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Sri Lanka: What Led the Island Nation to Bankruptcy?

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Sri-Lanka Bankrupt

Since 2019, Sri Lanka has been suffering through the most severe economic crisis of its history, which has now led the country’s economy to total collapse. Here is a glimpse of some of the major news erupting from the nation:

The once packed with tourists, famous for its majestic natural beauty, and named the paradise island, is now standing on the verge of bankruptcy. Over 500,000 Sri Lankan residents have fallen into poverty in the last few months.

The scarcity of basic necessities, including fuel and medicine, further worsens the situation. As a result, doctors claim that the current crisis could kill more Lankens than COVID.

Daily power blackouts and widescale protests are shaping the country. But, what is happening in Sri Lank is much more than an economic crisis, but a humanitarian crisis.

But what has led to the downfall of Sri Lank? What is behind Colombo’s Bankruptcy?

What is Behind Sri Lanka’s Bankruptcy?

Numerous factors can be held accountable for the current crisis in Sri Lanka, including:

Trade Deficit

The current crisis is the result of a year of simmering mismanagement. For a long time, the Island nations have been importing more than it exports, and buying more than it earns, thus leading the country to budget and trade deficit.

The Asian Development Bank flagged this issue in 2019:

“The country’s national expenditure exceeds its income, and its tradable goods and services are inadequate.”

Asian Development Bank

Experts also point to a lack of discipline in the importation process. Non-essential commodities such as cheese, butter, vegetables, candies, fruits, ice creams, and sauces costed Sri Lanka $6 billion in 2021. In addition, imports of mobile phones cost $386 million.

“The country’s major problem is the dollar dilemma. Our dollar receipts are not enough even to repay our debts.”

Mahinda Amaraweera

With a $6 billion trade imbalance and massive debt accrued via foreign loans, sovereign bonds, and largescale infrastructure projects, repayment is difficult. “For years, we’ve been living beyond our means,” Ahilan Kadirgamar, a political economist at Jaffna, said.

Also Read: Explained: Why is Sri Lanka on the Verge of Bankruptcy?

But, despite that, instead of focusing on increasing its earnings, Sri Lanka expanded its debts. The government borrowed heavily from agencies and countries to fill in the gaps. Today, the debt to GDP ratio of Colombo is 111%. Therefore, the country owes more than it produces.

Fertilizer Ban

The fertilizer prohibition, too, proved to be a disaster. So when Gotabaya proclaimed his intention to convert the country’s agriculture industry to 100% organic, he hoped to save money on imports while simultaneously protecting the environment.

Agricultural specialists and economics had predicted food scarcity. Saman Dharmakeerthi, a professor of soil fertility and plant nutrition at Kandy’s University of Peradeniya, says, “The restriction resulted in a 25% loss in production,

The agriculture business had lost nearly half of its production capacity when the government realized its error and reversed the prohibition. As a result, the country had to lean on other nations even more for rice and other necessities.

Last year, Sri Lanka and Myanmar agreed to purchase 50,000 tonnes of parboiled rice and one lakh tonnes of white rice. In addition, it imports grains from India. In January, China supplied one million tonnes of rice.

The Bleeding Tourism Industry of Sri Lanka

Sri Lanka’s GDP is heavily reliant on its travel and tourism industry. But, dues to various factors, by 2019, the tourism sector was already suffering.

The eastern bombings scared the tourists who would spend vacations in the island nation. Then followed the coronavirus. When borders closed, tourism completely shut down, and so did the tourism revenue. 13% of the GDP was completely gone for months.

Furthermore, tourists are also a source of foreign currency. For example, in 2020, only 173,000 tourists visited the country compared to 2.3 million in 2018.

China’s Role in Deepening the Crisis

Sri Lanka’s massive foreign debt burden, particularly to China, is one of the country’s most critical challenges. The Island country owes China about $5 billion in debt and received a $1 billion mortgage from Beijing last year to cope with its severe financial difficulties, that’s being paid back in instalments.

Sri Lanka will be needed to repay an estimated $7.3 billion in domestic and foreign debts over the next 12 months, including a $500 million international sovereign debt repayment in January. But, according to The Guardian, accessible foreign currency reserves were only $1.6 billion in November.

The Sinking Economy

By 2021, tax, tourism, and remittances revenues have fallen. Agriculture production, which accounts for 80% of the GDP, was also on a steep downfall. And top of it all was the raging pandemic leading to the fall in money lending by foreign agencies.

All these elements together formed the perfect recipe for disaster. But, what has been more disastrous is the reciprocatory responses to the crisis.

Protestors Demanding President’s Resignation

Along with the skyrocketing inflation, protestors are camping out around the president s office. Blaming the president for the economic catastrophe, the protestors are demanding the president resign.

To demonstrate their anger against the president, Muslim protestors broke their Ramadan fasting at the location to share meals with others around them, and supporters of the demonstrators provided drinking water and food.

Many of the rallies this week have targeted the Rajapaksa family, which has dominated Sri Lanka for much of the last two decades. Critics accuse the family of using excessive borrowing to fund projects that have failed to generate revenue, such as a port facility financed with Chinese financing.

More Pain in Store for Sri Lanka

Now, the country is crumbling to save dollars, but one could also say that Sri Lanka walked into the storm. From a pro-market approach, the country shifted to a welfare-driven mode.

Inflation has risen by 30.20%, and prices of food have skyrocketed. With just $1.94 billion, Sri Lanka needs to feed, clothe, and provide security to 22 million people.

In a nutshell, Sri Lanka needs $20 billion for essential imports like food and fuel and to restart exports, but where will this money come from?

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The UK Economy Braces for 2-Year Long Recession: What Went Wrong?

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Rishi Sunak

The UK economy is witnessing one of the worst crises in its history. The downfall of the pound, war-infused energy crisis, skyrocketing electricity bills, collapsing stock market, changing Prime ministers, and whatnot?

Nothing has gone in the UK’s favor since the passing of the Queen. And now the country is bracing for a prolonged two-year recession with contracting third quarters.

But what went wrong in the first place? How did this trigger an economic catastrophe in the UK? And can Rishi Sunak save the UK?

Here is a detailed explainer:

UK Economy: An Overview of the Problem

With the political upheaval and the pandemic, the already suffering economy of the UK reached its brim when the Russia-Ukraine war ignited. 

In response to Ukraine’s invasion, Britain halted the import of fuel, gas, or coal from Russia since June for the first time in the past 25 years.  

As a result, Russia stopped its critical gas pipeline to Europe, thus creating an energy crisis. 

All this led to the UK’s economic downfall. 

Today, inflation is at an all-time high of 9.9%, a 40-year high. Energy bills are shot up by almost 80%despite capping. Finally, and most importantly, the pound has become one of the worst-performing currencies, with its value dropping by 24% against the dollar.  

The Mini Budget Turmoil 

With such disruptive environments in the UK, former Prime Minister Liz Truss came up with the mini-budget. The mini-budget baskets a slew of tax changes, including the elimination of the high rate of income tax for the wealthy and the energy subsidies policy platform. 

However, the mini-budget backfired and now has snowballed from an energy crisis into debt, housing, currency, and even a banking crisis. 

The pointer mentioned in the mini-budget has been so terrifying that it shook the economy of the UK and plunged the London Stock Exchange horribly. 

With such an unstable situation inside the UK economy, Truss changed her mind about company taxes after days of adamantly defending her budget and firing finance Minister Kwarteng. 

“I still agree with my policies, but I’ve sacked my finance minister because he announced them, and the market didn’t like them.” 

She said 

A Cold and Long Winters Awaits the UK

The three major events that make the incoming winter snug for the UK are:

  • First, Russia has entirely cut off gas, which causes the cost of electricity to shoot up by almost 80%
  • Secondly, on top of the existing gas storage, the incoming winter energy consumption is about to hit a new peak from September to December. 
  • Third, even if Europe had 90% of its Energy storage complete in September 2022, it could take only 90 days for it to reach dangerously low levels. 

Long story short, a gas shortage during a peak consumption time, with no storage option, will further increase energy prices. It has already been shot up at extreme levels resulting in high electricity bills that eventually heated inflation and the economy of the UK. 

Even though the UK is receiving help from the US and other countries, gas prices are still very high. Hence the cost of production and inflation has hit a record 9.9%.  

“It is going to be tough. But protecting the vulnerable – and people’s jobs, mortgages, and bills – will be at the front of our minds as we work to restore stability, confidence, and long-term growth,”

British finance minister Jeremy Hunt twitted

Bond Market Crisis with Collapsing Pound 

The UK’s property market, pension industry, and overall economy are at risk of recession. The reason behind this is the decline in the price of UK government bonds and the ensuing rise in interest rates. 

10-year bond rates in the UK have gone above almost 300%, going from just about 1% to 4.11% in just nine months. 

Even though the bonds yield a 4% interest, the currency has depreciated to such an extent that it has become a disaster for foreign investors. As a result, foreign investors are quitting the UK market, further decreasing the demand for the pound. 

Such a crisis in the bond market resulted in currency depreciation further, and the sterling slid against the US dollar. Furthermore, during the Ukraine-Russia war, Russia cut off gas supplies, and oversized reliance on imports further surge Euro.   

Rishi, the Third Prime Minister in Three Months 

After the resignation of Boris Johnson with 27 ministers, the office was handed over to Liz Truss. When Boris left the office, there was a sensation in the UK that it was time for stability and competence.

However, due to poor politics and policies, Liz Truss abruptly resigned from the post of Prime Minister within 45 days. The shortest and most disastrous spell that slung the economy of the UK and crashed the pound forced Liz Truss to step down from the post. 

With the resignation of Liz Truss, the reign was entrusted to Rishi Sunak, the third PM of the UK in the last three months. Sunak’s appointment ended another period of political unrest in the UK. 

But many analysts and Westminster observers are still of the opinion that there will soon be another crisis. With the opposition Labor Party presently leading in the polls, all opposition parties are pleading for a general election.

Can Rishi Sunak Save UK Economy?

The political unpredictability has led the UK economy into a two-year-long recession. The previous two prime ministers were unqualified to steer the UK economy’s flimsy ship. Hence Rishi has some challenging tasks to do. 

Now, everything will depend on how Rishi approaches the challenging work of rescuing the UK economy from disaster, and it will be interesting to watch how he advances.

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Muslim Women’s Empowerment and Inheritance Rights 

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Muslim Women's Inheritance Rights

Despite Islam giving Muslim women the right to inheritance, it is rare to see Muslims follow this Islamic law.  The recently released National Family Health Survey 2019-20 (NFHS-5) fact sheet for Jammu and Kashmir states that only 57.3% of women in the Union Territory of Jammu and Kashmir own a house and/or land, alone or jointly (PDF of the survey). J and K is a Muslim-majority region. According to 2011 census, 68.3% of the region’s population is Muslim. 

Even though we can read these figures as “at least more than half women own property”, however, given that all women are coparceners in one or the other way, it raises vexing questions.

Islam entitles a sister to inherit half of what a brother gets as a coparcener. Despite this fact, the number of women owning property is almost half of that of men.

The data on women’s inheritance in Pakistan and other Muslim-majority South Asian countries is much worse. There are very few women who own property in South Asian countries.

Inheritance Rights, a Taboo?

Women asking for their coparcenary rights is considered taboo here. Further, women also seem to have internalized that asking for inheritance rights will break their relationship with other members of the family, especially brothers. As a result, they sign relinquishment deeds without giving a second thought about it.

Also Read: Death of Mahsa Amini: How Governments are Denying Women’s Right to Choice?

Women’s Empowerment through Inheritance

People mostly see the inheritance of property as a matter of money and wealth. However, it goes beyond that, at least for women. Economically speaking, ownership of any kind of property by women is a very important determinant in the quest for women’s empowerment.

In a realist world where everyone is responsible for their own survival, women should not expect their male relatives to care for them. Unless women do not attach economical value to their lives, they will have no power. This is especially true for unemployed women who do not have financial independence. Since inheritance of property is a given- however small value it may have, they do not have to get an education or work to get it. The only thing they need to do is not to sign the relinquishment deed.

Also Read: Why Are Muslim Women Still Behind Bars

Militating Against Women’s Empowerment

Relinquishment of coparcenary rights militates against women’s empowerment. It is high time that women ask for the inheritance rights that the constitution as well as the religion gives them. The right to inheritance also seems one of its kind means to women’s empowerment where people peddling religiosity may not find a reason to oppose it. Women should know that signing a relinquishment deed may lose them a lifetime opportunity for leading an independent and respectful life in this patriarchal world.

Also Read: The women behind #Blacklivesmatter movement

The Debate on Equality of Rights

It is generally accepted that Islam entitles a sister to inherit half of what a brother gets as a coparcener. However, the interpretation of the Quran regarding this law is debatable. According to Mohmmad Iqbal, “the share of the daughter is determined not by any inferiority inherent in her, but in view of her economic opportunities, and the place she occupies in the social structure of which she is a part and parcel.” Iqbal goes on to justify the case of inheritance law in Islam arguing that the daughter “is held to be the full owner of the property given to her by both the father and the husband at the time of her marriage.” Further, “she absolutely owns her dower-money which may be prompt or deferred according to her own choice, and in lieu of which she can hold possession of the whole of her husband’s property till payment, the responsibility of maintaining her throughout her life is wholly thrown on the husband.”

Therefore, for Iqbal, if we “judge the working of the rule of inheritance from this point of view, you (we) will find that there is no material difference between the economic position of sons and daughters.”

However, Iqbal made this point in 1930. Since then, there has been a significant change in the economic positions of men and women. If the motive behind inheritance laws, as mentioned by Iqbal, is applied to modern-day conditions, sons and daughters may well get an equal share in inheritance.

Towards Muslim Women’s Empowerment

Inheritance rights bestowed by Islam on Muslim women show Islam’s inherent quest for women’s empowerment.

Even though the West blames Muslims for repressing women’s rights, Islam has its in-built laws for women’s empowerment. These laws, unlike West’s feminist rhetoric, go beyond symbolic empowerment like sartorial choice, and hence materially empower women.

However, it is a shame that Muslims do not follow Islamic laws like inheritance law in letter and spirit. If all Muslims obeyed these laws, the world would become a better place for Muslim women.

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“The Worst is Yet to Come”— Recession 2023 & the Looming Uncertainty

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recession 2023

Recession 2023 is just around the corner.

The global economic crises are now inducing the certainty of a looming recession. Economists and financial organizations warned of upcoming uncertainty; however, regrettably, the world failed to decode the uprising of the economic catastrophe. 

Today’s economies around the globe are confronting an urgent economic crisis and is on the brink of a recession. And, the experts fear the worst is yet to come!

Shear Impact on Leading Economies – US, UK, China, and India

“Global growth is slowing sharply, with further slowing likely as more countries fall into recession. My deep concern is that these trends will persist, with long-lasting consequences devastating for people in emerging markets and developing economies,”  

World Bank Group President David Malpass.

For the first time since 2009, the US declared negative GDP growth two quarters in a row, which officially qualifies as a recession.

The British Pound is at its historic low of $1.038 against US dollars due to rare emergency interventions. Cities and states in China are still in lockdown because of a rise in Covid-19 cases. On the other hand, Indian Rupee is at its 75-year low of Rupees 82.11 against the US dollar, soaring the hike in repo rates to 5.90%

Srilanka already declared insolvency earlier this year. Russia and Ukraine war had already set the stage for World War III. And the recent resilience of china on Taiwan has tarnished the world economic environment. 

Read More: Sri Lanka: What Led the Island Nation to Bankruptcy?

All these together indicate the harsh truth: Recession 2023 will worsens the conditions of all major economies and push the globe into undefined circumstances like:

  • Central banks hiking the interest rates
  • Hike in energy and food prices
  • Depreciation of major currencies against the dollar

 Central Banks Hiking the Interest Rates  

To counteract rising inflation and the impact of a strong currency on the economies, central banks are hurriedly raising interest rates. This happens as the US Federal Reserve keeps up its aggressive interest rate hikes.

Rising Interest Rates
Rising Interest Rates. Image Source: India Today

On the other hand Reserve Bank of India is also struggling with persistently high inflation, which is made worse by geopolitical unrest, droughts, and supply-chain disruptions

Hike in Energy and Food Prices

Russia is the world’s third-largest oil-producing country. It provides 7-8 million barrels of crude oil per day, or 14% of global production, to international markets. 

The US and UK’s restrictions and many other nations’ decisions to stop purchasing Russian petroleum have exacerbated the crisis.

Russia and Ukraine are the biggest sunflower oil producers globally and the second most frequently used cooking oil. However, sunflower oil cannot yet be exported from Russia due to the tightening of import restrictions. 

Plus, due to the increasing demand for sunflower oil in the market, other edible oils are now more expensive, raising the cost of food and other products across borders.

Depreciation of Major Currencies Against the US Dollar 

Compared to the US dollar, the Japanese yen has dropped to its lowest level since August 1998. The Indian rupee is hitting its lowest in history, and for the first time in 20 years, the euro is now lower than the USD.

The decline of major currencies indicates the current state of the global economy. Moreover, it provides a crystal-clear forecast of how disastrous the recession 2023 would be if significant steps are not taken to control the situation.

The Decelerating Global Economy: IMF Forecast for Recession 2023

The International Monetary Fund (IMF) is warning that over a third of the economy is headed for a recession this year or next. Its world outlook shows growth withering from 6.0% in 2021, 3.2% in 2022, and an estimate of just 2.7% in 2023.

Recession 2023 will be different from all the recessions the world has faced to date. Different factors are driving economic crashes in different countries, for example:

A cynical recession by hiking interest rates in the US, a structural recession in China powered by the crashing property market, and financial insecurity exaggerated by the ongoing energy crisis in Europe.

The ongoing turmoil in the national and global market is further sparking the threat of World War III.

Rising Certainty of World War III

Russia has already invaded Ukraine, and in opposition to Ukraine’s protection, the US cleared this support with Ukraine by immediately sending weapons to Ukraine. Such US behavior infuriated Russia, leading to increased attacks. 

Russian President Vladimir Putin warned the US and European countries that further expansion of support to Ukraine might lead the situation to a ‘Global catastrophe.’ 

On the other hand, China assaulted Taiwan due to the recent visit of the US finance minister. The current clash of China and Indian troops erupt seriously, leading to grim conflict on north-east Indian borders.  

Additionally, civil wars in countries like Somalia, Yemen, Syria, Ethiopia, Afghanistan, and Mali are raising the certainty of World War III

Needless to say, World War III will destroy the world economy, resulting in more financial turmoil, starvation, a hike in oil prices, and the depreciation of currencies

Recession 2023: The Worst is yet to come

Slowing down economies, high repo rates, depreciation of currencies, bankrupted countries, and looming wars between nuclear countries are further solidifying the onset of a cold economic winter. 

The circumstance indicates what is coming. The indication of recession, the yell of “the worst is yet to come.

However, to wrench the global situation on track, policymakers should continue to give needy powerful tailored assistance to respective governments while also putting in place reliable medium-term fiscal strategies.

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