Sri Lankan Economic Crisis- Lesson for Pakistan

Sri Lanka has declared bankruptcy. The people don’t have food to eat nor clean water to drink. There are widespread curfews and social media bans by the government. Daily President house roads are filled with protestors. The situation is so worse that they don’t have enough money to buy answer sheets for students appearing in their exams. So, what happened to this once developing economy that the government has declared bankruptcy? And what lessons can Pakistan learn from them? Here, we’ll try to answer both of these questions:

• Tax Cuts

The government to increase its popularity with the masses started cutting down on taxes. Recently, here in Pakistan, we’re seeing in Islamabad that the metro bus service would run free of cost for the people. While popular in the short term, it will be harmful in the long run. Who will pay for the salary of the bus driver, and who will bear the fuel and maintenance costs of those buses? That money that was supposed to be generated from the bus fare will now be generated from somewhere else which will put added pressure on the public. Similarly, Sri Lanka gave massive tax cuts and to fill the gap printed large sums of money. The purpose of the government is to provide goods to the people which comes when tax has been properly collected. When more notes are printed, inflation is increased, because supply increases and the value of money decreases.

• External Debt

From 2010 to 2020 the external debt of Sri Lanka almost doubled. They mostly owe their external debt to the Chinese, Asian Development Bank, Japanese banks, IMF, and World Bank. On 12^th April, Sri Lanka declared bankruptcy on its external debt which amounts to $51 billion! Pakistan also owes a lot of money to these above-mentioned financial entities.

• Tourism

Sri Lanka used to earn more than 10% of its revenue from tourism and because of Covid, tourists stopped coming because of travel bans. Also in 2019, the easter bombings inside the Church affected the reputation of Sri Lanka as a haven for tourists. Because where tourists don’t feel safe, they tend to avoid those countries. For Pakistan, this phenomenon is nothing new, as for the past twenty years hardly any tourists have come to Pakistan.

• Agriculture

Sri Lanka has always exported huge amounts of tea and rice worldwide. However, Sri Lankan President Gotabaya Rajapaksa made a baffling decision to go for organic farming in its tea and rice farms, meaning all inorganic fertilizers were banned on these farms. Soil takes time to enrich and grow plants organically, which resulted in declining production. Due to a shortage of rice, they had to import rice, a food in which they were self-sufficient not long ago. They had to bear an additional 1 billion dollars due to these policies. Pakistan, despite being an agricultural country, has to regularly export sugar, wheat, and sometimes rice from outside to meet the demands.

• Dynastical Politics

Sri Lanka, like Pakistan, has a dynastical political system that runs the country. The president and prime minister are brothers by blood and have been ruling over the island nation for quite a while now. Here, in Pakistan, we have the Sharifs and the Bhuttos who run the dynastical politics which is usually not a good sign at all.

Many people in Pakistan blame the lack of education as the reason for so many economic problems in Pakistan, but that is not true. Sri Lanka despite having a 90% literacy rate is now bankrupt. This shows that merely education is not enough, you need a good political leader to drive the country forward. Otherwise, it doesn’t take long to be the next Sri Lanka.