Sri Lanka caught in a crevasse
For the past three months, nationwide protests in Sri Lanka have intensified over crippling shortages of basic necessities, double-digit food and fuel inflation and long power cuts, among other issues. deprivations. The wave of discontent turned into a spiral of arson against the Rajapaksa regime, with protesters storming the official residence of President Gotabaya Rajapaksa and setting fire to the private residence of Prime Minister Ranil Wickremesinghe. Earlier in May, Mahinda Rajapaksa resigned as prime minister and fled to the safety of a naval base in Trincomalee, a port city on the northeast coast. The president and prime minister are expected to step down on Wednesday, paving the way for a multi-party government to pull the nation out of its worst political-economic crisis since independence in 1948. The big question is whether that will quell popular anger against the Rajpakasas and the political class. Political uncertainty is the last thing the island nation of 22 million needs for there to be light at the end of a period of darkness.
A functional government is needed as soon as possible for Sri Lanka to stem its economic difficulties thanks to a rescue plan with the International Monetary Fund. Sri Lanka is hoping for a rapid financing instrument as well as an expanded financing mechanism to overcome its balance of payments crisis, which has left it with usable foreign exchange reserves of only $50 million to pay for fuel, food and other essentials. Not so long ago it suspended international bond payments. With an external debt of $50 billion, the island nation owes about $8 billion in debt repayments this year. A debt sustainability report for the IMF is expected to be finalized shortly.
The director of the World Food Program is also expected to visit the country this week, which is extremely important as international aid agencies have said that a third of the population faces hunger as food supplies have run out and the standard of living reduced by consumer price inflation. running at 54.6% in June. Given the seriousness of the economic crisis, a new government should therefore be in place to dialogue with the IMF and the WFP. Bilateral lenders will withhold any additional aid pending the outcome of the IMF package. The World Bank has also said that unless an adequate macroeconomic policy framework is in place, it does not plan to offer new financing to Sri Lanka.
As a neighbour, India can only be concerned about the unrest in Sri Lanka. India has been generous in providing about $3.5 billion in economic aid so far this year, including a $400 million RBI currency swap, $500 million loan deferral and lines of credit for the import of fuel, food and medicine, which have already been exhausted. India has firmly stated that it “will always be guided by the best interests of the people of Sri Lanka expressed through democratic processes” and will do everything possible to help the country overcome difficulties. The best interest of the island nation indeed lies in the formation of a representative multi-party government to deal with the economic crisis which affects them all. All bets are off if it also looks difficult due to the fragmented political opposition that doesn’t have the numbers in parliament. There is then no alternative to early elections. Unfortunately, there is no quick fix to Sri Lanka’s problems.