Ajit Ranade Courtesy mint

A global shock on top of fiscal profligacy and a foreign debt overload could wreck large economies too.

The entire cabinet of Sri Lanka resigned this week, collectively expressing its inability to handle the country’s worsening economic crisis. This was just hours after the lifting of a curfew that was imposed nationwide. The curfew followed the previous week’s imposition of a state of emergency by its president due to a deteriorating food and fuel crisis. This is Sri Lanka’s worst ever economic crisis. The pandemic severely dented tourism revenues, which were about $4 billion annually in a $80 billion economy prior to 2019. Even its inward remittances dropped from roughly $7 billion before the pandemic to less than half that level presently. Tourism and remittances are two of the island economy’s top three foreign-exchange earners. The third is apparel exports, which too have been hit during the pandemic. A crucial forex earner is tea, whose production plummeted thanks to a ban on the use (and import) of chemical fertilizers. The president tried to camouflage that ban (which was actually a desperate measure to save the outgo of precious forex) as being nature-friendly and pro-organic farming. That fertilizer ban also adversely affected rice production, causing the nation to import rice for the first time.