Sri Lanka Collapsing Due to Economic and Political Crises

  By Henry Srebrnik, [Moncton, NB] Times & Transcript

With an economy hit hard by the pandemic, rising energy prices, and populist tax cuts, the south Asian island nation of Sri Lanka lacks enough foreign currency to pay for imports of essential goods.

The government has blamed the crisis on the COVID pandemic, which affected Sri Lanka’s tourist trade. But that really was the last straw.

Tens of thousands of protesters demanding President Gotabaya Rajapaksa’s removal stormed his official residence on July 9 and both he and Prime Minister Ranil Wickremesinghe have now agreed to resign.

The Rajapaksa family has monopolized politics in the island nation for decades. After helping Mahinda win the presidency in 2005, his brothers Chamal, Gotabaya and Basil took over ministries that controlled three-quarters of the national budget and built popular support despite allegations of human rights abuses and corruption.

But by 2019, when Gotabaya became president, the family was marred by infighting and dysfunction. Rajapaksa’s brother Mahinda, prime minister since 2019, quit after government supporters clashed with opponents in early May.

Nine people died and more than 300 were wounded in the violence, with rioters burning buses and torching hundreds of homes owned by allies of the Rajapaksas. A lawmaker from their Sri Lanka People’s Front (SLPP) was beaten to death.

Acute shortages of fuel, food and medicines have helped to push the cost of living to record highs in the country. Official data released June 30 showed consumer prices in the capital, Colombo, rose 54.6 per cent from a year earlier. The inflation rate for food is 57 per cent, according to official data. The mayor said that the capital has enough food only until September.

On June 27, the government announced it would ban private vehicles from buying gasoline and diesel until 10 July. Only buses, trains and vehicles used for medical services and transporting food would be allowed to fill up with fuel.

The Ceylon Petroleum Corporation is $700 million in debt. As a result, no country or organization in the world is willing to provide fuel, even for cash. The country has sent officials to major energy producers Russia and Qatar in a bid to secure cheap oil supplies.

Schools in urban areas have been shut, while officials told the country’s 22 million residents to work from home. Government officials have been given every Friday off for three months.

Hospitals are in desperate need of a range of life-saving drugs and equipment. Medical staff have been forced them to suspend non-essential operations, and reuse or ration some equipment.

The largest doctor’s union, the Government Medical Officers’ Association, has published a list of badly needed items, which include antibiotics, blood pressure medicine and anti-depressants. The IT industry has also been heavily affected as firms face power cuts and internet outages.

Sri Lanka has suspended payments on its foreign loans and introduced capital controls amid a severe shortage of foreign currency. Meanwhile the Sri Lankan rupee has weakened by nearly 80 per cent, making the costs of imports even more prohibitive.

In May, the country defaulted on its debts to international lenders for the first time in its history, while the International Monetary Fund has failed to conclude a deal for a $3 billion bailout package for the nation.

The government is also seeking assistance from India and China to import essential items. The new prime minister, Ranil Wickremesinghe, said that the country needed at least $5 billion over the next half year to pay for food, fuel and fertiliser.

Wickremesinghe told parliament on June 22 that the nation faces “a far more serious situation” than the shortages alone, and he warned of “a possible fall to rock bottom.”

He added that things would get worse before they improve. “Our economy has completely collapsed,” he told them.

Until recently, middle-class families generally enjoyed economic security. Now they are struggling to manage three meals a day. “They have really been jolted like no other time in the last three decades,” remarked Bhavani Fonseka, a senior researcher at the Centre for Policy Alternatives in Colombo.

Shanta Devarajan, a professor of international development at Washington’s Georgetown University, added that the country is on the verge of becoming a “fragile state.”