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Al Jazeera
Al Jazeera
Politics

Sri Lanka in crisis: What, why and how?

Sri Lankan protesters storm PM Ranil Wickremesinghe 's office, demanding he resign [Rafiq Maqbool/AP]

Sri Lanka’s unprecedented economic crisis looks to have finally toppled President Gotabaya Rajapaksa.

Here is what you should know about the ongoing political turmoil.

What happened?

  • Rajapaksa fled to the Maldives early on Wednesday after months of turmoil culminated in protesters converging on the presidential residence.
  • Prime Minister Ranil Wickremesinghe declared a state of emergency and a curfew with immediate effect as thousands of people demanding his resignation surrounded his office in the capital Colombo.
  • Police fired several rounds of tear gas and a military helicopter briefly circled overhead but the protesters appeared undeterred as violence and political chaos gripped the island nation of 22 million people.
  • The speaker of parliament said Rajapaksa had approved Wickremesinghe acting as president, invoking a section of the constitution dealing with times when the president is unable to fulfil his duties.

How serious is the crisis?

  • Sri Lanka’s debt-laden economy has “collapsed” as it runs out of money to pay for food, fuel and medicine.
  • The island is relying on help from neighbouring India, China and from the International Monetary Fund (IMF).
  • Wickremesinghe, who took office in May, said the economy was heading for “rock bottom”.
  • Sri Lankans are skipping meals as they line up for hours to buy scarce fuel and cooking gas.
  • The government owes $51bn and is unable to make interest payments on its loans.
  • Tourism, an important engine of economic growth, sputtered because of the pandemic.
  • Country’s currency has collapsed by 80 percent, making imports more expensive and worsening inflation.
  • The finance ministry says Sri Lanka has only $25m in usable foreign reserves and needs $6bn to stay afloat for six months.
  • The result is a country on the edge of bankruptcy, with hardly any money to import fuel, milk, medicine and even toilet paper.

How did it come to this?

  • Analysts say economic mismanagement by successive governments weakened Sri Lanka’s public finances.
  • Situation was exacerbated by deep tax cuts enacted by Rajapaksa government soon after it took office in 2019.
  • Months later, the COVID-19 pandemic struck, wiping out much of Sri Lanka’s revenue base, mainly from tourism.
  • Remittances from nationals working abroad dropped, forcing the government to draw from foreign exchange reserves.
  • Fuel shortages led to long queues at filling stations as well as frequent blackouts, hospitals ran short of medicine.
  • Runaway inflation reached 54.6 percent last month and could rise to 70 percent, the central bank said.
    Police use tear gas as protesters storm PM Ranil Wickremesinghe’s office [Rafiq Maqbool/AP]

What did the government do?

  • Despite the rapidly deteriorating economic crisis, the Rajapaksa government initially held off talks with the IMF.
  • For months, opposition leaders and experts urged the government to act but it held its ground, hoping tourism would bounce back.
  • Much of public’s anger is focused on President Gotabaya Rajapaksa and his brother, ex-Prime Minister Mahinda Rajapaksa.
  • In April 2021, the president banned imports of chemical fertilisers, a move that decimated staple rice crops, driving prices higher.
  • Eventually, the government sought help from India and China – regional powers jostling for influence over the island.
  • India says it provided support worth over $3.5bn this year.
  • China intervened less publicly but said it supports the nation’s efforts to restructure its debt.
  • Sri Lanka eventually opened talks with the IMF.

What happens next?

  • A sitting president removed by street protests is unprecedented in Sri Lanka’s post-independence history.
  • PM Wickremesinghe has taken over as acting president, a move that is questioned by legal experts.
  • Bailout talks with the IMF continue, with Wickremesinghe saying he expects a preliminary agreement by late July.
  • “Sri Lanka pins last hopes on IMF,” said a recent headline in the Colombo Times newspaper.
  • Political parties agreed legislators will elect a new president on July 20 but are struggling to form a new government.
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