Why Sri Lankan Stock Market CRASHED?

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Sri Lanka Crisis:

Colombo Stock Exchange halted trading from May 10 2022. The exchange was halted for 5 days a month back as well. How did Sri Lanka in general and Colombo Stock Exchange in particular reach to this crisis?

The decision came a day after Sri Lanka witnessed unprecedented violence and political crisis following the resignation of Prime Minister Mahinda Rajapaksa.

Sri Lanka is facing its worst economic crisis since gaining independence from the UK in 1948.
The Major Reasons behind these were:

1. The country’s tourism sector – one of the biggest revenue generators for the economy – had been impacted hard by the 2019 serial bomb blasts across Colombo. The COVID pandemic worsened the situation.

2. Sri Lanka had a forex reserve of just $2.3 billion in February and external obligations close to $7 billion – a big part of them due in July.

3. The government’s move to ban chemical fertilizers in 2021 has led to a drop in rice crops this year. And then farmers in Sri Lanka faced a heavy crisis and therefore were dependent on government sanctions/aid.

4. The country is facing a huge foreign debt as it owes over $ 5 billion to China alone. It also owes big money to India and Japan as of November foreign currency reserves of the country were just $1.58billion.

5. Sri Lanka’s high dependence on imports for its essential items such as sugar, pulses, cereals and pharmaceuticals has added to the troubles. Therefore there’s heavy food inflation as well.

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