Sri Lanka from paradise island to default country

From a tourist paradise, Sri Lanka was devastated by terrorism and Covid-19, lost an important source of revenue and gradually fell into a crisis of debt default.

Sri Lanka from paradise island to default country

Sri Lanka, an island nation in the Indian Ocean, has a long sandy beach, clear and warm waters, and beautiful untouched forests. Attractive cuisine, many historical sites recognized by UNESCO, and resorts have created a tourist attraction for the South Asian country.

Sri Lanka was once on Lonely Planet’s 2019 top destinations list. The tear-shaped island is considered by many as a tourist paradise.

The island nation of 21.9 million people is separated from India by a shallow strait about 20 kilometers wide at its narrowest point. 70% of Sri Lanka’s population is Buddhist, mainly ethnic Sinhalese. About 12% are Hindu with the majority being Tamils ​​living in the north and northeast of the island.

Strategically located on international maritime trade routes, the island was once ruled by Portuguese and Dutch colonists before becoming a British colony in 1815 called Ceylon.

After more than 130 years of British rule, the island nation gained independence in 1948, became a republic in 1972 and took the name Sri Lanka. But peace has not yet come to the island nation.

In 1972, Tamil insurgents launched an armed struggle, sparking a civil war that lasted 37 years and claimed the lives of around 100,000 people. Suicide bombers from the Tamil Tigers insurgency group killed former Indian prime minister Rajiv Gandhi in 1991 and Sri Lankan president Ranasinghe Premadasa in 1993.

People stand in a long queue to buy kerosene oil for kerosene cookers amid a shortage of domestic gas due to country’s economic crisis, at a fuel station in Colombo on March 21, 2022. REUTERS/Dinuka Liyanawatte

The Sri Lankan government launched an all-out offensive in 2009, killing Velupillai Prabhakaran, the leader of the Tamil Tigers movement. However, the campaign was criticized when the army was accused of killing at least 40,000 ethnic Tamils.

Incumbent Sri Lankan President Gotabhaya Rajapaksa served as a senior defense official when the rebels were defeated under his brother, former president Mahinda Rajapaksa, who is now Prime Minister.

When peace is restored, tourism will become a key industry of Sri Lanka, contributing 12% of GDP and the fifth largest source of foreign exchange in the country. During 2009-2021, Sri Lanka’s tourism revenue averaged $178 million per year, peaking at $475 million in December 2018.

But in April 2019, as Sri Lanka prepared to celebrate the decade of ending its civil war, the capital Colombo suffered new terrorist attacks over Easter.

A series of suicide bombings targeting three crowded churches and three luxury hotels on April 21, 2019 killed 279 people, including at least 45 foreigners, and injured more than 500. The self-proclaimed Islamic State (IS) group has claimed responsibility for the attacks.

The Easter bombings have devastated the island’s vital tourism industry. Soon after, Covid-19 broke out, making the situation worse, draining Sri Lanka’s top foreign currency earner.

Sri Lanka once expected to rely on tourism revenue to cover its foreign debts, as it has borrowed about $51 billion over the years. China, Japan, India and the Asian Development Bank (ADB) are among the island nation’s top creditors.

As the tourism industry has been ravaged by terrorism and the pandemic, Sri Lanka’s foreign currency reserves have dwindled, forcing the government to impose strong currency restrictions and ban the import of many goods. Sri Lanka mainly uses foreign currency reserves to pay off foreign debt.

However, the consequences facing Sri Lanka are food and fuel shortages, combined with prolonged power outages, due to the lack of foreign currency to import essential goods. That has led many protesters to take to the streets calling for President Rajapaksa to step down.

In February, Sri Lanka announced that the country had 2.31 billion USD in foreign currency reserves, while having to repay about 4 billion USD in debt this year alone. To make matters worse, President Rajapaksa admitted a $10 billion trade deficit.

Sri Lanka’s Ministry of Finance on April 12 declared default . Colombo suggested that creditors, including the governments of countries that have lent money to the South Asian country, can accrue unpaid interest on the loan that Sri Lanka is due for payment from the afternoon of the same day, or choose to receive the loan back. principal loan in Sri Lankan rupees.

Shathurshan Jayantharaj, a 25-year-old resident of Colombo, was unable to continue the delivery business as fuel supplies ran out. He demonstrated nearly every day against what he called the government’s incompetence.

“We should have gained a lot, but now we’re losing everything. The country’s leaders don’t know what they’re doing and drag us all along,” he said.

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