SRI-LANKAeconomic crisis 2022
Index
What is an economic crisis?
Why did it begin in the country?
Why are some people blaming china??
Reasons for increase
Percentage of Sri Lankas debt held
01
WHAT IS AN ECONOMIC CRISIS
+ INFO
An economic crisis occurs when a country's economy faces a sharp downturn as a result of a financial crisis. Under an economy in crisis, GDP will most likely decline, liquidity will dry up, and prices will rise or fall due to inflation or deflation. Economic crises not only influence the level of economic activity, but they can also induce financial panic, which reduces the effectiveness of monetary policy and has more negative consequences for the economy.It is a significant drop in the country's economic performance, as seen by decreased production and demand, increased unemployment, and corporate failure. This will inevitably result in a high level of poverty in the country.
02
why did it begin in the country?
The island nation of Sri Lanka is in the midst of one of the worst economic crises it’s ever seen. It has just defaulted on its foreign debts for the first time since its independence, and the country’s 22 million people are facing crippling 12-hour power cuts, and an extreme scarcity of food, fuel and other essential items such as medicines.Inflation is at an all-time high of 17.5%, with prices of food items such as a kilogram of rice soaring to 500 Sri Lankan rupees when it would normally cost around 80 rupees. Amid shortages, one 400g packet of milk powder is reported to cost over 250 rupees, when it usually costs around 60 rupees.
On April 1, President Gotabaya Rajpaksha declared a state of emergency. In less than a week, he withdrew it following massive protests by angry citizens over the government’s handling of the crisis.
The country relies on the import of many essential items including petrol, food items and medicines. Most countries will keep foreign currencies on hand in order to trade for these items, but a shortage of foreign exchange in Sri Lanka is being blamed for the sky-high prices.
03
WHY ARE SOME PEOPLE BLAMING CHINA??
Many believe Sri Lanka’s economic relations with China are a main driver behind the crisis. The United States has called this phenomenon “debt-trap diplomacy”. This is where a creditor country or institution extends debt to a borrowing nation to increase the lender’s political leverage – if the borrower extends itself and cannot pay the money back, they are at the creditor’s mercy.However, loans from China accounted for only about 10% of Sri Lanka’s total foreign debt in 2020. The largest portion – about 30% – can be attributed to international sovereign bonds. Japan actually accounts for a higher proportion of their foreign debt, at 11%.
04
REASONS FOR INCREASE
SHORTAGE OF FOREIGN RESERVES
THE PANDEMIC EFFECT
AGRI SECTOR CRISIS
SHARP FALL IN FDI
PERCENTAGE OF SRI LANKS DEBT HELD
Thank you!
AVNI SINGH
11-F Roll no. 06
ECONOMIC CRISIS IN SRI LANKA
Avni Singh
Created on September 6, 2022
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Transcript
SRI-LANKAeconomic crisis 2022
Index
What is an economic crisis?
Why did it begin in the country?
Why are some people blaming china??
Reasons for increase
Percentage of Sri Lankas debt held
01
WHAT IS AN ECONOMIC CRISIS
+ INFO
An economic crisis occurs when a country's economy faces a sharp downturn as a result of a financial crisis. Under an economy in crisis, GDP will most likely decline, liquidity will dry up, and prices will rise or fall due to inflation or deflation. Economic crises not only influence the level of economic activity, but they can also induce financial panic, which reduces the effectiveness of monetary policy and has more negative consequences for the economy.It is a significant drop in the country's economic performance, as seen by decreased production and demand, increased unemployment, and corporate failure. This will inevitably result in a high level of poverty in the country.
02
why did it begin in the country?
The island nation of Sri Lanka is in the midst of one of the worst economic crises it’s ever seen. It has just defaulted on its foreign debts for the first time since its independence, and the country’s 22 million people are facing crippling 12-hour power cuts, and an extreme scarcity of food, fuel and other essential items such as medicines.Inflation is at an all-time high of 17.5%, with prices of food items such as a kilogram of rice soaring to 500 Sri Lankan rupees when it would normally cost around 80 rupees. Amid shortages, one 400g packet of milk powder is reported to cost over 250 rupees, when it usually costs around 60 rupees.
On April 1, President Gotabaya Rajpaksha declared a state of emergency. In less than a week, he withdrew it following massive protests by angry citizens over the government’s handling of the crisis. The country relies on the import of many essential items including petrol, food items and medicines. Most countries will keep foreign currencies on hand in order to trade for these items, but a shortage of foreign exchange in Sri Lanka is being blamed for the sky-high prices.
03
WHY ARE SOME PEOPLE BLAMING CHINA??
Many believe Sri Lanka’s economic relations with China are a main driver behind the crisis. The United States has called this phenomenon “debt-trap diplomacy”. This is where a creditor country or institution extends debt to a borrowing nation to increase the lender’s political leverage – if the borrower extends itself and cannot pay the money back, they are at the creditor’s mercy.However, loans from China accounted for only about 10% of Sri Lanka’s total foreign debt in 2020. The largest portion – about 30% – can be attributed to international sovereign bonds. Japan actually accounts for a higher proportion of their foreign debt, at 11%.
04
REASONS FOR INCREASE
SHORTAGE OF FOREIGN RESERVES
THE PANDEMIC EFFECT
AGRI SECTOR CRISIS
SHARP FALL IN FDI
PERCENTAGE OF SRI LANKS DEBT HELD
Thank you!
AVNI SINGH
11-F Roll no. 06