Lessons From The Sri Lankan Crisis

Designing a self-sustainable way of life is both an art and science. It requires expertise on all levels, be it ecological, social or financial aspect to make it resilient from both exogenous and endogenous blows. Every action has a lasting effect and a wrongly calibrated response can spiral down the system faster than expected. Sometimes, even a well-intended action might misfire if it does not fit in the whole scheme of things.

A very recent example is Sri-Lanka, a country with a population of 2.19 crores and largely dependent on tourism. With dwindling foreign reserves, the COVID period dealt a death blow to the economy. Shutting out International travellers reduced the country’s ability to meet foreign good purchases. To avoid a drain on their foreign exchange reserves, the government banned imports of fertilizers and pesticides.

The reason given was they wanted to turn organic. This resulted in a drastic fall in food production resulting in a supply – side inflationary shock. For a failing economy, there is nothing worse than supply – side inflation which easily spirals into Hyper-inflation. That’s what happened. Decisions taken in haste followed with counter – measures which were equally harmful and resulted in the country descending into chaos.

There are lessons to be learnt from the Sri-Lankan example. First, system designs should be robust enough to handle negative externality. Secondly, drastic changes in the critical working system (in case of Sri-Lanka, the food production) should be implemented slowly and only when your other engines are firing in full speed. Thirdly, always save for the future. Sri Lankans squandered their wealth on tax-cuts which unfortunately came at the wrong time of COVID. Hope our governments and system planners take a leaf from the book of Sri Lanka’s crises and avoid such mistakes.