Sri Lanka’s unprecedented economic crisis looks to have finally toppled President Gotabaya Rajapaksa.
Here is what you should know about the ongoing political turmoil.
What happened?
- Rajapaksa fled to the Maldives early on Wednesday after months of turmoil culminated in protesters converging on the presidential residence.
- Prime Minister Ranil Wickremesinghe declared a state of emergency and a curfew with immediate effect as thousands of people demanding his resignation surrounded his office in the capital Colombo.
- Police fired several rounds of tear gas and a military helicopter briefly circled overhead but the protesters appeared undeterred as violence and political chaos gripped the island nation of 22 million people.
- The speaker of parliament said Rajapaksa had approved Wickremesinghe acting as president, invoking a section of the constitution dealing with times when the president is unable to fulfil his duties.
How serious is the crisis?
- Sri Lanka’s debt-laden economy has “collapsed” as it runs out of money to pay for food, fuel and medicine.
- The island is relying on help from neighbouring India, China and from the International Monetary Fund (IMF).
- Wickremesinghe, who took office in May, said the economy was heading for “rock bottom”.
- Sri Lankans are skipping meals as they line up for hours to buy scarce fuel and cooking gas.
- The government owes $51bn and is unable to make interest payments on its loans.
- Tourism, an important engine of economic growth, sputtered because of the pandemic.
- Country’s currency has collapsed by 80 percent, making imports more expensive and worsening inflation.
- The finance ministry says Sri Lanka has only $25m in usable foreign reserves and needs $6bn to stay afloat for six months.
- The result is a country on the edge of bankruptcy, with hardly any money to import fuel, milk, medicine and even toilet paper.
How did it come to this?
- Analysts say economic mismanagement by successive governments weakened Sri Lanka’s public finances.
- Situation was exacerbated by deep tax cuts enacted by Rajapaksa government soon after it took office in 2019.
- Months later, the COVID-19 pandemic struck, wiping out much of Sri Lanka’s revenue base, mainly from tourism.
- Remittances from nationals working abroad dropped, forcing the government to draw from foreign exchange reserves.
- Fuel shortages led to long queues at filling stations as well as frequent blackouts, hospitals ran short of medicine.
- Runaway inflation reached 54.6 percent last month and could rise to 70 percent, the central bank said.
Police use tear gas as protesters storm PM Ranil Wickremesinghe’s office [Rafiq Maqbool/AP]
What did the government do?
- Despite the rapidly deteriorating economic crisis, the Rajapaksa government initially held off talks with the IMF.
- For months, opposition leaders and experts urged the government to act but it held its ground, hoping tourism would bounce back.
- Much of public’s anger is focused on President Gotabaya Rajapaksa and his brother, ex-Prime Minister Mahinda Rajapaksa.
- In April 2021, the president banned imports of chemical fertilisers, a move that decimated staple rice crops, driving prices higher.
- Eventually, the government sought help from India and China – regional powers jostling for influence over the island.
- India says it provided support worth over $3.5bn this year.
- China intervened less publicly but said it supports the nation’s efforts to restructure its debt.
- Sri Lanka eventually opened talks with the IMF.
What happens next?
- A sitting president removed by street protests is unprecedented in Sri Lanka’s post-independence history.
- PM Wickremesinghe has taken over as acting president, a move that is questioned by legal experts.
- Bailout talks with the IMF continue, with Wickremesinghe saying he expects a preliminary agreement by late July.
- “Sri Lanka pins last hopes on IMF,” said a recent headline in the Colombo Times newspaper.
- Political parties agreed legislators will elect a new president on July 20 but are struggling to form a new government.
