Thread by @finshots

Sri Lanka's forex reserves have dropped precipitously, from $7.5B in Nov '19 to just $2.8B in July.

And now a lot of people are worried about Sri Lanka's worsening economic crisis.

So what's the deal? 👇(1/9)

Sri Lanka’s problem seems to stem from the fact that the country is quickly running out of foreign exchange reserves — Things like gold, dollars, and other dollar-like assets.

But how did it get here? (2/9)

Well, Sri Lanka is what you call a “Frontier Economy” — it’s neither underdeveloped nor big enough to be branded an emerging economy. Countries like these are usually dependent on a few specialized sectors.
(3/9)

In Sri Lanka’s case, they’re highly dependent on tourism, tea, and a few other agricultural products. In fact, tourism contributes more than 10% to its GDP. (4/9)

After the pandemic, Sri Lanka’s tourism industry took a beating, and foreign income shrunk. While pre-pandemic revenues of this sector were close to $455 mn a month, it was down to $3 million this July.
(5/9)

But that's not all. The govt decided to go 100% organic and banned all chemical fertilizers. This hurt tea exports hard, which accounts for a bulk of the dollar earnings, along with financial sectors & related services that feed off from tea exports.
(6/9)

And finally, SL has a lot of debt on its back. It just repaid $1B worth of debt, depleting its reserves even further. At the end of it all, they are left with just enough resources to cover 2 months' worth of imports.(7/9)

So now Sri Lanka is in a state of economic emergency.
It has to deal with a dangerous cocktail of economic mismanagement, #pandemic woes, and crippling debt obligations all at once. (8/9)

And in all honesty, nobody knows how the country will deal with all of this without some outside help. (9/9)

Read our full coverage here- finshots.in/archive/unders…

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