Business / The Economic Collapse Of Sri Lanka: Here’s What You Should Know

The Economic Collapse Of Sri Lanka: Here’s What You Should Know

Business Jul 14, 2022

by Hina P. Ansari

Sri Lanka has been suffering its worst financial crisis in decade with millions struggling to buy food, fuel and medicine. Millions faced unemployment and raised frustrations through countless protests in the past few months reaching a crescendo in Colombo on the weekend when protesters breached security and invaded the residences of President Gotabaya Rajapaksa and of Prime Minister Ranil Wickremesinghe forcing them both to step down. We take a closer look at what were the factors that created this storm and what does it mean for Sri Lanka’s future as a country.

How It All Started

The economic collapse of Sri Lanka an island nation of approximately of just over 21 million had has been borrowing heavily the past several years in an effort to boost their own economy. However with the triple threat of COVID, supply chain challenges, debilitating monsoons as well as the government’s ban on chemical fertilizers.

The latter wreaked havoc among the country’s agricultural industry where farmers livelihoods where threatened by devastated crops.

The country was heavily into debt. Soaring fuel and food prices wreaked havoc and the middle and low income classes showed their displeasure of their government’s actions or non actions when it came to securing a solid economic footing for their country and its people.

President Rajapaksa tried to stem the bleeding by slashing taxes. However the government institutions and related infrastructure that relied on those taxes suffered. Consequently, the country’s credit rating defaulted which meant that the country lost access to the lucrative international market.

**The Economic Collapse Of Sri Lanka: Here’s What You Should Know: President Rajapaksa.** Photo Credit: www.news18.com

In order to pay the country’s mounting debt, the government decided to dip into their federal reserves, thereby shrinking it, making imports such as fuel, food and medical supplies prices skyrocketing. To make matters worse, Rajapaksa decided to float the Sri Lankan currency, their Rupee making the price based on the demand and supply of the foreign exchange market. However the ordinary Sri Lankan suffered even more as the Rupee plunged in value against the US Dollar.

The numbers are astounding, 30% of the population don’t have access to enough food. According to the UN World Food Programme, 2 in 50 families mostly headed up by women aren’t “eating enough” food, with many families only having enough food for one meal a day.

That set off nationwide protests in March as unemployment soared and families couldn’t put food on their table, gas in their cars or treat the sick. Electricity to run the country was cutting out as the country couldn’t afford to keep their lights on. In short, Sri Lanka was sinking.

Their “January 6th” Moment

The country’s economic infrastructure was collapsing in what was seen as the worst financial crisis the country had ever experienced in 70 years, since their inception as a country breaking free from British rule. On July 10th, months of protesting hit a crescendo in the capital city of Colombo, when protesters broke through the gates of the President’s private residence and furious crowds took over. President Rajapaksa and his wife fled their residence to a private chartered boat for refuge. All the while Sri Lankan’s ire grew even more when they saw first hand the opulence that their President was living while they themselves were bordering on poverty.

The following day protesters took aim at the residence of the country’s Prime Minister Ranil Wickremesinghe camping out in both residences, taking in the lavish decor and their luxurious swimming pool. Protesters raided the numerous cabinets for food, swam in the pool.

Both houses remained under protesters control, with one demand. That their President and Prime Minister resign immediately.

The Economic Collapse Of Sri Lanka: Here’s What You Should Know: President Rajapaksa. Photo Credit: www.news18.com — **The Economic Collapse Of Sri Lanka: Here’s What You Should Know: Protesters take a swim at the President’s residence.** Photo Credit: www.zoah.co.uk

Did It Work?

As of today the protesters are still holed up in the two homes refusing to leave until both the president and prime minister hand in their resignations.

The President after rumoured being on a boat caught a flight to the Maldives and fled the country hours although he has yet to officially resign. He appointment his prime minister Wickremesinghe to lead the country in order to establish a sense of stability. The President’s exodus wasn’t as smoothly as it may have been. Reports say that he refused to line in the general que of immigration at the Bandaranaike International Airport.

Then after he boarded the on an AN32 troop transport plane, the Maldives’ air traffic control department refused to let him land requiring the speaker of the Maldivian Parliament and former President Mohamed Nasheed to intervene and authorize the landing of the President’s plane.

According to the Sri Lankan constitution an official of resignation must be received by the Parliament Speaker Mahinda Yapa Abeywardena. That official letter was received on Monday thereby making President Gotabaya Rajapaksa’s resignation official. According to an official statement released by the Prime Minister’s office “A few moments ago, Prime Minister Mahinda Rajapaksa sent his letter of resignation to President Gotabaya Rajapaksa.”

Prime Minister who is still in office (even though earlier reports stated that he also stepped down), has instructed the nation’s army to crack down on protesters and installing a curfew in an attempt to restore order. However the protesters who have since also invaded the Prime Minister’s office have yet to back down. Approximately over 150 protesters in Colombo have been admitted to hospital to date.

The country is low on gas needed for their citizens. A month’s worth of gas costs around $40 million USD (for 40,000 tonnes), money that the country doesn’t have. Long lines for restocking of cooking gas with no results has added to the frustration of the ordinary Sri Lankan.

The country is now in talks with The International Monetary Foundation (IMF) for a bailout. While the world watches, the Sri Lankans are waiting for the Prime Minister’s resignation as well.

Main Image Photo Credit: www.showpeep.com

Hina P. Ansari

Author

Hina P. Ansari is a graduate from The University of Western Ontario (London, Ontario). Since then she has carved a successful career in Canada's national fashion-publishing world as the Entertainment/Photo Editor at FLARE Magazine, Canada's national fashion magazine. She was the first South Asian in...

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The Economic Collapse Of Sri Lanka: Here’s What You Should Know

by Hina P. Ansari

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