Sri Lanka's Slippage into a Dark Alley of Economic Depression

Even as nations all over the world are yet to recover from a catastrophic impact of the covid-19 pandemic, most South Asian countries in recent time have been badly hit by multiple crises. From Afghanistan to Myanmar to Pakistan and now Sri Lanka, each nation’s politico-economic landscape seems to be in a depressing situation. The 2019-2022 Sri Lankan Economic crisis, currently affecting the island nation, is referred to as a ‘twin crises of a balance of payment and a sovereign debt crisis’ and is attributed largely to the economic mismanagement by the incumbent government. The country of 22 million people is in the throes of an unprecedented economic crisis since its independence in 1948. The country’s people are facing more than 12-hour power cuts, and an extreme scarcity of food, fuel and other essential items such as medicines. Inflation is at an all-time high of 17.5%. On April 1, President Gotabaya Rajapaksa declared a state of emergency. In less than a week, he withdrew it following massive protests by citizens over the government’s handling of the crisis. A number of measures have been taken to deal with the situation including important steps like increase in Deposit and Lending interest rates by 700 basis points by the Central Bank, removal of ban on import of fertilizers, measures to encourage tourism, closing of some embassies and consulates in some countries temporarily, to save foreign currencies reserves etc. The country has also now entered into talks with IMF for immediate aid to tide over the situation. Restructuring of the debt has also been taken on hand to avoid sovereign debt repayment default. These measures are expected to improve the situation but with certain costs and consequences like depressed projected GDP growt