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What’s happening in Sri Lanka? Country facing worst economic crisis and on the brink of bankruptcy – by Megan Baynes


In a country where limes cost 240% more than they did last year, and with a looming economic and food crisis, protests continue to play out between those demanding the government resign and those in support of it.

Sri Lanka is on the brink of bankruptcy and now facing its worst economic crisis since independence, with acute shortages of food, fuel and other essentials.

Protests have been taking place on the island nation of 22 million people since the end of March between pro-government supporters and those calling for an immediate change in authority.

The background

Sri Lanka, which gained independence from the UK in 1948, emerged from a devastating civil war in 2009.

In 2019, the country was rocked by Easter Sunday bombings – 250 people were killed as suicide bombers targeted churches and hotels across the country.

The COVID-19 pandemic then torpedoed its pivotal tourism industry, which makes up its fifth-largest source of foreign revenue.

This economic downturn meant Sri Lanka was already in a precarious state when the most recent unrest erupted.

The country also has significant debt and was due to pay £5.7bn this year, with its total foreign debt standing at £41.5bn.

Rising oil prices and tax cuts have meant Sri Lanka now has as little as $50m (£40m) of useable foreign reserves.

Sri Lanka needs at least 40,000 tonnes of gas each month, and the monthly import bill would be $40m (£32m) at current prices.

When did the latest conflict begin?

What's happening in Sri Lanka? Country facing worst economic crisis and on the brink of bankruptcy

Supporter of Sri Lanka’s ruling party tugs a member of anti-government demonstrator by his shirt during a clash between the two groups

 

On 31 March, hundreds of protestors tried to storm the home of President Gotabaya Rajapaksa, demanding his resignation.

The capital was placed under curfew and a state of emergency was declared the following day.

On 2 April, troops were deployed, and a 36-hour nationwide curfew was imposed. The following day, almost all of Sri Lanka’s cabinet resigned.

An interim government was appointed, overseen by the president and the president’s brother, Mahinda Rajapaksa, the prime minister.

Trading was then halted on Sri Lanka’s stock exchange and the governor of the central bank – having resisted calls to seek a bailout from the International Monetary Fund – also resigned.

On 5 April President Rajapaksa lost his parliamentary majority after his finance minister resigned, and he lifted the state of emergency.

Protests soon broke out across the country, fuelled by a further shortage of life-saving medicines. Protesters called on the president to resign, as they blamed him for not managing the crisis – he was accused of borrowing too much money to finance projects which had not returned enough profit for Sri Lanka.

What happened next?

What's happening in Sri Lanka? Country facing worst economic crisis and on the brink of bankruptcy

Supporters of Sri Lanka’s ruling party run as riot police fire tear gas

 

President Rajapaksa imposed the second state of emergency from 6 May, and gave security forces the power to crack down on growing unrest, a move that human rights groups have expressed concern over.

The government has since approached the International Monetary Fund for a bailout and has been holding a virtual summit with officials from the multilateral lender aimed at securing emergency assistance. But it was told its progress would depend on negotiations on debt restructuring with creditors.

Pro-government supporters, some armed with iron bars, attacked anti-government demonstrators at the “Gota Go Gama” tent village that sprang up last month and became the focal point of the nationwide protests.

Tear gas and water cannon have also been used as thousands broke the curfew.

The country has $25bn (£19.2bn) of foreign debt, which is due over the next five years – however, it has unilaterally suspended all payments.

This culminated in the resignation of Prime Minister Mahinda Rajapaksa after trade unions began a “week of protests” demanding immediate government change.

How has this affected ordinary Sri Lankans?

What's happening in Sri Lanka? Country facing worst economic crisis and on the brink of bankruptcy

With the economy in crisis, prices spiraling and food running out, farmers who should be planting their crops at the start of the rainy season are struggling, as they cannot afford – or sometimes even find – the fuel required for tractors and rotavators to turn the soil.

With farmers planting less, the food crisis looks set to get even worse.

With lower yields, the price in shops and markets has tripled and Sri Lanka is more reliant on imports it can barely afford.

Read more:
The country where limes cost 240% more than last year – and a food crisis looms

Fruit and vegetable yields are also down and general food inflation is running at 50%.

Authorities have announced country-wide power cuts will increase to about four a day because they cannot supply enough fuel to power stations.





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