Social fury in Sri Lanka: five keys to understanding the crisis

President of Sri Lanka, Gotabaya Rajapaksahe fled this Saturday from his official residence in Colombo, minutes before being attacked by a crowd of protesters, who accuse him of being responsible for a profound economic crisis that has thrown millions of people into poverty.

But the rage against the government is neither new nor surprising. The protests in that country have been going on for months now, and have grown in tandem with unstoppable inflation and the risk of a food crisis.

Here are some keys to understanding an outbreak with unpredictable consequences for now.

1- Three months of protests

Sri Lanka, an island in the Indian Ocean that had enjoyed significant economic growth in recent decades, is now facing one of the worst economic crises since its independence in 1948, due to declining foreign exchange reserves and huge debt.

Located off the southern tip of the Indian subcontinent, the 65,000 km2 island has nearly 22 million inhabitants, who are now suffering the consequences of the economic debacle.

Tension and discontent escalated on the island in late March when the authorities imposed power outages of more than 13 hourswhich led the population to take to the streets to demand the resignation of the Executive.

Since then, hundreds of protesters have settled in the vicinity of the Presidential Secretariat in Colombo to demand the resignation of the president and peaceful protests across the country became the order of the daywhile the authorities try to reach a bailout deal with the International Monetary Fund (IMF).

2- Economy in “collapse”

No food, medicine, fuel, electricity or gas. This is how most of Sri Lanka’s 22 million people live every day.

The gravity of the situation is such that the country risks falling into a humanitarian emergency, the United Nations (UN) warned in early June.

At the end of June, the Prime Minister of Sri Lanka Ranil Wickremesinghe himself admitted that the country’s economy had “collapsed” after months of scarcity of food, fuel and electricity.

“Our economy has completely collapsed,” he added.

Wickremesinghe, who in addition to being prime minister heads the finance portfolio – and offered to step down this Saturday to appease protests and seek a peaceful solution – took office in May.

He replaced Mahinda Rajapaksa – the president’s brother – at the head of the government, forced to leave office after wave of violence which caused nine deaths last month.

3- Debt and lack of funds

The government owes more than $ 51 billion and is on the verge of bankruptcy, unable to pay interest on the loans. Tourism, an important engine of economic growth, has decreased due to the Covid pandemic and security problems related to the terrorist attacks of 2019.

Local currency plummeted by 80%, make imports more expensive and increase inflation, already out of control, with a 57% increase in the cost of food, according to official data.

The situation is so compromised that the government has no money to import fuel, milk, cooking gas or toilet paper.

4- How did you get to this point?

Several analysts define it as years of mismanagement, corruption and waste of wealthwhich also complicates any financial bailout for Sri Lanka.

In 2019, Easter suicide bombings in churches and hotels that killed more than 260 people devastated tourism, a key source of foreign currency. The government needed revenue to cover foreign debt for major infrastructure projects, but instead Rajapaksa pushed through the largest tax cut in Sri Lankan history.

That was then creditors downgraded Sri Lanka, preventing you from borrowing more money. Then tourism suffered the coup de grace with the arrival of the pandemic.

In April 2021, Rajapaksa decided to ban imports of chemical fertilizers in an effort to promote organic farming, but the move came as a surprise to farmers, affecting staple rice crops and prompting for price increase.

Imports of other luxury items have also been banned, and the war in Ukraine has caused food and oil prices to skyrocket. Inflation approached 40% and food prices rose nearly 60% in May.

5- Insufficient loan

So far, Sri Lanka has survived thanks to a loan of around $ 4 billion from India, as well as from other governments such as the United States, Japan and Australia.

But that’s not enough. The country needs about $ 3 billion to import enough fuel, $ 900 million for food, $ 600 million for fertilizers and about $ 250 million to import cooking gas.

Source: AFP, EFE and AP

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