Sri Lanka Economic Crisis: Sri Lanka, which is already facing the worst financial crisis in more than seven decades, is witnessing a new wave of protests by workers and professionals as it awaits foreign investments and a bailout from the International Monetary Fund (IMF), which can help it stabilize its economy.
The country’s government hiked income taxes to up to 36 per cent, raised power tariffs by two-thirds, and postponed local body elections as it attempts to put its finances in order.
Protests by public sector staff
On March 1, public sector employees consisting of staff from the country’s banks, hospitals and ports, in thousands, walked in protests on the streets of Colombo, defying the Government’s ban on protests. Teachers wore black clothes and armbands as they protested against the cost of living, which they said had become unbearable. Union leaders said Sri Lankan President Ranil Wickremesinghe told them on Saturday that he cannot reduce income taxes as it was a condition of the IMF to release a bailout package.
Food inflation and foreign exchange reserves
Food inflation is at around 94 per cent, and the World Food Programme estimated in its January update that 33 per cent of Sri Lankan households are food insecure. As the country’s usable foreign exchange reserves have plummeted to US$500 million, the International Finance Corporation, the World Bank’s investment arm, on Feb 28 provided it with a $400 million swap of currency facility, aimed to help fund the import of essentials.
IMF bailout and debt restructuring
The IMF funds were expected to be received by Sri Lanks by December 2022, or January 2023, however, the Government could not provide the world’s largest financiers, with the required assurances and loan repayment negotiations. The largest proportion of Sri Lanka’s debt (almost 19.6%) is held by China, while Japan holds 9% and India has 2%. The major cause of concern is international sovereign bonds or high-interest rate borrowings of about 36% of the total debt and 79% of the annual interest amount.
Local elections postponed amidst Sri Lanka Economic Crisis
Sri Lankan President Ranil Wickremesinghe has announced that the country did not have money to finance a local government election which was scheduled for March 9, prompting accusations that he was using the economic crisis to stifle democracy. Using his executive powers, Wickremesinghe on Tuesday, outlawed the strikes, quoting an uninterrupted supply of essential services, and warning government workers of being expelled from service, if they participated in protests.
Sri Lanka is facing a severe financial crisis, and the government is struggling to maintain its finances. The protests by workers and professionals are a sign of the people’s frustration with the rising cost of living and the government’s inability to find a solution. The government’s decision to postpone the local elections has also led to accusations that it is using the crisis to stifle democracy. While international support has been forthcoming, the island nation needs to work on restructuring its debt and finding a long-term solution to its economic woes.