What is the lesson of Bangladesh from the death stage of Sri Lanka

Sri Lanka's death knell in the economy. At one time, Sri Lanka was the best in the region in terms of the social index. He was ahead of everyone in education. The garment sector was the first to enter South Asia in Sri Lanka. Sri Lanka was also a favorite destination of tourists. But the civil war did not allow Sri Lanka to move forward. Due to a lack of security, the garment industry moved to Bangladesh in the 80s. The number of tourists decreases. The economy lags behind. That Sri Lankan economy is now dying.

 The government has no income. The country is heading towards inflation. Products are not available in the market. Electricity and gas supply disrupted. Foreign exchange reserves have declined alarmingly. The country is in debt. Citizens also have endless hardships. Sri Lanka is in this position today because of the factionalism of the royal family, whimsical decisions, wrong policies, wrong project selection, and corruption.

 The situation in Sri Lanka and Bangladesh is not the same. However, there are also questions about the profitability of many large projects. Rising inflationary pressures. Expatriate income is also declining. On the one hand, as the import expenditure is setting new records, the current account deficit is also setting new records. Experts are advising Bangladesh to be careful in this situation.

Why Sri Lanka is dying

After the end of the Civil War in 2006, Sri Lanka's gross domestic product (GDP) continued to grow until 2012. At that time, the per capita income increased from ৪ 1,438 to হাজার 3,619, which is the highest in South Asia. The country also became an upper-middle-income country in 2019. But could not hold any achievement. If growth slows, the World Bank drops them to low-middle-income countries the following year. After that due to the decline in exports, there was a big imbalance in the current income. Sri Lanka's export products are mainly three, readymade garments, tea, and rubber. Revenue from all three products has been declining, but the biggest downturn has been in the last two years, during the Great Depression. After all, they are in even greater danger because of the Russia-Ukraine war.

Both incidents in 2019 are largely to blame for today's fall in Sri Lanka. A bomb blast near the northern city of Colombo has killed at least 253 people and injured dozens more. Then tourism also collapsed. The contribution of the tourism sector to GDP is 10 percent. This puts pressure on foreign exchange reserves. The second incident happened on behalf of President Gotabaya Rajapaksa himself. As a popular measure, the VAT rate was reduced from 15 percent to 6 percent in one fell swoop. At the same time, he abolished the Nation Development Tax (Nation Building Tax) at the rate of 2% and the Pay as You Earn (PAU) system. This has an impact on revenue. In one year, the country's VAT collection is reduced by 50 percent.

After that, the infection of Kovid-19 started. In the next two years, expatriate income, tourism, exports — everything goes down. In Kovid, the governments of all the countries of the world have increased the cost, they have had to give incentives to the economy. Sri Lanka has also had to increase its budget expenditure. But the income is low. As a result, the budget deficit increased to 10 percent. If it is more than 5 percent, it is considered a dangerous signal. This includes groups of organic fertilizer (lobbyist) groups. On the advice of this group, Gotabaya Rajapaksa banned the import of chemical fertilizers in May 2021 to reduce the pressure on foreign exchange reserves.

Even if it is praised at the beginning, the result is fatal. In Corona's two years, most of the country has survived because of the agricultural sector. There was no food crisis due to good production. The exception is Sri Lanka. Stopping the use of chemical fertilizers reduces crop production. Inflationary pressures increase when the central bank starts spending by printing money. Inflation in Sri Lanka is now 16.8% for the government and 30.1% for food products. However, in the private sector, inflation is more than 55 percent. In this situation, food import is required. The country's trade deficit now stands at more than  1 billion.

Debt trap

Sri Lanka's debt is now 119 percent of GDP. In other words, the country owes more than the goods and services it produces in one year. 36.4% of Sri Lanka's debt is in international sovereign bonds. Loans to the Asian Development Bank (ADB) are 14.6 percent, to Japan 10.9 percent, and to China 10.7 percent.

 According to the International Monetary Fund (IMF), a total of  500 million will be repaid to Sri Lanka this year as debt repayment. But now Sri Lanka has only ১ 231 million worth of foreign exchange reserves. So it is a far cry to repay the loan, we have to take a new loan to carry out our daily work. On the other hand, foreign investment has also declined in the last two years.

It is said that Sri Lanka is trapped in the debt trap of China. Although there are pros and cons, a large number of infrastructure projects have been implemented with loans from China. For example, for the construction of the deep-sea port of Hambantota, it borrowed ৩০ 308 million from China on a 15-year commercial basis at an interest rate of 7.3 percent. But the income from this seaport is meager, which was not enough to repay the loan. As a result, another কোটি 656 million was taken from China for management at an interest rate of 72 percent. That didn't work either. The port was later leased to China for 99 years.

Another 'white elephant' project borrowed from China is Mattala Rajapaksa International Airport. The cost of this airport is more than the income