Sri Lanka is what you call a Frontier Economy, not underdeveloped, but not emerging either—somewhere in between. These economies usually have certain sectors of high economic importance. Sri Lanka depended heavily on its tourism and tea exports business.

Tourism. Pandemic. Economic troubles. This one is quite expected. Sri Lanka’s economy took quite the beating, its tourism revenue free falling to just 3 million USD in July. To give you some context, its monthly sales were averaging $455 million in 2019-early 2020. That’s huge.

But the more interesting detail is the collapse of its as important export sector. Sri Lanka is known for its expansive tea estates that occupy most of its mountainous terrain. In fact, tea is Sri Lanka’s biggest export commodity, peaking at 1.25 billion USD in annual revenue.

When the government decided to go “100% organic” during the economic crisis that was surely coming, its economists were quite puzzled. All other countries have relaxed environment protection rules, and other ‘green’ protocols to increase production and the economy. But the ban on fertilizers was outright worrying. I am totally up for saving the planet, but the timings were not right.

When the government decided to go “100% organic” during the economic crisis that was surely coming, its economists were quite puzzled.

This ill-thought, or rather, ill-timed decision heavily affected farmers countrywide. Tea harvests were utterly destroyed. With it, other businesses connected to the tea industry—exporters, transport businesses, etc., —were affected. Their reserves plummeted to $2.8 billion by the end of July from $7.5 billion in November 2019.

But this is not all. The reserves mentioned earlier are international currency reserves—usually US dollars. Sri Lanka has historically been a heavily indebted economy, owing billions of dollars to countries, especially China. Just before their covid second wave, they paid off 1 billion USD, further depleting their reserves. Now they have just enough to cover for two months of low exports from now, with an additional 1.5 billion USD payback due on January 2022 looming over them.

Essentially, Sri Lanka is in a pickle. So, what can its government do? Borrow more from countries. Relax environment protection laws. Let me know your thoughts by emailing at vijayraajvir@gmail.com

---

As always, thanks for visiting the blog, and I really appreciate that you have come this far, and I hope you liked it. If you did, click the like button. If you like my posts, join us, if you haven't yet.

Credits: unsplash.com, finshots.in, google.com