After Sri Lanka toppled the president, economic crisis could still fuel unrest
Wickremesinghe, a six-time former prime minister, inherits a bankrupt country with a collapsing economy and now faces an uphill task. The country defaulted on its $51 billion foreign debt in May. Fuel queues stretch for miles along the streets of Colombo, high food inflation has pushed people into poverty and the country’s currency has depreciated sharply.
many economists We say the next step for Sri Lanka is the IMF bailout package that has been under discussion for weeks. In a statement issued at the end of a visit to Colombo in June, the IMF delegation said the objectives of the support program would be to “restore macroeconomic stability and debt sustainability” while implementing reforms and protecting the poorest people.
Sri Lanka chooses a corporate figure as president and risks further turmoil
Now, the world is looking at Sri Lanka as a cautionary tale. Kristalina Georgieva, managing director of the International Monetary Fund at this month’s G-20 summit, issued dire predictions. Countries with high debt levels and limited policy space will face additional pressures. Look no further than Sri Lanka as a warning sign.”
Sri Lanka, once considered a success story with high levels of education and standard of living, can now be the first among a group of developing countries that will face political instability.
Dan Chamorro, a partner at consultancy Control Risks, said countries ranging from Pakistan to Egypt to Kazakhstan were reeling under a “perfect storm” of economic disruption caused by the pandemic and many other shocks this year.
“You have a combination of the after-effects of the pandemic, commodity prices rising due to the war in Ukraine, climate issues and, in particular, underlying political instability and poor management,” Chamorro said. But some governments have weathered the pandemic better than Sri Lanka.
“It just shows you how bad management and outright corruption can really derail what could be a wealthy country,” he said.
First, the coronavirus pandemic has devastated Sri Lanka’s tourism sector – the country’s third-highest source of foreign exchange reserves – which had already slowed after the 2019 Easter bombings. From $4.38 billion in 2018, tourism earnings have fallen to $500 million two years into the pandemic.
The government’s ban on chemical fertilizers to boost organic farming has – overnight – wrecked agricultural production. The generous tax cuts enacted by the Rajapaksa government cost the government $2.22 billion annually.
The war in Ukraine dealt a fatal blow to the country with rising fuel and food prices globally. Between February and May, the cost of fuel imports into Sri Lanka increased by more than 38 percent compared to the same period last year.
Beyond Ukraine, Sri Lanka is the epicenter of the global crisis
Even with the IMF ready to help, Sri Lanka’s work has stalled.
Ankur Shukla, a South Asia economist at Bloomberg Economics, said the IMF is pursuing a plan to restructure the country’s debt and that discussions with a variety of creditors — from China to the World Bank — will take time.
“There are great chances that although there is an agreement [with IMF] It may happen this year, aid likely won’t come this year. “There is a lot of uncertainty.”
And for its immediate needs, the country is in dire need of financing.
“The central bank’s available liquid external resources are almost non-existent,” Nandalal Weerasinghe, governor of Sri Lanka’s central bank, told CNN this week. He said all available foreign exchange resources were used to import gas, adding that the country has secured fuel supplies for the next few weeks.
The energy crisis along with rising food prices has led to millions of people cutting back on food. Central Bank data shows that food prices are 80 percent higher than last year.
Colin Hendricks, a senior fellow at the Peterson Institute for International Economics, said that while Sri Lanka is not the only country that has experienced protests over economic hardship, the scale and impact of its uprising has been staggering.
“The fuel and food price crises are striking at a time when public patience with many governments is virtually non-existent in the wake of the global pandemic,” Hendricks said. “Calls for relief come at a time when global credit markets are tightening, closing the fiscal space for these governments to tackle the pain through subsidies or more targeted interventions,” he added.
A country in pain: Sri Lankans’ voices reflect their desperate times
The country’s economic hardships led to a political crisis that in turn exacerbated the economic problems. But even after Wickremesinghe’s selection as president ended the leadership vacuum, he is widely seen as an unpopular figure in the establishment, and is likely to undermine political stability.
As an ally of Rajapaksa, Wickremesinghe’s biggest challenge is dealing with the protesters who have vowed to continue their agitation. They argue that Parliament undermined the country’s democracy by choosing a president who was not elected to a parliamentary seat.
In the wake of popular demonstrations that saw protesters occupy key government buildings and the homes of the President and Prime Minister, Rajapaksa fled the country, first to the Maldives and then to Singapore.
Hours after Wickremesinghe was sworn in on Thursday, police and military forces surrounded the protest site and took control of the presidential office in a pre-dawn raid. Witnesses said that security forces attacked protesters with batons and demolished tents, injuring many.
The protesters, who had camped out for more than 100 days, called the president’s behavior “undemocratic.”
Human rights groups and others have condemned the crackdown.
Former diplomat and academic Dayan Jayatilika said the president’s “reckless” behavior had exacerbated an already precarious situation. “The unnecessary use of military force has made political stability impossible, which the IMF and others have said is necessary for economic reform,” he said.
Hefeel Farsz from Colombo and Jerry Shih from Delhi contributed to this report.