Sri Lanka’s economic crisis has finally overtaken President Gotabaya Rajapaksa. Rajapaksa fled the country early on Wednesday, possibly hours before he was expected to leave for the Maldives.
The country’s parliamentary speaker had said Rajapaksa would step down after violent protests on Saturday, when protesters stormed the president’s official residence and set the prime minister’s house on fire in Colombo.
Anti-government protesters, angered by power outages, a lack of basic goods and rising prices, have long called for Rajapaksa to step down, but the retired military officer has held back for months, calling for emergency powers in an effort to maintain control. was opposed.
The violence and political chaos that gripped the island nation of 22 million comes amid talks with the International Monetary Fund (IMF) on a rescue plan as well as proposals to restructure its sovereign debt, both of which could be thrown into disarray. could.
how did it come to this?
Analysts say economic mismanagement by successive governments has weakened Sri Lanka’s public finances, causing national expenditures to exceed incomes and insufficient levels of production of tradable goods and services.
The situation was worsened by deep tax cuts implemented by the Rajapaksa government soon after taking power in 2019. Months later, the COVID-19 pandemic broke out.
This eroded much of Sri Lanka’s revenue base, particularly from the lucrative tourism industry, while remittances from citizens working overseas were reduced and overtaken by an inflexible foreign exchange rate.
Rating agencies, concerned about government finances and its inability to repay large foreign debt, downgraded Sri Lanka’s credit rating from 2020, eventually locking the country out of international financial markets.
To keep the economy afloat, the government relied heavily on its foreign exchange reserves, depleting them by more than 70% in two years.
Sri Lanka, once seen as a model for a developing economy, has been crippled by the crisis. The fuel shortage has led to long queues at filling stations, frequent blackouts and drug shortages in hospitals. The central bank has said that runaway inflation peaked at 54.6 per cent last month and could rise to 70 per cent.
What did the government do?
Despite the rapidly deteriorating economic environment, the Rajapaksa government initially stopped talks with the IMF.
For months, opposition leaders and some financial experts urged the government to act, but it held its ground in hopes that tourism would bounce back and remittances would recover.
Eventually, aware of the scale of the brewing crisis, the government sought help from countries including India and China, regional superpowers that have traditionally struggled for influence on the strategically located island.
India has provided billions of dollars in loans to help pay for critical supplies. In all, New Delhi says it has provided more than $3.5 billion in aid this year.
China has publicly intervened less but has said it supports the island nation’s efforts to restructure its debt.
Earlier in 2022, Rajapaksa asked China to pay back nearly $3.5 billion in debt to Beijing, which also offered Sri Lanka a 1.5 billion yuan-denominated swap at the end of 2021.
Sri Lanka eventually began talks with the IMF.
Read also | Sri Lanka crisis serious matter, India’s focus on helping them: External Affairs Minister S Jaishankar
what happens next?
The ouster of a sitting president due to street protests is unprecedented in Sri Lanka’s post-independence history.
Sri Lanka’s constitution stipulates that if a president resigns, the country’s prime minister will assume the role.
But the incumbent Ranil Wickremesinghe has said that he too will stand.
It was therefore likely that the Speaker of Parliament, Mahinda Yapa Abhaywardene, would assume temporary charge of the country until MPs elect a new president to serve the remainder of Rajapaksa’s term, due to expire in 2024, said constitutional expert Jayadeva. Uyangoda said.
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