THE TRIO CRISES

"A Butterfly Effect of Mismanagement"

The Trio crises are comprised of three main economic crises: Sri Lanka's (2019 - Current), Pakistan's (2022 - 2023), and the United Kingdom issue (2021- Present) Covid - 19 is said to be the backbone of all of the above crises. This may be true to some extent, but many people blame the country's poor economic management. Covid 19 entered the global economy in March 2020, however these nations' economies slowed before the Covid 19 itself. Yes, Covid -19 exacerbated the situation, but countries may mitigate its effects by effective economic management.

The Trio crises Explained.

Sri Lanka Economic Crises (2019 – Present)

Sri Lanka is a Democratic Socialistic Republic with population of 2.15 Cr in 2022. For the first time in the history of Sri Lanka the worst economic crisis has been witnessed. The present government is grossly responsible for this kind of economic mess in Sri Lanka. People from all walks of life in Sri Lanka are struggling for want of sufficient money, fuel, and food. Politicians across the world make tall promises during the election campaign, but once they come to power, they are going to introduce popular schemes, which is detrimental to the health of the economy. The very intention behind all these schemes is to remain in power for a long time by appeasing all sections of the people by putting the economy in doldrums. The popular scheme would certainly hurt the country's economy. This kind of mis governance results in cascading effect which paralyses all the crucial and vital sectors of the economy.

Reasons for Sri Lanka's Economic Meltdown:

The first and foremost reason was the huge barrowings at high interest rate with strong conditions from international financial organizations. The second reason was the ban on chemical fertilizers all over the country. The third one was the huge raise of the annual income threshold for waiver of personal income tax and reduction of Value Tax rates that led to huge revenue loss to government. The fourth one was that the government implementing the policy of organic farming all over the country which led to a great loss of yield. The fifth one was the tourism industry is in deep troubles and the number of foreign visitors to the Island nation has been gradually come down. The fact of the matter is that the tourism industry places a vital role in the economy, and it generates nearly 20% income to the national income. This sixth one was the two and half decade ago war compel the policy makers to go for the deficit budgets that resulted slow economic growth. Further, there was a huge fall in the exports led to the drain of foreign exchange reserves. The high fiscal deficit and ill-advised reforms in the tax system has been adversely affect the health of the economy and pushed the country into economic meltdown.

The misguided, mismanagement and flawed policies of the government is largely responsible for the economic crisis in Sri Lanka. Expects observed that the ban on chemical fertilizer has brought down yields more than 30% in paddy, tea, and coconut, that resulted the surge in of prices of the essential commodities and the inflation rose to 17%. Further, there is fall in the productivities of tea and rubber which again led to lower export incomes. This obviously speaks volumes about the increasing of imports and the shortage of foreign exchange reserves.

Conclusion

The misguided and the flawed policies are largely responsible for the economic crisis in Sri Lanka. This article throws light on the economic mess in Sri Lanka, the GDP growth rate has come down, investment and savings rate fell, increase of imports, and decrease of exports, public expenditure and debt has been enormously increased. Therefore, the mismanagement of the planners and administrators are responsible for the deep crisis. In recent times, most of the policy makers all over the world introducing popular schemes to remain in the power for a long time. Hence, such popular schemes would certainly damage the economy and eaten away the fruits of the economic growth.                                                                       

Pakistan Economic Crises (2022 – Present)

Caught up in a vicious circle of debt, Pakistan has been spiralling deep into an economic crisis, reviving recent memories of Sri Lanka's financial-cum-political crisis. Reports claim that with the Pakistani rupee falling to a record low and fuel prices shooting up, Pakistan has been struggling to fulfil the basic demands of its citizens in the face of rising prices for basic goods and services.

Pakistan's economy has been unstable for a long time. "The difference today is that it is now on the brink of collapse." Over the past two decades, Pakistan has achieved significant poverty reduction, but human development outcomes have lagged while economic growth has remained volatile and slow, according to the World Bank. According to the World Bank report for October 2022, the country's economy has been pushed to a dangerous level due to its debt, inflation at a 48-year-high, foreign exchange reserves at a new low, a significant shortage of power and energy, and a severe shortage of food and water.

Causes of Economic Causes

Pakistan is facing back-to-back disasters: political disasters, economic disasters, and climatedisasters. Pakistan gained independence in 1947. But their first democratic election was in 1970, after 23 years of independence. From 1947 to date, Pakistan has seen 29 Prime Ministers, and none of these Prime Ministers has completed their full 5-year term. 18 times, their prime ministers were removed from their posts due to corruption or a military coup. Every new prime minister comes up with a new slogan about "New Pakistan," but this concept of "New Pakistan creates new economic problems." When a government changes, it also changes its monetary policy. To prove the failure of the previous government, exactly opposite decision was taken, which would have caused economic disaster.

Coming to the economic disaster. For the last few years, Pakistan's economy has been going down year by year, and its debt has been increasing. Pakistan's exports are 30 billion dollars, and its imports are around 90 billion dollars; that is, on average every year Pakistan earns 30 billion dollars and spends 90 billion dollars. Due to this huge gap, forex reserves are rapidly depleting rapidly. Pakistan's GDP is about 376 billion dollars, and its debt is about 274 billion dollars; the interest on the loan increases day by day, and one-third of Pakistan's annual budget goes for these loan repayments. It means Pakistan is stuck in a death trap, the only way out of which is more debt.

Conclusion

The instability of Pakistan's government has led the country into its worst economic crisis. The death trap of Pakistan can be cleared with the help of foreign investments. But the companies are in a dilemma about whether to invest in Pakistan or not, given its unstable governance and lack of investment in the country. Keeping the unstable government aside, there is a huge problem ahead for Pakistan: China's debt trap. China has lent huge sums of money to Pakistan and is ready to lend more, which will be a major problem.

United Kingdom Crisis (2021- Present)

The United Kingdom or Britain, a superpower of the earlier times and under whose reign “Sun never used to set” is on the verge of economic collapse. International Monetary Fund (IMF) has predicted the growth of the UK in 2023 to be less than 0.3% which may be catastrophic for the country, especially in the current wake of high inflation and overall recession.

Reasons for Mighty Britain’s economic collapse

Wrong decisions by the British government and its officials– Repeatedly again and again, British officials kept making wrong decisions. One of the example is the Mini Budget of Sep 2022 where the Finance Minister Kwasi Kwarteng announced freezing of energy bills and pledged 45 Billion pounds of tax cuts which were practically not possible. He assumed that if people have more money in hand, their purchasing power will increase, consumer spending will rise and as a result, more and more businesses will be attracted to invest in his country. However, what happened was a serious fall out. Due to this step, the markets became volatile, the currency got depreciated and to handle that, banks had to increase their mortgage rates. He paid the price and was sacked after 38 days in power.

Effects of Brexit – While the immediate effects of Brexit over the British economy were well anticipated, the situation worsened in April 2019 and beyond when multinational companies transferred over $1Trillion out of British banks and further transferred nearly $150Bn of their assets out of the country. This created serious liquidity crunch before the financial institutions who were already facing crisis due to change of currency. Foreign direct investment reduced drastically and British Property Market which used to be the most lucrative in the entire Europe recorded massive negative growth. All this led to a steep fall in economy which became irreversible in 2022.

Rise of Islamic Hardliners & creating an unsafe environment– Over last few decades, United Kingdom especially London has become a favourite place for Islamic hardliners to come and settle. Birmingham is called a mini-Pakistan and it is difficult to spot any sign of Britain in this area. In recent past, there have been attacks on various religious institutions of Hindus and other communities and these communities were targeted by Islamic hardliners. At this time, no concrete action from the government (apparently to appease Muslim community) came as a surprise & discouraged investors to come to Britain.

COVID-19 Pandemic– As we know that post Brexit and after 2019 crisis, when the country had a window to recover itself, the COVID-19 pandemic stuck which created multiple dents to the economy of the country. While the overall GDP reduced, the financial burden on the exchequer increased drastically resulting in a misalignment between the income and government spendings. Prolonged impact of COVID-19 related issues for over two years destroyed all hopes of the revival of the economy.

Russia-Ukraine Conflict– Russia Ukraine conflict has created landslide impact on the world economy however unlike other countries, Britain got affected in two ways. On one hand it had the overall impact over the economy due to the soaring energy prices but since Britain is an integral part of NATO, it also had to cough out major chunk of money as well as defence equipment’s and War machines to be given to Ukraine as part of aid package. It is estimated that the overall effect of Russia-Ukraine conflict on the economy of Britain itself is more than $50Bn in the last six months itself.

Conclusion of Trio Crises

All the three countries have different characteristics and may be or may not be linked with each other. But the simple Reason for their Economic Crises is Mismanagement and wrong Economic Policies. Even the Great Britain has been a victim of it. Countries like India should learn a lot from these crises, a slight wrong policies framing can cause India to be a victim

Citations

Sri Lanka’s Economic crisis- An Eye Opener by Dr. M. Nazeeruddin and Mr.M.Jafarullah Baig
https://rrjournals.com/index.php/rrijm/article/view/146
https://www.india.com/opinion/economic-collapse-of-britain-an-analysis-5698014/