The Sri Lankan economic crisis has drawn a response of appropriate sternness from the beleaguered population. The economic mismanagement that led to the crisis, has been festered by the political elites of Sri Lanka. Successive governments took bad loans. They let deficits swell and made the public sector an inefficient liability. They raised subsidies and cut taxes. They overhauled the agriculture system overnight, and without much deliberation.          

The people now face an acute shortage of basic supplies such as food, fuel, and medicines. The currency is depreciating day upon day. The UN estimates that the crisis will lead to a permanent reversal of years of progress in eradicating hunger and poverty. At a time like this, most countries lose out on international buyers and are unable to fulfill orders. But that is not the case in Sri Lanka. Read on to find out more.

Exports rise despite the crisis

The silver lining in the economic crisis is that Sri Lanka’s import and export initiatives continue to thrive. Sri Lanka’s exports to India this June are up by 21%. Exports to the US are also up by 46%. Primary pushers of the increase are coconut-based products and textiles. The trade brings in much-needed foreign currency that shall prove useful in keeping domestic prices in check.

Bailout to assist recovery

The government of President Ranil Wickremesinghe is in talks with the IMF to execute a bailout loan of $3 billion. Reports suggest that the talks have materialized into a staff-level agreement. The IMF has demanded that the government cap public sector spending, raise taxes, and reduce subsidies. The strict measures are needed to shore up foreign reserves but will hurt millions already struggling with astronomical inflation.

Opportunity for structural reform

The Sri Lankan crisis isn't the result of one bad government or an individual's follies. The problems have been spewed by a systemic nonchalance to deficit budgets and populist reforms. It is safe to say that the crisis has been in-the-making for years. But the current scenario demands structural reforms that will go a long way in solving this crisis and preventing the next one.

The government should prioritize administrative reforms such as anti-corruption measures and strengthening the rule of law. International cooperation must be enlisted to bring back stolen assets hidden in foreign jurisdiction. There must also be increased privatization to help with the bloated public sector salaries bill.  

On the economic front, introducing progressive taxation and inviting foreign capital must take precedence over short-term economic band-aids. The reduced subsidies must be executed in a structured manner to not put too much pressure on the people. The government, however, must make good of its ‘go organic’ blunder and introduce reparations for farm losses.   

Sri Lanka’s recovery is dependent on exports

Known as the ‘pearl of the Indian Ocean’, Sri Lanka’s economic revival will be boosted by the nation turning to the immensity of its potential. The verdant land offers the finest teas and agricultural products. The young population provides a ripe opportunity for the establishment of a successful private sector. The exquisite beaches beseech more investment for the tourism sector. To curb the current crisis, the government in power must undertake a revival strategy centered around export-readiness, and inviting foreign investment.