Fallout of Sri Lanka’s economic crisis: Long power cuts, food shortage
The poorest and most vulnerable have been hit the hardest by Sri Lanka's food crisis.
Sri Lanka is currently experiencing one of the most critical moments in its history due to years of economic mismanagement, weak governance and poor policy choices. Additionally, external factors such as the COVID-19 pandemic and the Russian invasion of Ukraine have added to the country's problems, resulting in its worst-ever crisis in 2022.
Sri Lanka is currently facing a multitude of crises, including food insecurity, threatened livelihoods and increasing protection concerns. The consequences of this crisis have been devastating, affecting people across the board, but the poorest and most vulnerable have been hit the hardest. To make matters worse, Sri Lanka is frequently affected by climate-induced disasters, which make the situation even more fragile.
In 2022, Sri Lanka's familiar balance of payments problem got worse, leading to crippling shortages and painfully long power cuts. This led to a massive protest where people demanded better governance and ousted the Rajapaksas, who they held responsible for their suffering. Despite the change in leadership, the chant for the International Monetary Fund (IMF) support continued, demonstrating the severity of the situation.
These issues have far-reaching consequences, particularly for vulnerable communities and households, who are disproportionately affected by the ongoing crises. It is imperative that immediate action is taken to address these challenges, including ensuring adequate food supplies, stabilising markets, and supporting affected communities.
Power cuts
Power cuts are causing significant problems for small businesses in Sri Lanka. The country's prevailing foreign exchange (forex) situation is the root cause of these power cuts, and they are having a particularly severe impact on the Micro, Small and Medium Enterprise (MSME) sector. Nawaz Rajabdeen, the Founder President of the Confederation of Micro, Small and Medium Industries (COSMI), has said that these power cuts are paralysing businesses without access to a generator.
The MSME sector is vital to the Sri Lankan economy, contributing the majority of the country's Gross Domestic Product (GDP) and employment. According to data from the Ministry of Industries, MSMEs account for over 75% of the total number of enterprises, provide 45% of employment, and contribute to 52% of the GDP. Small businesses in Sri Lanka are already struggling due to the country's economic crisis, and the added burden of frequent power cuts is further compounding their difficulties.
Food crisis
A significant portion of the population is struggling to meet their daily food needs due to shortages and high food prices, as reported by the latest Food Security Survey conducted by the World Food Programme (WFP). In December 2022, 33% of households were found to be experiencing acute food insecurity, with 68% resorting to food-based coping strategies such as limiting portions and reducing the number of meals.
While the Colombo Price Index showed a decrease in YoY inflation from 64.4% in December 2022 to 60.1% in January 2023, markets are still facing instability and price spikes, which continue to threaten market functionality in Sri Lanka. Additionally, the Uva and Sabaragamuwa provinces had the highest percentage of food-insecure households, with an average of 41% facing such conditions in December.
Relief
Meanwhile, the IMF announced that Sri Lanka has obtained financial commitments from its major bilateral creditors, thereby clearing the path for the IMF board to assess and approve the proposed four-year, $2.9 billion bailout that was agreed upon last year.
The IMF stated that it would convene on March 20 to scrutinise a preliminary staff-level agreement, which was initially established in September, providing a crucial lifeline to Sri Lanka. The country is currently grappling with its most severe financial crisis since gaining independence from Britain in 1948.
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First Published:8 Mar 2023, 01:30 PM IST
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