O Sri Lanka an island in the Indian Ocean located below India, has been facing for a few months what is considered the worst crisis in the country since its independence in the late 1940s. inflation above 18%, fuel shortages have already led to protests, injuries and the resignation of the prime minister.
On Saturday, protesters stormed the Sri Lankan president’s official residence in Colombo. More than 100,000 people gathered outside the building, urging the leader, Gotabaya Rajapaksa, to step down because of the country’s economic crisis.
A video broadcast on Sri Lankan television showed protesters entering the president’s home – Rajapaksa’s office and residence in the commercial capital – after breaking through security cords put up by police.
The country is currently the 64th largest economy in the world, according to data from the International Monetary Fund (IMF ), and faces a combination of problems that are unique and common to a number of nations.
The country’s inflation scenario has worsened especially since October 2021. Since April 2022, the official inflation index has remained above double digits, with no signs of having reached a peak.
On 6 June, the new Prime Minister of Sri Lanka, Ranil Wickremesinghe stated that the country is “bankrupt” and that millions of people face difficulties to buy basic products such as food, medicine and fuels .
Causes of the crisis
Just before Wickremesinghe spoke about the country’s situation, Energy Minister Kanchana Wijesekera assessed that the current crisis was inevitable, but it was accelerated by the external scenario.
“In terms of fuel and food, our country would have to face this crisis at some point. Fuel was scarce. Food prices have gone up,” he said.
According to him, international crises such as the war in ukraine and the Covid-19 pandemic worsened the picture.
the price of Petroleum for example, skyrocketed throughout 2021 and the first few months of 2022, reaching the highest level since 2008. It even surpassed $120, and remains above $100.
As the value in the international market is valid for all countries, prices have risen around the world, including in Sri Lanka, making imports more expensive and more difficult and leading not only to a rise in fuel prices, but also to a shortage of the product.
On more than one occasion, the government announced that I would run out of fuel in a few days and came to depend on emergency supplies from other countries.
The shortage led not only to queues at gas stations, but also to the need for the government to take measures to reduce the population’s mobility.
Classes were suspended, government employees were encouraged to work from home and fuel was only provided to services considered essential, with airports and ports subject to rationing.
Important industries for the country, such as clothing, have fuel for up to 10 days, according to government reports.
A source from the island’s government told Reuters that the country’s daily consumption of gasoline and diesel was 3,000 and 5,000 tonnes, respectively. On June 26, the government had 9 thousand tons of diesel and 6 thousand tons of Gasoline in stock, with no forecast of new shipments.
In addition, the rise in prices had a knock-on effect, hitting other products such as food and medicine due to higher transport costs.
For Wijesekera, “due to the recent global crises, this situation has worsened and we who were in the frying pan have fallen into the oven”.
The government’s current expectation is that Sri Lanka’s inflation, currently above 18%, could reach 60% by the end of the year.
However, the scenario was worsened by some structural elements of the Sri Lankan economy.
Over the past decade, the government has taken out large international loans to expand public services. Since 2016, however, the country has experienced a series of problems, such as damage to agricultural production due to monsoons, a constitutional crisis in 2018 and a terrorist attack in 2019.
In the same year, newly elected President Gotabaya Rajapaksa cut taxes to stimulate the economy.
When the pandemic began, in 2020, Sri Lanka had to close its borders, which ended up leading to a drop in foreign exchange inflows and economic problems in a country heavily dependent on the tourism .
In this scenario, the government deficit soared, foreign investments were withdrawn and reserves were depleted.
A survey by the rating agency Austin Rating points out that the Sri Lankan rupee was the currency that depreciated the most among 120 countries, falling by 43.6% from January 1 to June 30. As in other economies, the prices of imported products soared, worsening the inflationary scenario.
Consequences
The most concrete effect of the soaring prices in the country is the long lines to fill up cars or buy products. In addition, the government has officially declared bankruptcy, with no ability to honor payments to foreign investors.
The economic scenario led to an increase in popular dissatisfaction, which resulted in a series of anti-government protests and ensuing conflicts with government supporters in the country’s capital, Colombo. A national curfew was even imposed.
The protests did not cease despite government repression, and eventually led to the Resignation of Prime Minister Mahinda Rajapaksa after a few weeks of protests.
The exchange of Rajapksa for Wickremesinghe did not alleviate the economic crisis. However, the government has since intensified efforts to obtain financial assistance from the IMF to revive an economy classified by the prime minister as “collapsed”.
The government plans to maintain power cuts for three to four hours a day for the next two months to cut costs. In the meantime, it hopes to obtain emergency supplies of fuel from other countries, such as India until it manages to normalize imports.
Wickremesinghe said that the negotiations with the IMF have been “difficult”, since the nation carries out the dialogues within the classification of “failed country”, and not in development.
In this scenario, he assesses that “only when they are satisfied with this plan can we reach an agreement at the team level. This is not a simple process.”
Negotiations involve the presentation of a report on debt restructuring and sustainability that should take place by August. The expectation is that the aid package is worth US$ 3 billion.
If the two sides reach an agreement, a comprehensive four-year loan assistance program will be prepared. Until then, there is no prospect that the situation in Sri Lanka will change.
“This will be a difficult and bitter journey,” Wickremesinghe told lawmakers across the country. “But we can get some relief at the end of this journey. Progress can be made.”
The fear now is that people’s frustration with the government could increase, according to Paikiasothy Saravanamuttu, executive director of the Colombo-based Center for Policy Alternatives.
“It’s going to have to get a lot worse before it gets better,” Saravanamuttu said. “There is a lot of hatred and anger towards the president and the cabinet.”
*With information from CNN and Reuters
Source: CNN Brasil
I am Sophia william, author of World Stock Market. I have a degree in journalism from the University of Missouri and I have worked as a reporter for several news websites. I have a passion for writing and informing people about the latest news and events happening in the world. I strive to be accurate and unbiased in my reporting, and I hope to provide readers with valuable information that they can use to make informed decisions.
