Sri Lanka's street protests over rising inflation and long-term power outages have shaken President Gotabaya Rajapaksa, and government ministers have resigned as opposition parties demand new elections in South Asia. Political turmoil is hampering efforts to control the problem of foreign trade and to secure additional funding to keep its tourism-dependent economy afloat, as it has been hit hard by the Covid-19 epidemic.
1. How did the problem get started?
Rajapaksa made a massive tax cuts in late 2019, lowering revenue a few months before the epidemic devastated the economy, international flights were suspended and consecutive closures. Income from overseas workers in Sri Lanka are dying and many are losing their jobs. As the exchange rate declines, Sri Lanka struggles to manage its foreign debt, which has grown in part due to loans from China to finance key infrastructure projects. Although Sri Lanka has received loans from neighbors such as India, it has not been able to regularly pay for foreign purchases of essential oils and food. Making matters worse was Rajapaksa’s pivot last year to organic farming with a ban on chemical fertilizers that triggered farmer protests and saw production of critical tea and rice crops decline.
2. What is happening to the economy?
The $ 81 billion economy is under severe pressure, as Russia's attack on Ukraine has pushed up oil prices around the world. Sri Lanka's growth is slow and inflation is at an all-time high. Authorities have since raised interest rates, reduced local currency, and imposed restrictions on non-essential purchases. But with a small amount of $ 2 billion in foreign exchange reserves and $ 7 billion in debt payments this year, restoring the country's economic health remains a difficult battle. Consumer prices rose almost 19% in March since last year, the fastest rate in Asia, after a 15% jump in February.
3. Food and fuel shortages
At that time, the national currency of foreign exchange fell by almost 70 percent from January 2020 to about $ 2.3 billion (€ 2.1 billion) in February, as it faces debt repayments of about $ 4 billion a year.The current stocks of Sri Lanka are only enough to pay for a month-long supply of goods.The shortage of foreign currency has made it difficult for the country to buy goods in the country and to pay for essential commodities such as oil, food and medicine.These challenges have led to a reduction in power generation, as electricity is only generated for four hours a day, with long lines outside power stations.Even the newspaper and printing industries are plagued by severe shortage of printing materials, which has forced textbooks to be reduced and school exams to be postponed.
Prasad Welikumbura, a Sri Lankan social and political activist, said it was the daily wage earners who suffered the most from the crisis.
"It is very difficult for people like taxi drivers and tuk-tuk drivers," Welikumbura told DW. The economic crisis has caused growing concern and frustration for the people of Sri Lanka, many of whom have accused the government of mishandling the economy.
4. Why are the people protesting?
The people of Sri Lanka, who voted for Rajapaksa to run for president three years ago, found themselves in dire straits. Families and businesses have been experiencing daily power outages since March, with time reaching 13 hours in April, as the government struggles to pay for electricity. There are long lines at petrol stations and daily shortages of essential food, which, if available, are very expensive. On March 31, protesters clashed with police outside Rajapaksa's home after a mob stormed the streets, demanding his resignation.
5. How has the government responded?
Rajapaksa, who often responds by issuing unusual night newspapers, has declared an emergency and has set a deadline to return over the weekend on April 3. The government has also set limits on access to social media platforms including YouTube, WhatsApp and Facebook for about 13 hours. A step he said was needed to maintain social order. Critics say it was to prevent protests from spreading. Protests continued despite the deadline as Sri Lankan people chanted "Go home Gota," which became a popular hashtag on Twitter. Rajapaksa, who wields considerable power based on the 2020 constitutional amendment, has reached out to the opposition with a proposal to work together to resolve these issues. Instead the leaders of the opposition parties were talking about holding new elections and the abolition of the amendment.
6. What is the bigger picture?
The country, south of India, has been embroiled in controversy since independence from Britain in 1948. The civil war between the Sinhalese-led government and the independent Liberation Tigers of Tamil Elam continued for decades and killed 100,000 people. The war ended in 2009 with a government victory - and allegations of human rights abuses on both sides. Violence erupted in the Easter bombs on Sunday, 2019, killing more than 200 people and the government blamed a well-known Islamist group. Rajapaksa, a former military officer who is considered by many to be a war hero, was elected president months later. Sri Lanka has once again become a battleground where China and India compete for supremacy. Rajapaksa and his family members in government have brought the country closer to Beijing. However, with maturity and interest payments keeping policymakers at odds with each other, Sri Lanka has reached India for economic assistance. Investors are also looking into whether Sri Lanka will follow up on negotiations with the International Monetary Fund regarding the aid package. The Rajapaksa government has been deeply skeptical of seeking IMF assistance as it may include measures to reduce unpopularity.
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