Sri Lanka economic crisis deepens: soaring inflation and unemployment rates

Sri Lanka, an island nation located in the Indian Ocean, has a population of approximately 21 million people and a government that is made up of a presidential system with a president as the head of state and a prime minister as the head of government. The country has a relatively high Human Development Index and has made progress in areas such as education and health. However, Sri Lanka’s economy has been facing significant challenges in recent years.

In June 2022, then Prime Minister Ranil Wickremesinghe spoke in parliament about the dire state of the economy in Sri Lanka. He stated that the economy had collapsed and that the country was unable to pay for essentials. This statement was backed up by a United Nations report released in September 2022, which found that the economic crisis in Sri Lanka is a result of officials’ impunity for human rights abuses and economic crime.

Corruption, human rights abuses and foreign debt

The National Consumer Price Index (NCPI) for the month of November 2022 was 256.3, indicating a 65% year-on-year inflation. The estimated labour force participation rate is 50.1% and the unemployment rate is 4.6% for the second quarter of 2022. Furthermore, the Producer Price Index (PPI) for all activities reported for November 2022 is 247.5, which indicates a decrease in economic growth.

These economic indicators paint a bleak picture for the current state of Sri Lanka’s economy. The government and international organizations will need to work together to address the root causes of the crisis, such as corruption and human rights abuses, in order to bring about lasting change and stability.

Sri Lanka has had a long-standing issue with repaying Western-held debt, having undergone 16 economic stabilization programs with the International Monetary Fund (IMF), which is dominated by the United States. Despite these efforts, Sri Lanka’s economy has not improved over the years since its independence from British colonialism in 1948. As of 2021, a large portion of Sri Lanka’s foreign debt, 81%, is owned by Western financial institutions, such as those from the United States, Europe, Japan, and India. In contrast, only 10% of the debt is owed to China. According to official data from the Sri Lankan Department of External Resources, the majority of the debt is held by Western vulture funds and banks, with 47%. The top holders of the government’s debt include BlackRock, Ashmore Group, Allianz, UBS, HSBC, JPMorgan Chase, and Prudential. Additionally, 13% and 9% of the foreign debt is held by the Asian Development Bank and World Bank, both of which are heavily influenced by the United States.

Service sector accounts for biggest part of income

The Gross Domestic Product (GDP) of Sri Lanka is primarily made up of the following sectors: agriculture, mining and quarrying, manufacturing, construction, and services. Agriculture, which includes crops such as rice, sugarcane, and rubber, accounts for around 8% of GDP. The mining and quarrying sector, which includes mineral sands, gems, and graphite, also contributes around 8% to GDP. The manufacturing sector, which includes textiles, garments, and food processing, accounts for around 25% of GDP. Construction, including both private and public sector projects, accounts for around 7% of GDP. The service sector, which includes finance, trade, transport, and tourism, accounts for around 52% of GDP.

Tourism can potentially help Sri Lanka’s economy by bringing in foreign currency and creating jobs in the tourism industry. However, it is important to note that tourism alone cannot fully remedy the country’s economic issues and must be combined with other economic strategies and sustainable development practices. It is also depend on how the country is able to attract tourists and how much tourism will be resumed after pandemics.