Sri Lanka's foreign exchange reserves are effectively depleted, but it is so reliant on imports that it has reached the point where it cannot afford to pay for staples and fuel. The government blamed the COVID-19 (Severe Special Infectious Pneumonia, New Coronary Pneumonia, Wuhan Pneumonia) epidemic, saying the epidemic has largely killed the tourism industry, one of Sri Lanka's largest sources of foreign exchange earnings. The government also said that a series of bomb attacks on churches three years ago also discouraged tourists from Sri Lanka. However, many experts believe that economic mismanagement is the main cause. When Sri Lanka's civil war ended in 2009, the government chose to focus on developing the domestic market rather than exporting to foreign markets.
As a result, export earnings remain low, while import spending continues to grow. Today, Sri Lanka has an annual trade deficit of US$3 billion. The government has also borrowed huge amounts of debt from countries, including China, to fund some infrastructure number list projects that critics say are unnecessary. "AFP" reported that the new international airport without traffic follow-up, the idle conference center and the deep-water port handed over to Chinese companies, these huge investments have increased Sri Lanka's foreign debt, of which at least 10% came from Beijing's contract.
commodities_price_change_640_ Photo Credit: BBC News Photo Credit: BBC News As of the end of 2019, Sri Lanka's foreign exchange reserves had reached 7.6 billion US dollars. However, by March 2020, its foreign exchange reserves had fallen to just $1.93 billion. When President Rajapaksa came to power in 2019, he decided to slash taxes. This means that the government also has less money to use to buy foreign currency. When currency shortages in Sri Lanka became a big problem in early 2021, the government tried to stem foreign exchange outflows by banning the import of chemical fertilizers and letting farmers use organic fertilizers. This has resulted in widespread crop failures. Sri Lanka has to replenish its food reserves from abroad, which makes its foreign exchange even more scarce.