Sri Lanka is currently going through an extreme economic crisis. Foreign exchange reserves have fallen so low that school examinations have been indefinitely postponed due to a lack of imported paper. In addition to cooking gas, there has been a shortage of kerosene and petrol. Blackout has started due to a lack of electricity.
Due to inflation, high unemployment, and shortages of almost all necessities, many Sri Lankans are fleeing the country in the hope of a better life abroad. Countless Sri Lankans are now being forced to do something other than their main occupation as not everyone can afford to leave.
The country has never been in such a bad situation since its independence in 1947. To cope, the Sri Lankan government has asked for a new loan of $1.5bn from neighboring India. When Sri Lanka faced problems, Bangladesh provided $250m in currency assistance. This was the first loan from Bangladesh for any country. Sri Lanka has been repaying loans of different countries with goods not money.
Sri Lanka had good enough human resources and prosperity. Then what prompted the crisis?
The country has undertaken several mega projects in recent times. These include seaports, airports, roads, and other projects considered unnecessary. Different governments of Sri Lanka have taken loans from different sources both at home and abroad. As a result, their foreign exchange reserves gradually dried out. There has been little foreign direct investment in Sri Lanka in the past 15 years. Instead, various governments have focused on borrowing.
The country’s government has been issuing sovereign bonds to raise money since 2007. These sovereign bonds are sold in international capital markets when expenditures exceed incomes. That is what Sri Lanka has done without thinking of how the money would be paid. At present, Sri Lanka has a debt of $12.5bn just in bonds. Besides, the government has also borrowed from domestic sources.
The once-self-sufficient country is also in dire straits due to tax cuts, reduced income from tourism and remittance, and ad hocism in agriculture.
The global economic climate has begun to change rapidly since the Russia-Ukraine war and, just like Sri Lanka, any country could fall into a new crisis.
Pakistan’s economy is also in turmoil, with its debts amounting to $130bn. Its inflation is now around 12 percent. The country’s recent political unrest has shaken business and industrial sectors. The economy was already fragile due to the depreciation of the rupee, declining reserves, rising commodity prices, and revenue shortfalls.
Not only has the currency depreciated, but the wheels of Pakistan’s economy have also slowed over the past three years.
During Imran Khan’s premiership, there was an increase in debt, inflation, and a record fall in the value of the Pakistani currency.
In contrast, Bangladesh is currently South Asia’s development poster child. Big projects are being implemented. Development has reached villages. Most roads in the capital have flyovers and soon there will be a metro system. The Padma bridge is no longer a dream. Economists reckon the GDP growth rate could increase by a percent after the bridge’s construction. The implementation of such a mammoth project with the government’s own funding was at one time unimaginable.
The present government in Bangladesh has shown prudence and foresight. Hundred new economic zones are being formed. Investment is streaming in. Foreign exchange reserves are adequate ($45bn), and remittances are satisfactory. Bangladesh has strong economic foundations. The foreign exchange reserve will meet its import cost for six months. Sri Lanka, on the other hand, has less than $2bn, which is not enough to sustain even a fortnight’s imports.
Sri Lanka has seen unnecessary development projects backed by loans. The organic agriculture sector has come to a standstill and the public welfare system has been trimmed.
Due to the coronavirus pandemic, Bangladesh’s growth slowed down but it was still respectable compared to what we see in the rest of the world.
Bangladesh is a miracle story while Sri Lanka and Pakistan are disaster tales.
The author is a researcher and strategic and international affairs analyst. He has a Master’s degree in international relations from Jawaharlal Nehru University