising primary commodity prices. The rising tax revenue from export crops allowed Sri Lanka to invest in free education and free health care facilities. So, how did the economy been struggling so much in recent times that they are even facing trouble in printing exam papers and the cost of basic food items is also very high?
Many people are blaming Covid for the downfall of the Sri Lankan economy but the problems are going on for decades and that is the reason that the economy is in bad shape.
First of all the reason behind the downfall was the increase in the defense budget. Sri Lanka's 75% of the population consists of Buddhists and 12% consists of Tamils and the rest are minorities. Due to the historical and political differences between Tamils and Sinhalese, there was an enormous civil war that took place in Sri Lanka from 1983 to 2009, which lead to the increase in the defense budget from 6% to 21 %, which crumbled the economy. The second was the problem of ignorance of nepotism in the government by the people of Sri Lanka. The Rajapaksa family understood that if they make the Sinhalese happy they can easily the election, so they went on to make the Sinhalese happy and the Sinhalese completely ignored the nepotism and the corruption in the government. The third was the lack of a proper education system, the literacy rate of Sri Lanka is 92.3% but still the Sri Lankan students are far away from the industry-based skill and real-world exposure. Due to this lack of skillful people, Sri Lanka failed to build a strong and robust economy. The fourth was the problem of failure of projects, in 2008 the Sri Lankan ministers decided the way the Colombo business port is generating revenue in billions, if such a port is built in a place named Hambantota in the south of Sri Lanka then the profits will double. So Sri Lanka went to USA, IMF, and India asking for a loan to build the port, but everyone refused on the grounds that the business will fail in the future. Finally, they went to China and got their loan.
According to Sri Lanka's calculation 1,000 ships will dock at the port. But in reality, there were only 34 ships that docked at the port. The port turned out to be a complete failure and Sri Lanka is unable to pay back the loan to China. Finally, bidding happened for the port and china bought 80% of the stake, and Sri Lanka instead of paying back 1 billion dollars leased the port to China for 99 years. Sixth is the problem of an increase in fiscal deficit, the expenditure of Sri Lanka was beyond what they are earning.
The economy of Sri Lanka was crumbling much before covid but even with such problems, the political party of the Rajapaksha went on subsidizing things as much as possible like cutting taxes, and distribution of free food commodities for gaining votes. Despite the economic downturn in 2019, 15% VAT tax was reduced to 8% and this made the people very happy but the tax collection of Sri Lanka fell in half. All these things were happening before covid. As the covid arrived the tourism-based economy of Sri Lanka suffered a lot. 12.6% of Sri Lanka's GDP comes from tourism and due to covid and the internal instability in 2019, the tourism sector suffered huge losses.
These were the reasons behind the downfall of the Sri Lankan economy, the economy was suffering much before the covid but as the covid arrived the weak economy of the Sri Lanka got exposed in front of the whole world.
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