Sri Lanka's economic crisis
6 April 2022
Protests in Sri Lanka have hit global headlines over the last week. We take a look at the context behind the headlines:
The country is facing its worst economic crisis in history.
Pressure has been piling on from multiple points: long-term economic mismanagement, high inflation and Covid-19 hitting key industries like tourism. The government and its president Gotabaya Rajapaksa – of Sri Lanka’s prominent political family, the Rajapaksas - have faced increasing criticism over its handling of the country’s finances, which came to a head last week.
Sri Lankan president Gotabaya Rajapaksa and his government have come under heavy fire for the country's economic crisis. Image: Gotabaya Rajapaksa/Facebook
India Today reported that for the last 15 years, governments have consistently “issued sovereign bonds without provisioning for payment” - its foreign exchange reserve was increasing but not from exporting goods and services. Instead, it came from borrowing foreign currencies, leaving it weak to market shocks – like Covid or Ukraine-Russia.
Ultimately, Sri Lanka is broke.
Sri Lanka’s foreign currency reserves dropped by 70 percent since January 2020 and the country is facing huge debt obligations. The country has a heavy reliance on imported goods, from food and fuel to paper and medication. With such a plunge in its foreign currency reserves, paying to import such essential items has become a struggle.
On top of that, in 2019 the government announced a 15 percent tax cut which further lowered revenue. A 2021 ban on chemical fertiliser hit national crops hard which contributed to rising inflation.
#GoHomeRajapaksas and #GoHomeGota have been trending across social media in the wake of the Sri Lanka protests. Image: Twitter
All these factors piled up. Tension built as inflation spiked and shortages of essential items hit – in March, many Sri Lankans queued for hours to buy fuel or medicine, while millions of students had exams postponed due to a shortage of paper and ink and medical services were restricted as supplies were hard to find. A nationwide shortage of fuel resulted in daily rolling blackouts of up to 13 hours, putting pressure on public services as well as private citizens.
People began protesting against the government, with large rallies held in the capital of Colombo outside President Rajapaksa’s residence.
On March 31, the protests outside the President’s residence intensified: reports emerged of protestors attempting to storm the property, demanding the president’s resignation. Police in turn pushed back, arresting protestors and using water cannons and tear gas on the crowds.
In response, Rajapaksa declared a state of emergency on April 1, bringing in a 36-hour curfew and blocking access to social media. Since then, the curfew has ended, but a state of emergency is still in place until at least Thursday next week.
Protests continued under the curfew, while some got around the social media ban using VPNs. Across social media, the hashtags #GoHomeRajapaksas and #GoHomeGota started trending and were picked up overseas. Rallies and protests in other countries sprung up in support of Sri Lankans, including a protest in Auckland’s Mt Wellington.
In Sri Lanka, Rajapaksa faced increasing pressure to resign. On Sunday, his entire cabinet resigned, leaving the president with minority support in Parliament – the only remaining Cabinet ministers were the president and his brother, Prime Minister Mahinda Rajapaksa. Rather than resign, President Rajapaksa has been trying to hold on to his position – he invited opposition parties to form a unity government, but that offer was soundly rejected.
So far, Rajapaksa has maintained he will not resign.
Meanwhile, protests continue across Sri Lanka, as the economic crisis continues. Access to medication, fuel, and basic supplies remains difficult.
MORE READING:
After China, India aid, is IMF help Sri Lanka's best hope? I SCMP
How Sri Lanka's worsening crisis is making itself felt in New Zealand I Stuff
