Sri Lanka is facing an economic meltdown. The COVID-19 pandemic hurt many low- and middle-income countries, but the island nation of 22 million people stands out as one of the hardest hit. Sri Lanka is experiencing the worst economic downturn of its history, grappling with staggering levels of government debt, spiraling inflation, and a foreign exchange crisis that has led to the scarcity of many essential goods. Long lines snake outside gas pumps. The power cuts out frequently. Shops are running out of medicines and other necessities. In April, the government defaulted on its external debt, paving the way for a loan program from the International Monetary Fund.
Since late March, protesters have taken to the streets to demand the resignation of President Gotabaya Rajapaksa, whom they blame for the economic turmoil. Rajapaksa has held firm, but the political ground seems to be shifting beneath him. Much of his cabinet has resigned, and his ruling coalition has lost its majority in parliament. To rescue the economy, he must now seek a bailout from the IMF. Such a program will give Sri Lanka the best chance of stabilizing its economy, even as it carries significant political risks for the government. But without help from the IMF, the economy will go into a tailspin and tear apart the social fabric of the country.
