Sri Lanka's economic meltdown is not the first of its kind. Last year it was Lebanon's economy that was melting. The Lebanese pound lost 90% of its value, plunging the citizenry into abject poverty. The country once crowned "The Switzerland of the Middle East" has become a prime example of a melting economy. The case of Sri Lanka is not as bad as Lebanon's yet but what is most worrying about it is that the phenomenon is looking to occur in even more developing countries.

Could it happen to Nigeria? The signs have already appeared, high inflation, depletion of foreign reserves, long fuel queues, and food inflation.

Hello there, I am Spirit 7 from the Shaaverse, and in this column, I will be talking about economics, money, and everything that affects you. We will briefly discuss the road that brought Sri Lanka to where it is.

Starting from Sri Lanka's Civil War

After 26 years of fighting, Sri Lanka found itself in a position any post-war government would find itself, ruined, weakened economically, and in dire need of infrastructure. To recover, the government borrowed to finance massive infrastructure projects but not before they elected a president they believed would lead them into their golden age, Mahinda Rajapaksa. Remember this name.

Major infrastructural reforms began in Sri Lanka at the turn of the 2010s. The country would become a tourist haven in about five years, with the sector contributing up to 11.4% to its Gross Domestic Product (GDP). However, experts will warn that the government was overspending and that financial ruin was imminent if it did not do something to curb the spending or increase production. As if on deaf ears, Sri Lanka would continue to borrow funds to repay loans, thus increasing their trade deficit beyond control.

Trade deficits are common amongst sovereign states, but Sri Lanka continued to import without actively increasing its exports, a strategy that proves dangerous for any country.

The first sign of trouble happened in 2019, with the Easter bombings. Six churches and six mosques were blown up by suicide bombers connected to the Islamic State of Iraq and the Levant (ISIL). The resulting insecurity from that incident stifled tourism in Sri Lanka by about 80%, leading to a fall in revenue and a reduced capacity to settle the debt.

As if that was not enough, the new President, Gotabaya Rajapaksa, brother to the past president Mahinda Rajapaksa, cut taxes by 25%, further decreasing inflows into the government's treasury.

The depleting remittances from Sri Lanka's industrial sectors left them unprepared for the harmful effects of the COVID-19 pandemic on the global economy. Accusations of corruption within the government became more outspoken, and public dissent started to stir.

Like every country, Sri Lanka tried to stem the outflow from their foreign reserves by reducing imports, mainly chemical fertilizer. The current president, Gotabaya Rajapaksa, instituted an initiative that asked farmers to use locally sourced fertilizers. It did not work. As crop yield dropped drastically, food production in Sri Lanka fell to an all-time low.

The final nail in the coffin was the Russian-Ukraine war. Without the wheat supply, it took only weeks for food prices to rise and fuel queues to appear. By April, Sri Lanka announced that they would be defaulting on their loan payment due to their draining foreign reserves and trickling revenue.

To stem the food crisis, India has opened a line of credit to Sri Lanka to buy food, and Sri Lanka is seeking debt relief to save its economy.

What does this have to do with you as a Nigerian?

Following the Nigerian news could draw similarities between Sri Lanka's journey and Nigeria's; ethnic marginalization, corrupt political elite, reduced foreign inflows, and back-to-back economic shocks by the pandemic and the war.

Nigeria is currently facing an impending economic crisis with inflation at 16.82%, as at the time of writing this, a freefalling currency, and doubling market prices. Even while the price of oil is at an all-time high, policies like fuel subsidy, revenue inflows that continue to fall short of the budget, and debt repayment continue to keep its economy driving down Sri Lanka’s Road.

There is still light on the horizon. Nigeria has a market that is still attractive to investors and a chance to grow its exports. There is still time to turn this ship around.

What do you think?