 Sri Lanka is facing its biggest crisis ever if you go to a market in Sri Lanka in Colombo you and you want to buy vegetables you'll have to pay two if not three times what you paid last year even a staple like rice costs one and a half times what it did last year and already last year prices had gone up pretty sharply in Sri Lanka so there is a massive crisis there's no electricity Colombo streets are full of garbage you know why because the garbage trucks don't have fuel to pick up garbage and remove it exams have had to be postponed because power cuts have caused printing presses to shut down there's not enough paper Sri Lanka doesn't have money to import paper and the paper mills don't have enough electricity to produce it for books to be printed for question papers to be printed so there's an absolute collapse of the Sri Lankan economy and most commentators will tell you that there are three key reasons for this the biggest reason is that Sri Lanka is has run out of cash and that is because of COVID-19 its tourism economy and its export economy has collapsed the Sri Lanka is heavily dependent on exports and web intents is from abroad from Sri Lankans living abroad so that is the biggest source of its foreign exchange and it had a healthy foreign exchange reserve that it had built up over the years and that was used to buy everything because Sri Lanka doesn't produce enough right the second big reason why this collapse has taken place is because Sri Lanka printed too much money it was running out of cash it was running out of money it was running out of foreign exchange so it artificially tried to sustain it first by selling dollars when you sell dollars all the foreign exchange that you have you create an artificial supply and that pushed up the Sri Lankan currency and then it tried to boost the economy by printing currency and now it has runaway inflation which it can't deal with and when an economy is entirely dependent on external markets for its own sustain it cannot print money because you can buy goods in your own country with your own currency but you can't go buy goods and services that you need from abroad with currency that you're producing yourself this is a simple thing of economics now what is the other thing that caused this collapse and partly Sri Lankans are to blame for the authoritarianism that they engendered in Sri Lanka which they supported in Sri Lanka post 2019 which has caused this kind of a crisis because there has been a complete concentration of power in the hands of the president and his family president Gautabhaya Rajapaksha who was used to be the defense secretary when the in the last stage of the civil war against the ATT and was seen as a ruthless strongman and he has been accused of war crimes he's been accused of suppressing dissent he's been accused of organizing assassinations of political opponents and of journalists and these are the qualities for which Sri Lankans actually voted him into power in 2019 in November 2019 when he became the president and that was because there were these deep wounds Sri Lanka was facing after the 2019 Easter Sunday blasts the serial blasts that were organized by a small Islamic fundamentalist Islamic fanatic group which they were serial blasts in six places three churches and three three luxury hotels where foreigners were staying and more than 250 people died over 500 people were injured and 45 of them were foreign nationals and that affected Sri Lanka's psyche the Sri Lankan Buddhist majority psyche which wanted a hard-line person to be voted to pass someone who had shown that he can crush minority separatists as he had done in the case of the LTTE the Tamil Elam now what that resulted in is that the government came to President Rajapaksha when he came to power he basically arrogated more powers to himself and when you have this kind of a cult of personality develop what happens and we've seen that across the world there are arbitrary whimsical decisions taken and one of the key decisions that has caused this huge problem in Sri Lanka was Gautavaya Rajapaksha's decision to go completely organic overnight Sri Lankan farmers were told that they have to go organic and they have to give up fertilizers so there was a big fertilizer subsidy that the government used to give and there was a lot of fertilizer imports chemical fertilizer imports were banned and overnight farmers were told that they have to become organic farmers and this caused a massive crisis in the rice farm farms in the tea plantations and in the rubber plantations which are tea and rubber two of Sri Lanka's biggest dollar earners they were badly affected the crop collapsed and Sri Lanka which had become largely sufficient and independent in producing rice it had developed a degree of rice security it had the worst rice crop rice crop collapsed and it had to import rice to just feed its people this is this whimsical arbitrary decision taken by a person who could not be criticized at all and that caused this misery the sudden food crisis the sudden rise in food prices another thing that Gautavaya Rajapaksha did and when he came to power is that the after the presidential elections there were the parliamentary elections coming up so what he did is that he did made certain populist move he slashed taxes across the board that was tax income tax was cut capital gains tax was cut and this became a popular move and his party swept the parliamentary elections and his brother the former president Mahinda Rajapaksha came in as prime minister so the brothers became prime minister and president and the family also had two other ministers along with that Mahinda son and the third brother of the of the Rajapaksha's they were all part of the family so the Rajapaksha family became all powerful ruling Sri Lanka and taking these arbitrary decisions authoritarianism developed even more in Sri Lanka backed by the majority and the majority and Sri Lankans are paying the price for that authoritarianism now of course a big reason for the crisis is COVID-19 Sri Lanka's a big part of Sri Lanka's revenues and earnings come from come directly from tourism right tourism is a big employer and Sri Lankan government has spent a quite a lot to encourage tourism and COVID-19 made things absolutely worse when it came to the tourism industry it was already bad and COVID-19 actually made things much worse for an already faltering tourism industry which had been affected by the 2019 a serial blast tourists had stopped coming and immediately the next year COVID-19 came and since then the tourism industry has not been able to fully recover at all so that's a big thing as I said rubber exports tea exports these were affected Sri Lanka is also a strong producer of textiles of garments as you know if you take a t-shirt or a shirt anywhere in the world even in India you'll find made in Sri Lanka quite possibly made in Sri Lanka made in Bangladesh these countries in the subcontinent have concentrated on producing garments as outsourced outsourced to big companies and COVID-19 disrupted this entire chain of supply chain of and that caused large-scale unemployment and many many people many many people started going hungry and this was already a massive crisis now the Sri Lankan government has regularly been taking loans from the IMF and if you look at it it has repeatedly taken loans and Sri Lanka has actually been the first Asian country one of the first Asian countries in 1977 78 to become to liberalize to go the free market way and it has been taken over by foreign capital most of its external debt today is actually to private private financial institutions 10% to China 10% to Japan a large part to sovereign debt to other countries but private finance capital institutions have hold a big a machunk of Sri Lanka's debt and it can't pay that back it is a huge foreign debt which it can't service and has to take loans to service it so it is in a debt trap where it has to take loans to pay the interest on the loans it has taken in the past and because of that what has happened is that its ratings have dropped sharply its credibility across the world as as someone taking loans has dipped sharply and therefore it can't buy goods in forward contracts and what does that mean normally when countries or even big companies buy something like crude oil for instance they have long-term contracts and these long-term contracts mean that they bid for something in the future and usually get it cheaper than the spot or the market rate Sri Lanka is not being offered these long-term market rates in for instance one news report tells us that when a ship load of diesel landed up an airport in Sri Lanka by the time it started and by the time Shreela it reached Sri Lanka prices have gone up 45% and that's what it charged normally you would have got a contract in the before the ship had sailed before the tanker had sailed but Sri Lanka's credit rating is so poor that no one is believe willing to believe that it will be able to pay Sri Lanka therefore is in this massive crisis and some will say that this is a crisis which has been created recently but no that is not the cause for the crisis it is just a it's just a what acceleration of a crisis which was going to happen over which could have happened way back and which is developing over decades the reason for that is that Sri Lanka as a country increasingly moved in the direction of liberalized free market policies capital markets policies after 2009 in a civil war ended within 18 months Sri Lanka's capital markets quadrupled went up four times and there was large scale prosperity amongst the urban middle class amongst the affluent which was encouraged by the government their consumption was supported by the government was so everything that they consumed was imported and all that they imported required foreign exchange and the government was borrowing to sustain that kind of consumption and this is what has happened that has completely collapsed suddenly due to the collapse of the tourism industry and then COVID-19 and the runaway prices of crude in across the world and this because of this Sri Lanka's middle class which is once prosperous paying the price of being overly dependent and overly specialized its money comes from exporting services such as tourism exporting goods such as tea and and rubber its money comes from foreign remittances from Sri Lankan's living abroad these are not sustainable these are not things that can be reproduced if there is a crisis such as COVID and that is what has happened Sri Lanka today is paying the price of a policy of becoming specialists and not being self-sufficient in their own economy and they're heavily dependent on imports instead of substituting its imports and being able to sustain its economy without borrowing from abroad or without importing from abroad it's a crisis that many feel could get worse and no one knows how Sri Lanka will come out of it that's the show today keep watching news click subscribe to our channel like this video and share it as well