A study of the economic crisis associated with international trade and the living standards of the people in Sri Lanka : with special reference to state sector people.

Abstract

Introduction

Sri Lanka’s economy has undergone considerable turbulence in recent years, driven by both domestic and global shocks that have deeply affected its major industries. Among these, the tea industry has experienced severe disruptions due to events such as the Easter Sunday attacks in 2019, the COVID-19 pandemic during 2020 -2021, and the prolonged post-COVID economic crisis. These crises, each distinct in nature yet interconnected through their connection to global trade, have significantly influenced the economic activities and living standards of those engaged in the tea sector. This study seeks to understand the extent to which these events have impacted the quality of life of individuals associated with the Harangala Tea Factory, located in the Kotmale Divisional Secretariat of the Nuwara Eliya District.

The Easter Sunday attacks of 2019 were a significant economic turning point. While the immediate damage was most visible in the tourism and service sectors, the shockwaves extended to the broader export economy. By 2021, the effects of the attacks were still evident in reduced investor confidence, lower foreign exchange inflows. For the tea industry, these conditions led to disruptions in demand, logistical challenges, and a cautious trading environment. Export volumes declined, and income streams became less predictable, affecting the operational stability of tea factories and the financial well-being of workers.

This instability was compounded by the onset of the COVID - 19 pandemic in 2020 and its continuation into 2021. The global health crisis brought unprecedented challenges to the tea industry. International demand fluctuated as global markets contracted and shipping delays became common. Simultaneously, local producers faced rising costs for agricultural inputs and protective equipment. At the worker level, income insecurity, health risks, and reduced access to services became everyday realities. In the post-COVID era, Sri Lanka’s economy entered a state of prolonged crisis. A combination of declining foreign reserves, mounting debt, and poor fiscal management culminated in a severe balance of payments problem. Between 2021 and 2023, the Sri Lankan Rupee depreciated sharply against the US Dollar. While tea exporters benefited from more favourable exchange rates, which increased the rupee value of their earnings, workers and small-scale producers suffered due to the rapid increase in the cost of living.

This study aims to explore how these three global trade-related crises, namely the Easter Sunday attacks, the COVID-19 pandemic, and the post- COVID economic downturn turn have affected individuals directly engaged in the tea industry, with a specific focus on the Harangala Tea Factory. Through a combination of qualitative and quantitative data, the study examines how the living conditions of factory workers, estate labourers, and management personnel evolved throughout these crisis periods. The research seeks to distinguish between the positive and negative outcomes of each event, emphasising how global economic disturbances can generate uneven effects within the same community. Understanding these dynamics is crucial for future policy planning. While macroeconomic indicators provide a national overview, localised studies such as this offer valuable insights into the human dimensions of economic resilience and vulnerability. The Harangala case study highlights the importance of context-specific strategies to ensure that economic recovery efforts are inclusive and responsive to the needs of all stakeholders within the tea industry.

Sri Lanka’s tea industry has been deeply vulnerable to successive crises, illustrating the interdependence between global trade disruptions and local livelihoods. Bandaranayake (2021) emphasises how the COVID-19 pandemic amplified pre-existing structural weaknesses in the Sri Lankan economy, with shrinking foreign reserves and disrupted trade flows directly affecting export industries such as tea. Similarly, Dissanayake (2021) highlights that while the depreciation of the Sri Lankan rupee temporarily benefited exporters by enhancing the rupee value of foreign earnings, rising inflation severely eroded household purchasing power, disproportionately burdening wage-dependent factory workers. Ekanayaka and Chatma (2010) add that volatility in exchange rates has long posed risks to Sri Lankan exporters, with the tea sector’s dependence on international demand making it highly susceptible to external shocks. Together, these studies establish the macroeconomic context for understanding how crises intensify vulnerabilities in trade-reliant communities.

While prior research has predominantly focused on the negative impacts of international trade-related economic crises on Sri Lankan communities, this study examines both the negative and positive effects of these crises on community life.