What are the main reasons behind Sri Lanka’s inflation?

 Sri Lanka has faced a lot of crises in recent months. Crisis faced like political crises, economic crises, financial crises, and many more. Recently a month ago, it suffered from a shortage of foreign currency, the government was not able to pay for essential imports, including fuel, and many more. It leads to immense power cuts up to 13 hours in a day in Sri Lanka. Sri Lankas people come on the streets to protest against these power cuts and storage of basics such as fuel, food, and medical. These mainly hit the economy of Sri Lanka and they face inflation of more than 50 percent. The country does not have enough fuel for essentials also like public transport, and medical transport and the leader officially declared that have no currency for importing essential items also. Due to the shortage of fuel, the prices of fuel increased tremendously. There are a lot of issues faced by Sri Lanka in recent months. Let us discuss all the issues that increased inflation in Sri Lanka one by one. 

Shortage of currency 

This is the main reason that Sri Lanka is not able to purchase essential commodities from abroad. It also failed to pay interest on foreign debts for the first time in its history. In this situation, Sri Lanka is not able to borrow money from the international market. Leaders are not able to maintain liquidity in the market also and people have faced crises for the essential items. 

Depending on other nations 

Sri Lanka is highly relying on imports. Several essential items are imported by Sri Lanka such as petrol, diesel, food, sugar, medicine, lentils, paper, and many more. No industry in the domestic nation produces these items and reduces the problem. Now the country has no money for the imports of these items and completes the requirement of essential items. Depending on the other nation is one of the major reasons that ruined the nations economy of Sri Lanka. 

Education crisis 

This crisis is also faced by the nation. Shortage of paper that island is not able to organize the exam of the student. The government sends notices to oil refineries for the production of paper due shortage of crude oil stocks. The educational crisis will ruin not only the presence of students but also the future also. 

Drop in tourism 

Sri Lanka earns a lot of money from tourism. Tourism income coves a major part of the GDP of the nation. There was a major drop in tourism that impacts the nations income. It is hitting the economy badly. There are the main sources of brought much foreign currency. Recently, the leaders of the nation announced that the nation faced a trade deficit because of tourism and the amount is around 1o billion which is almost 10 percent of the GDP of the nation. The dependency of the nation is on more imports rather than exports. The reason behind the prevention of tourism was the Colombo bomb in 2019 and the pandemic. 

Lack of foreign currency 

The exports also decreased because of the pandemic. Sri Lanka mainly exports a few destinations like chains along with the European nations. These nations also stop importing because of COVID-19. That will also impact the nations income and also impact foreign reserves. This connected to foreign direct investment became lesser from the foreign reserve. It decreased continuously by around 548 dollars million in 2020 compared to 793 dollars million in 2019.

Inflation in essential products 

People faced inflation in daily use products. The country does not have enough fuel so the government banned the sales of fuel for non-essential vehicles for almost two weeks. It will impact the rates of fuel also. The country has not had enough food for its citizens. Citizens are not able to buy the required amount of food also that impact the prices of the food.

Poor leadership also

This is also one of the major reasons behind the economic crises. The foremost president was not able to handle the economic crisis effectively. He is not able to take effective actions on time and the crisis of currency became bigger and bigger. Leaders are not able to take actions for higher imports, are not focused on boosting domestic production, do not consider the shortage of foreign currency as a serious issue, do not promote farming effectively, and many more. These are major places where leaders need to take strict actions for solving these problems of the economy. This leads to wider spread failures in the economy. Sri Lanka had to exchange its foods from abroad, which made it's increased the shortage of foreign currency. 

July report of inflation 

Sri Lanka declared its bankruptcy in mid of April because the government refused to pay international debts. Recently, Sri Lanka faced an immense economic crisis. The inflation of the nation surged to 6o.8 percent in July compared to 54.6 in June. The crisis hit the countrys statistics department. The issue of food and fuel remained scary. The countrys central bank has forecasted an inflation peak at 75 percent. The leaders are trying hard for overcoming the situation and get out of the major economic crisis. 


In this article, there is a lot of information about the Sri Lankan economy how the nation is suffering from the economic crisis, and are major reasons behind the crisis are. I hope this information helps everyone to understand the situation better and effective prospect for analyzing the situation.