In recent news, the President of Sri Lanka has made the decision to declare an economic emergency. The purpose of this declaration is to counterbalance escalating food prices, a diminishing currency, and rapidly depleting forex reserves. The emergency was announced following the guidelines of the Public Security Ordinance, which governs the supply of essential goods.
Underlying Factors of the Sri Lankan Economic Crisis
Several factors have contributed to the economic downturn in Sri Lanka. These include an underperforming tourism industry, a depreciating currency, a surge in inflation, a decrease in foreign currency inflow, and a food shortage.
The tourism sector, which constitutes more than 10% of the country’s Gross Domestic Product and is a significant source of foreign exchange, has experienced a significant blow due to the coronavirus pandemic. Consequently, forex reserves have dropped from over $7.5 billion in 2019 to approximately $2.8 billion in July 2021.
Due to the depletion of foreign exchange, Sri Lankans now need to spend more money to purchase the necessary foreign exchange to import goods. This situation has led to a decrease in the value of the Sri Lankan rupee by about 8% so far this year.
Owing to its heavy reliance on imports for even its most basic food items such as sugar, dairy products, and wheat, the price of foodstuffs has risen parallelly with the falling rupee. The pandemic has also disrupted key sources of foreign exchange earnings like exports and worker remittances.
Lastly, the Sri Lankan Government’s recent resolution to prohibit the importation of chemical fertilizers and to adopt an “organic only” approach has potential to cause severe impacts on food production.
Emergency measures to tackle the crisis
The emergency provisions allow the government to set retail prices for essential food items and seize stocks from traders. Moreover, the emergency law grants authorities the power to detain individuals without warrants, seize property, enter and search any premises, suspend laws, and issue orders that cannot be questioned in court. The military will oversee these actions, ensuring essential items are sold at government-guaranteed prices.
Criticism and concerns about the emergency declaration
Critics fear that, due to the current administration’s tendency to suppress dissent, emergency regulations may be used to curb protests and other democratic activities. Sri Lanka lacks a comprehensive public distribution system or ration cards, which means there are no guarantees that essential goods will reach all consumers. The current regulations do not address the fundamental economic issues and instead risk creating black markets. There are also concerns over the increasing militarization of state institutions.
This economic emergency situation in Sri Lanka is very different from the Financial emergency under the Indian Constitution.
Financial Emergency under the Indian Constitution
Article 360 empowers the president to proclaim a Financial Emergency if a situation arises that threatens the financial stability or credit of India or any part of its territory.
The proclamation must be approved by both the Houses of Parliament within two months from the date of its issue. Once approved, the Financial Emergency continues indefinitely until it’s revoked.
Effects of a Financial Emergency include the extension of the Union’s executive authority over the States’ financial matters, reduction of salaries and allowances, the reservation of all money bills or other financial bills for the consideration of the President, and direction from the President for the reduction of salaries and allowances of all serving the Union and the judges of the Supreme Court and the High Courts.