Sri Lanka’s economic crisis worsened on Saturday as thousands of anti-government protesters barged into embattled President Gotabaya Rajapaksa’s official residence, demanding his resignation and that of Prime Minister Ranil Wickremesinghe, whose private residence was torched.
What’s the latest there?
President Rajapaksa has agreed to resign on July 13, according to Speaker Mahinda Yapa Abeywardena, who spoke to the media. Prime Minister Wickremesinghe has also declared he would step down as soon as an all-party government was prepared to take control. Protesters have said they’d remain at both leaders’ residences until they resign. With its foreign exchange reserves at historic lows and money running out to pay for essential imports like food, medicine, and fuel, Sri Lanka is experiencing its worst financial crisis in 70 years.
How did they get to this point?
According to the government, the Covid-19 pandemic, which greatly impacted Sri Lanka’s tourism industry, one of its main sources of foreign exchange, is to blame. In addition, it says that a string of deadly bombings of churches in 2019 has scared away tourists. Analysts, however, point the finger at poor economic management, including big tax cuts that deprived government of much needed funds. The country’s foreign reserve was quickly drained after policies that focused on imports. Things got to a head at the weekend when the government announced that the country has only enough petrol to last one day under regular demand, and banned sales of fuel to private vehicles.
What has the government done to address issues?
The government has secured an agreement with the World Bank for a $600m loan, but that’s way too short for immediate relief. Sri Lanka has also requested low-cost oil supplies from Qatar and Russia. Prime Minister Wickremesinghe announced that the government will have to print money to pay employees’ salaries because it is now so short on funding. He did, however, issue a warning that this will result in more price increases, amidst an inflation that has already risen to more than 30%.
No help from the international community?
The country’s crisis is so bad that it’s become difficult to get help from outside. The government has racked up foreign debt to the tune of $51b, which it is now unable to pay, making it difficult to access more credit. Sri Lanka is expected to pay $7b this year, and corresponding sums in upcoming years, to settle these debts. It is asking the International Monetary Fund (IMF) for $3b in emergency bridging loans so it can make payments. But as a condition for any loan, the IMF has stated that the government must increase taxes and interest rates. Members of the G7 industrial nations have promised to help in securing debt relief.