Modi and Kishida talked about working together to help Sri Lanka overcome the crisis

Alongside of the Quad Summit the two Prime Ministers talked on the crisis in the island nation in Indian Ocean

Sri Lanka, a small island nation in the Indian Ocean with a country of around 20 million is facing a severe economic, political and humanitarian crisis. The experts are saying that it is the worst crisis that Sri Lanka has faced since 1948 ( the year of independence).

India, being in the closest proximity to the crisis hit nation, is considering the stability of the situation in the country because only a stabilized region in the neighborhood can make India fulfill its aspirations of being a global leader. Only if its neighborhood is stabilized India can focus on other regions. This is the reason that India and Japan have agreed to work in collaboration to assist Sri Lanka to overcome this crisis.

Prime Ministers of both countries Mr. Modi and Mr. Kishida met each other on the sidelines of the ‘Quad Summit’. After this meeting Japan’s Ministry of Foreign Affairs said the leaders “discussed the situation in Sri Lanka and confirmed that they will cooperate with each other in light of the current economic crisis and deterioration of the humanitarian situation in the country.”

What went wrong with Sri Lanka

The shortage of Forex Reserves has led the island nation to a situation where it can not even import the essential commodities like fuel, cooking gas and edible oil. The forex reserves are at a lowest point, they are as low as $2 billion.

The shops are open with high security and there are long queues at the fuel and cooking gas stations. Power supply is also impacted very badly due to this crisis.the authorities last week announced that the power cuts can be increased upto 16 hours as the crisis deepens.

Sri Lanka was already under the pressure of being an economy crushed under the high and unsustainable debt burden. And to materialize those possibilities came the pandemic and Russia-Ukraine war. Sri Lanka’s economy was highly dependent on tourism. Tourism generates around $7 to $8 billion every year. Due to Covid pandemic and war between Russia-Ukraine this revenue shrunk to $2.8 billion only.

The other problem that generated due to this war is that Sri Lanka used to import around half of its fuel edible oil and wheat from these countries only and war stopped that. And most of the tourists visiting Sri Lanka were from these two countries. This enhanced the situation.

The triggering point of this whole episode was the announcement of the Rajapaksha government to provide heavy tax cuts after the formation of the government. And once it was done it made a dent on the revenue of the government.

All these things combinedly created a situation which is known as “Twin Deficit Economy’. Under this situation the expenditure of the government is more than the revenues of the government. The experts say that the Sri Lanakan economy is a classic example of a twin deficit economy.