Maldives and Sri Lanka are two of the most popular tropical destinations in the world. Both are tourism dependent nation but why is it that SriLanka ended up with economic crisis, despite Covid being fatal for both?
- Lanka’s foreign reserves have fallen since President Rajapaksa took office in 2019, going from $7.5 billion to $2.1 billion at the end of February 2022.
- Foreign Reserves in Maldives have inclined since President Solih took office in 2018, reaching an all time high of 978.70 USD Million in Sept of 2021 and a record low of 456.50 USD Million in Dec of 2016.
- Skyrocketing inflation—Sri Lankan gas regulator increased 12kg gas cylinder price by 1400 rupees.
- Maldives inflation rate for 2020 was -1.37%, a 1.59% decline from 2019 and 1.43 % in 2021.
- One of the key reasons for economic crisis in Sri Lanka is its huge foreign debt to China, Japan & IMF. Now it’s unable to pay any debt and is on the brink of defaulting & going bankrupt.
- In 2020, the national debt of the Maldives amounted to approximately 146.05 percent of gross domestic product (GDP). The number decreased to 137.21% in 2021 and its estimated that it will decrease more in 2022.
- Sri Lanka’s was affected drastically due to covid-19. Factories shut down due to covid-19 lock-downs, its exports almost went down 75%.
- Maldivian economy was also hit hard by the covid-19 pandemic and the productivity decreased by 33% but because Ibu’s Govt acted quickly on its crisis response plan, the GDP for 2021 is expected to be between 31.6% and 38.5%. “The IMF expects the Maldives to be among the five economies in the world that are expected to grow at the fastest pace in 2022.”
- Bad decisions made by the govt of Sri Lanka to ban fertilizers countrywide, deepened agriculture crisis.
- Importers found it difficult to get Letter of Credit (LOC) issued from banks due to lack of foreign currency.
- Maldives exports of goods and services as percentage of GDP is 69.02% and imports of goods and services as percentage of GDP is 77.97%.
The main difference of Maldives and Sri Lanka is that Maldives is an archipelago. Despite the geographic of Maldives being more complex, with islands and atolls scattered, the government did a commendable job in stabilizing the situation.
Through this understanding, the lesson that we all must learn to avoid any future crisis like the one Sri Lanks is currently facing is that— establishing good, cordial international relationship is very important. Having a good visionary leader who can make the right decision that benefits the nation is very important. Making use of FTA’s, increasing exports and cutting down on import bills is also very vital to maintain that economic stability in the nation.