Context: Recently, Sri Lanka has declared an economic emergency, after a steep fall in the value of the South Asian country's currency caused a spike in food prices.
Reason

• The announcement came after a surge in the cost of basic foodstuffs such as sugar, onions and potatoes.
• The prices of most of the essential goods have been skyrocketing owing to the plunging local currency value and high global market prices are driven by the COVID-19 pandemic.
• Sri Lanka, a net importer of food and other commodities, is witnessing a surge in COVID-19 cases and deaths which has hit tourism, one of its main foreign currency earners.
• The Sri Lankan rupee has fallen by 7.5 per cent against the US dollar this year.
• Sri Lanka's Department of Census and Statistics said the increase in the foreign exchange rate was one of the reasons behind rising prices of many essential items over the last 12 months.
• The bank has also noted that the island country’s foreign reserves plunged to $2.8 billion at the end of July from $7.5 billion in November 2019 when the government acquired the office. Sri Lankan rupee has lost over 20% of its value against the US dollar in that time. 

Key Steps taken

• The government has appointed a former army general as commissioner of essential services, who will have the power to seize food stocks held by traders and retailers and regulate their prices.
• The military will oversee the action which gives power to officials to ensure that essential items, including rice and sugar, are sold at government-guaranteed prices or prices based on import costs at customs and prevent hiding of stocks.
• The wide-ranging measure is also aimed at recovering credit owed to State banks by importers.

Additional Imformation
Financial Emergency in India

• The President of India can declare the Financial Emergency on the aid and advise of the Council of Ministers.
• She/ He has to be satisfied that a situation has arisen due to which the financial stability or credit of India or any part of its territory is threatened.
• Article 360 gives authority to the President of India to declare a financial emergency.
• However, the 44th Constitutional Amendment Act of 1978 says that the President’s ‘satisfaction’ is not beyond judicial review.
• It means the Supreme Court can review the declaration of a Financial Emergency.

Parliamentary Approval and Duration

• A proclamation of financial emergency must be approved by both the Houses of Parliament within two months from the date of its issue.
• A resolution approving the proclamation of financial emergency can be passed by either House of Parliament (Lok Sabha or Rajya Sabha) only by a simple majority.
• Once approved by both the Houses of Parliament, the Financial Emergency continues indefinitely till it is revoked.
• It may be revoked by the President anytime without any Parliamentary approval (but with the usual aid and advise).

Effects of Financial Emergency

• During the financial emergency, the executive authority of the Center expands and it can give financial orders to any state according to its own.
• All money bills or other financial bills, that come up for the President’s consideration after being passed by the state legislature, can be reserved.
• Salaries and allowances of all or any class of persons serving in the state can be reduced.
• The President may issue directions for the reduction of salaries and allowances of: (i) All or any class of persons serving the Union and the judges of the Supreme Court and the High Court.

Note: Financial Emergency has not been imposed in India even once. Although the economic situation was much worse in 1991, but a financial emergency was not imposed.