Sri Lanka’s government declared an economic emergency on August 30, 2021 amid rising food prices, a depreciating currency, and rapidly depleting forex reserves.
President Gotabaya Rajapaksa has appointed Major General N.D.S.P. Niwunhella as the Commissioner General of Essential Services to coordinate and ensure that people have access to essential supplies.
Why is Sri Lanka’s economy in trouble?
A number of factors have led to the current economic crisis in Sri Lanka, including:
- the tourism industry being hit hard by the coronavirus pandemic
- the forex reserves dropping from over $7.5 billion in 2019 to around $2.8 billion in July this year
- the supply of foreign exchange drying up
- and the value of the Sri Lankan rupee depreciating by around 8% so far this year
The amount of money that Sri Lankans have to shell out to purchase the foreign exchange necessary to import goods has risen.
The country depends heavily on imports to meet even its basic food supplies. So the price of food items has risen in tandem with the depreciating rupee.
What does a food emergency mean?
The Emergency regulations allow the government to provide food items and other essentials at fixed prices by buying up stock from traders.
The capping of food prices can lead to severe shortages as demand exceeds supply at the price fixed by the government.
When supplies are seized from traders, there is lesser incentive for them to bring in fresh supplies to the market.
This can lead to a further drop in supplies and even higher prices for essential goods.
Further, the decision of the Sri Lankan central bank to ban forward contracts and the spot trading of rupees at above 200 rupees to an American dollar may affect essential supplies.
Is there a food shortage?
While the Sri Lankan government has denied reports of a food shortage , there is fear of one.
People have already had to queue up to buy essential goods
The fear of a possible food shortage also stems from the Rajapaksa administration’s decision in April to ban import of chemical fertilizers and adopting an “organic only” approach.
Farmers who resisted the move have warned that the dramatic, overnight shift to organic fertilizers could impact production severely.
Producers of tea have warned of a 50% drop in production.
Meanwhile, many, especially daily-wage earners, and low-income families, are complaining about being unable to afford, and in many cases access, essentials such as milk, sugar, and rice during the current lockdown.
Prices of essential commodities — including rice, dhal, bread, sugar, vegetables, fish — have risen several times during the pandemic, and more rapidly in recent weeks.
