Sri Lanka is one of the many countries facing a severe economic crisis due to the ongoing COVID-19 pandemic.
According to data from the Central Bank of Sri Lanka, the inflation rate was 16.80%, as of January 2022 – for context, most other nations have been experiencing inflation rates of 0%-5% in 2022. Also, Sri Lanka is experiencing an extreme shortage of foreign currency in its reserves as a result of increased spending on its national vaccination program and its increased need for imports. Basically, foreign reserves are the assets that are held by a particular country such as foreign banknotes, foreign treasury bills, etcetera. Sri Lanka relies on foreign currencies to pay for its imports such as oil, gas, and other essential items. At the end of January 2022, the foreign currency reserves in Sri Lanka totalled US$2078.0 million. In comparison, the total foreign debt level in Sri Lanka was US$ 35.1 billion at the end of April 2021.
The lack of foreign reserves has put Sri Lanka in a difficult position; with no money to pay for them, access to essential imported goods such as oil and gas has been drastically reduced, leaving people to wait in long queues for fuel and gas. For months now, there has also been a shortage of crucial food products like milk powder and sugar, with many Sri Lankans facing food insecurity as a result.
Meanwhile, Sri Lanka is taking loan facilities from friendly countries such as India and China to cover its trade deficit. In January 2022, the trade deficit was USD 1089 million. In order to fill the gap between imports and exports, Sri Lanka has decided to float the rupee, encouraging domestic industries and limiting imports of unessential goods.
What’s more, this situation has been worsened by the current geopolitical unrest in the world due to Russia’s invasion of Ukraine. Given the global strain on natural gas sources in light of sanctions on Russia, Sri Lanka, like many other countries, has been struggling to acquire gas as prices continue to rise and stores run out. In addition, Russia and Ukraine are very important to Sri Lanka because of the tourism industry. In January 2022, the number of Russian tourists arriving in Sri Lanka was 13,478 which was the top 1 source market (that sends tourists to the host country) to Sri Lanka that month. Ukraine was in 3rd place with 7,774 tourists arriving in Sri Lanka in January as well. Overall, both Russia and Ukraine are economically important to Sri Lanka.
With all that being said, what can Sri Lanka do to recover from this economic emergency?
Reframing Import and Export Trends
Historically, Sri Lanka has operated as an export-based economy, meaning a major source of national and foreign currency comes from exports. Raw goods and crafts like tea, coconut, rubber, and textiles are amongst Sri Lanka’s primary exports. However, the export of such products is not enough to sustain Sri Lanka, especially in its current state.
As mentioned earlier, Sri Lanka is facing a shortage of foreign reserves. To address this shortage, Sri Lanka needs to collect more foreign currency while limiting its expenses. Sri Lanka is currently working on this by curtailing imports of 367 non-essential goods such as fish, footwear, watches, and electronics.
Exporting traditional products such as tea, rubber, and coconut should not be halted. But, at the same time, Sri Lanka should consider export diversification, which means exporting new products to the foreign market.
Promoting New Tourism Concepts
Another source of foreign reserves in Sri Lanka is the tourism industry. However, due to the Easter Sunday bombings – the terrible series of attacks on churches and hotels in 2019 that killed at least 270 and hundreds of injured people – and the Covid -19 pandemic, the arrival of tourists to Sri Lanka has decreased.
In 2018, the number of tourists arriving was 2,333,796, while in January 2022, it was only 82,327. There is still a possibility, however, that the tourism industry of Sri Lanka will bloom again this year even after the terrible nightmares of the Easter Sunday attack and COVID-19.
Sri Lanka needs a well-organized plan for promoting tourism. Here, implementing new tourism concepts should be encouraged.
For example, with the pandemic, the use of Ayurvedic treatments, such as Ayurvedic drinks to boost the immune system, gained popularity in other countries. Sri Lanka is well known for Ayurveda and “Hela Wedakama” which are the ancient health practices in Sri Lanka, thus Sri Lanka could promote Ayurvedic tourism as a concept.
On the other hand, there are many special events such as Kandy Esala Perahera in Sri Lanka. Kandy Esala Perahera, which is an annual occasion that pays respect to the sacred tooth of Buddha, is held in July and August in the city of Kandy. This occasion features traditional dancers, elephants, and other customs in Buddhism and Hinduism. Both locals and foreigners attend the Perahera to worship the sacred tooth of Buddha and to see the traditional events. The Sri Lankan government can encourage tourist arrival to Kandy during the Esala Perahara by making a special program for tourists with packages and guides.
Empowering New Entrepreneurs
Encouraging entrepreneurship is very vital to developing domestic industries, increasing exports, and increasing foreign reserves – something which the Sri Lankan government should more thoroughly consider. Before the pandemic period, Sri Lanka had a low presence of entrepreneurs – less than 1.5% of the total population. But as a result of the pandemic and the series of lockdowns, the people of Sri Lanka increasingly used the internet for everything such as ordering or selling goods, education, and work. With the increasing number of internet users and demand for goods such as daily essentials, fashion items, foods, and others, people tried to open their own small businesses online. As a result of that, there are many more entrepreneurs now in Sri Lanka that operate their small businesses through the internet.
The government needs to encourage those entrepreneurs with skills, capital, and guidance to increase their production for both domestic and international markets. Here, providing education about entrepreneurship, training to start and develop a business, excluding entrepreneurs from higher tax requirements, and other policies should be prioritized.
Pursuing New Job Opportunities
Rather than depend on the traditional professions, the government of Sri Lanka needs to advertise new job opportunities. Most people in Sri Lanka seek out government jobs due to the pension facility and other privileges. According to Ceylon Today, in 2020, the number of public sector employees was 1.528 million and in 2019, it was 1.467 million. Yet, it would be impossible for the government to simply expand the public service just to provide job opportunities.
Freelancing is a potential route that those in need of work can take. Writers, web designers, translators, tutors, mobile app developers, and many other professions can shift towards freelancing. Even though the tourism industry suffered and exports were halted during the pandemic, freelancers in Sri Lanka and around the world worked from home.
Students and graduates in Sri Lanka can also consider freelancing as a new experience rather than seeking a government job. Most importantly, making PayPal accessible in Sri Lanka is needed to encourage internet-based jobs.
But what about those who don’t have access to the Internet or a personal computer or those who don’t have a specialized education that can translate into a freelance job?
People who have no education or technical devices can be trained as skilled labourers for foreign markets. Many countries are now facing a shortage of skilled labourers at the domestic level and are seeking immigrants.
Also, on the other hand, encouraging self-employment in traditional areas such as the handloom and batik industries, coconut-related industries, or spice production among the people who don’t have access to education or computers is important.
A Long Way to Go
Recovering from the economic crisis is not something that can be done overnight. However, the government of Sri Lanka needs to shift its focus toward building its foreign reserves rather than pouring money into the economy as most of the issues in Sri Lanka are happening because of the shortage of foreign currency.
Edited by Carla Rizk