Sri Lanka on the brink of collapse as economic crisis deepens
A nation is on the verge of financial collapse amid shortages of food and fuel as it grapples with its worst crisis ever.
Sri Lanka is on the verge of financial collapse and the president is facing rapidly escalating protests demanding his resignation as the island nation grapples with its worst crisis in memory.
Shortages of food and fuel, along with record inflation and regular blackouts, have inflicted unprecedented misery on Sri Lankans in the most painful downturn since independence from Britain in 1948.
Ratings agencies have warned of a potential default on the nation’s $US51 billion foreign debt, with authorities unable to secure more commercial loans because of credit downgrades.
Many experts pin the blame on President Gotabaya Rajapaksa, who is accused of causing the crisis through a series of disastrous economic decisions since taking power in 2019.
Public anger is at fever pitch, with crowds attempting to storm the homes of several government figures and demanding Rajapaksa’s resignation.
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‘Gota go home’
Thousands of people from all walks of life have taken to the streets chanting anti-government slogans in recent weeks, with the rallying cry “Gota go home” a reference to Rajapaksa’s dual US citizenship.
Colombo resident Chanda Upul, 50, told The Guardian at a protest in Colombo on Saturday that soaring petrol costs meant he was no longer able to afford repayments on his rented rickshaw, and he lost his only source of income.
He said he and his four children now survive on rice and water.
“The only thing we can do now is drink poison, we are finished,” he said. “I voted for Gota thinking he was a lion, now I can see that he is worse than a dog. I love my country but don’t know if there will be a country left for my children.”
Nelum Leanage, 69, told the publication she wanted Rajapaksa to “return all the money he has robbed from us, then resign from politics and get out of this country”.
“He doesn’t belong here, yet he has stolen billions from us, he has a luxury life while we have nothing,” she said. “Unlike him, with his US passport, we don’t have another country to go to.”
Economic mismanagement
A critical foreign currency shortage has left Sri Lanka struggling to import essential goods, with the pandemic torpedoing vital revenue from tourism and remittances.
Economists say the crisis has been exacerbated by government mismanagement, years of accumulated borrowing and ill-advised tax cuts.
Rajapaksa slashed taxes when he took power, reducing the amount of income available to buy foreign currency, racked up huge debts on what critics say were unnecessary infrastructure projects, while also printing large amounts of money, pushing up inflation, and depleting the country’s foreign reserves.
At the end of 2019, Sri Lanka had $7.6 billion in foreign currency reserves, but by March 2020 it had only $2.3 billion, the BBC notes.
As the problem grew worse in 2021, the government banned imports of chemical fertiliser in an attempt to stop the outflow of foreign currency.
Farmers were told to use organic fertilisers instead, leading to widespread crop failures.
Sri Lanka now has to import even more food from overseas, further depleting its foreign currency.
Protests escalate
Local media have reported that protests are escalating, with civil servants and schoolchildren joining demonstrations organised largely through social media.
In an apparent bid to head off more protests, the government on Thursday declared extra public holidays for next week to coincide with the traditional Sinhalese and Tamil New Year.
Security forces have dispersed some protests with tear gas, water cannon and rubber bullets, and dozens of people have been arrested, with many saying they were tortured in police custody.
Rajapaksa, who led the military in the final years of the civil war, ordered an unprecedented shutdown of social media and imposed a curfew as protests grew, but withdrew the measures after they failed to keep people off the streets.
Opposition parties have rejected an overture from the president to form a unity administration and joined calls for him to step down.
But chief government whip Johnston Fernando reiterated Thursday that Rajapaksa would stay in office to lead the country out of the crisis.
Rajapaksa attended parliament Thursday but did not address the chamber, where he has lost his majority.
There has so far been no clear signal that opposition legislators will attempt a no-confidence motion to topple the administration.
Debt restructuring
Rajapaksa’s office said late Wednesday that he has appointed a panel of experts to organise a restructuring of foreign debt as he seeks a way out of a worsening economic crisis, with the three-member advisory panel tasked with guiding Sri Lanka through a “sustainable and inclusive recovery”.
Sri Lanka must raise $US7 billion this year alone to pay down its debts.
Rajapaksa’s government is preparing for bailout negotiations with the International Monetary Fund, and finance ministry officials told AFP the trio will prepare a programme for sovereign bond holders and other creditors to take a haircut.
“What Sri Lanka is keen to do is avoid a hard default,” a source from the ministry who requested anonymity told AFP.
“It will be a negotiated restructuring of the debt with the help of the IMF.”
The president appointed pro-IMF retired central banker Nandalal Weerasinghe as the new governor.
Starvation warning
Parliamentary Speaker Mahinda Yapa Abeywardana warned Wednesday that the economic crisis could lead to starvation unless addressed within the week.
“We are told this is the worst crisis, but I think this is just the beginning,” Abeywardana said at the start of a two-day debate on the worsening economic woes.
“The food, gas and electricity shortages will get worse. There will be very acute food shortages and starvation.”
The parliamentary session was disrupted twice as opposition lawmakers shouted slogans denouncing members of Rajapaksa’s once powerful ruling family and demanding they step down.
Meetings with the IMF are set to begin by next week but Finance Minister Basil Rajapaksa -- the president’s brother -- resigned on Sunday night along with nearly the entire cabinet.
The country is still without a replacement, with his successor quitting after just one day in office.
On Thursday a court in Colombo slapped a travel ban on the country’s recently resigned central bank chief over allegations he was responsible for the country’s predicament by not seeking IMF help earlier.
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Ajith Cabraal, who quit Monday, was told to appear in court on April 18 to answer allegations of a criminal breach of trust.
Rights activist Keerthi Tennakoon has filed a petition with the court alleging the current shortages are due to Cabraal’s mismanagement of Sri Lanka’s foreign reserves.
Court proceedings were briefly held up when the power went off.
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