Why Sri Lanka's Economy Collapsed?

let's recap this week's headlines from sri lanka bankrupt sri lanka askedcitizens abroad to send home cash 1lunken banks placed on rating watchnegative sri lanka defaults on 51billion dollars external debt there istrouble in the island paradise there ino food at least 500 000 sri lankanshave fallen into poverty in the last femonths there is no fuel there are nomedicines critical surgeries are beingcancelled doctors say the economiccrisis may kill more lunkens than kovitdid there are daily power blackouts andwide-scale protests on the streetswhat's happening in sri lanka is muchmore than an economic crisis it is ahumanitarian crisis the question is howdid it happen how did colombo lose allits moneywe will answer these questions tonighthello and welcome to gravitas plus i'palki sharmathe lunken crisis has numerousexplanationthere is a problem with the country' policy then there is politics factorsbeyond lanka's control what people liketo call fate and then there is china theroot cause of many problems in sri lankaand elsewhere we'll start with policwhat's happening now is a result ofyears of mismanagement you see there's afundamental problem with sri lanka itimports more than it exports it spendsmore than it earns there is a traddeficit there's also a budget deficithis double debtis a perfect recipe for disaster srilanka's response to this disaster hasbeen disastrous instead of trying tonarrow down the deficit the country expanded its debt Colombo borrowed heavily from countries and agenciestoday sri lanka's debt to gdp ratio is111 percent meaning it owes more than itproducesin 2019 the Asian development bankflagged this problem it said thcountry's national expenditure exceedsits national income and that itsproduction of tradable goods and services is inadequate 2019 was also theyear gote by rajapaksa was campaigningfor presidential electionslet's recap this week's headlines fromsri lanka bankrupt sri lanka askedcitizens abroad to send home cash 13lunken banks placed on rating watchnegative sri lanka defaults on 51billion dollars external debt there istrouble in the island paradise there isno food at least 500 000 sri lankanshave fallen into poverty in the last fewmonths there is no fuel there are nomedicines critical surgeries are beingcancelled doctors say the economiccrisis may kill more lunkens than kovitdid there are daily power blackouts andwide-scale protests on the streetswhat's happening in sri lanka is muchmore than an economic crisis it is ahumanitarian crisis the question is howdid it happen how did colombo lose allwe will answer these questions tonightand welcome to gravitas plus i'mpalki sharmathe lunken crisis has numerousexplanationsthere is a problem with the country'spolicy then there is politics factorsbeyond lanka's control what people liketo call fate and then there is china theroot cause of many problems in sri lankaand elsewhere we'll start with policywhat's happening now is a result ofyears of mismanagement you see there's afundamental problem with sri lanka itimports more than it exports it spendsmore than it earns there is a tradedeficit there's also a budget deficitthis double debtis a perfect recipe for disaster srilanka's response to this disaster hasbeen disastrous instead of trying tonarrow down the deficit the countryexpanded its debt colombo borrowedheavily from countries and agenciestoday sri lanka's debt to gdp ratio is111 percent meaning it owes more than itproducesin 2019 the asian development bankflagged this problem it said thecountry's national expenditure exceedsits national income and that itsproduction of tradable goods andservices is inadequate 2019 was also theyear gote by rajapaksa was campaigningfor presidential electionsamong his election promises were deeptax cuts basically you vote me to powerand i will ensure that you pay less taxwell how will the country make moneythen the voters never asked and go tobayern never bothered to warnin november 2019 he was elected tooffice with more than 52 of the vote aseries of drastic tax cuts followedratings agencies raised an alarm theyrealized sri lanka state coffers willsoon be bleeding and the country maysoon run out of moneyso lanka was downgraded to near defaultlevelsas a result investors fled the countryand it became difficult for sri lanka toaccess international markets butgotabaya was not done he made anotherblunder in april 2021 he banned allchemical fertilizers why good for healthhe said critics rolled their eyes theyrealized the real problem was not healthbut shortage of dollars sri lanka wassaving foreign reserves by ban-ningimporter fertilizers the move went on tokill farm output this white rice is astaple in sri lanka its production fellby 50 percent around june 2021 sri lankawas forced to import rice something likethis had not happened in years in julycame more bad news sri lanka bannedimport of luxury goods by now thecountry was scrambling to save dollarsheadlines like these made it clear thatsri lankans needed to brace for stormwell one could also say that sri lankawalked into this storm to an extentwhat's happening now is gotabaya andcompany's brand of politics backfiringthis family's return to power was madepossible with the support of sinhalabuddhists the rajapaks has tried extrahard to not lose their supportin the last three years sinali'ssentiments were kept in mind when makingdecisions involving national andinternational affairsfrom a pro-market approach sri lankaswitched to a welfare driven mode itinvested in infrastructure why becausethe monks preferred this approach todevelopment sri lanka also avoidedforming closer ties with india therajapaks has chose to move closer tochinathey've always tried to do that theyused bilateral debt to fundinfrastructure and expand the lunkenmilitarycolombo bet on china to drive the srilankan economy china did send some moneybut it also exported a wuhan virus whilesri lanka was never good with money itwas china that ensured colombo goesbankrupt by 2019 sri lanka's tourismsector was already suffering the easternbombings had scared of europeans whowould holiday in the island nationthen came the wuhan virus when bordersclosed tourists completely stoppedarriving and so did the revenue fromtourism sri lanka depends on tourism for13 percent of its gdp tourists are alsoa source of foreign currency in 2020 srilanka managed to welcome just 173000 tourists in 2018 the number was 2.3million you see the gap by 2021 srilanka's tourism revenue was down to 2.8billion dollarsas against 7.5 billion dollars in 2019the wuhan virus also hit remittanceslunkens abroad stopped sending money solate 2021.