Sri Lanka - Economic Crisis - BBC News

11/01/2023, 13:20 Sri Lanka: Why is the country in an economic crisis?
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Sri Lanka: Why is the country in an

economic crisis?
14 July 2022
REUTERS
By Ayeshea Perera
BBC News
Sri Lankan Prime Minister Ranil Wickremesinghe has told the country's
military to do "whatever is necessary to restore order", after protesters
stormed his office.
A state of emergency was declared after President Gotabaya Rajapaksa fled

the country, following months of mass protests over the island's economic
https://www.bbc.com/news/world-61028138 1/11
11/01/2023, 13:20 Sri Lanka: Why is the country in an economic crisis? - BBC News
crisis.
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What has been happening in Sri Lanka?

Protests started in the capital, Colombo, in April and spread across the
country.
People have been struggling with daily power cuts and shortages of basics
such as fuel, food and medicines.
Inflation is running at more than 50%.
The country doesn't have enough fuel for essential services like buses, trains
and medical vehicles, and officials say it doesn't have enough foreign currency
to import more.
This lack of fuel has caused petrol and diesel prices to rise dramatically.
In late June, the government banned the sale of petrol and diesel for non-
essential vehicles for two weeks. Sales of fuel remain severely restricted.
Schools have closed, and people have been asked to work from home to help
conserve supplies.
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Watch: Police fire tear gas at Sri Lanka protesters storming the prime minister's office
Sri Lankan PM tells military to restore order
A dramatic day and moment of danger for Sri Lanka
What happens when a country runs out of money?

Sri Lanka is unable to buy the goods it needs from abroad.
And in May it failed to make an interest payment on its foreign debt for the
first time in its history.
Long queues for fuel - like this one in Colombo - have made normal life impossible
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EPA-EFE/REX/SHUTTERSTOCK
Failure to pay debt interest can damage a country's reputation with investors,
making it harder for it to borrow the money it needs on international markets.
This can further harm confidence in its currency and economy.
What's the plan to tackle the crisis?

President Rajapaksa resigned after fleeing to Singapore.
Before stepping down he made Prime Minister Ranil Wickremesinghe acting

president.
Mr Wickremesinghe declared a state of emergency across the country and

imposed a curfew in the western province while he tries to stabilise the
situation.
But, on Wednesday, hundreds of protesters stormed his office, amid calls for
his resignation.
REUTERS
Mr Wickremesinghe has been prime minister six times, without seeing out a full term in office
The president's departure threatens a potential power vacuum in Sri Lanka.
It needs a functioning government to tackle the financial crisis.
The country owes more than $51bn (£39bn) to foreign lenders, including
$6.5bn to China, which has begun discussions about restructuring its loans.
The G7 group of countries - Canada, France, Germany, Italy, Japan, UK and the
US -My
hadResearch FolderSri Lanka's attempts to reduce its debt repayments.
said it supports
The World Bank has agreed to lend Sri Lanka $600m, and India has offered at
least $1.9bn.
The International Monetary Fund (IMF) is discussing a possible $3bn (£2.5bn)

loan.
But it would require a stable government that could raise interest rates and
taxes to help fund the deal, so any bailout may be delayed until a new
administration is in place.
GETTY IMAGES
Banging dishes together to protest at the food price hikes.
Mr Wickremesinghe had already said the government would print money to

pay employees' salaries, but warned this would be likely to boost inflation and
lead to further price hikes.
He also said state-owned Sri Lankan Airlines could be privatised.
The country has asked Russia and Qatar to supply it with oil at low prices to
help reduce the cost of petrol.
What led to the economic crisis?

The government blamed the Covid pandemic, which badly affected Sri Lanka's
tourist trade - one of its biggest foreign currency earners.
It also says tourists were frightened off by a series of deadly bomb attacks in
2019.
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However, many experts blame President Rajapaksa's poor economic

mismanagement.
GETTY IMAGES
Mr Rajapaksa's departure ends a family dynasty that has dominated Sri Lanka's politics for the past two
decades
At the end of its civil war in 2009, Sri Lanka chose to focus on providing goods
to its domestic market, instead of trying to boost foreign trade.
This meant its income from exports to other countries remained low, while the
bill for imports kept growing.
Sri Lanka now imports $3bn (£2.3bn) more than it exports every year, and that
is why it has run out of foreign currency.
At the end of 2019, Sri Lanka had $7.6bn (£5.8bn) in foreign currency reserves,
which have dropped to around $250m (£210m).
Mr Rajapaksa was also criticised for big tax cuts he introduced in 2019, which
lost the government income of more than $1.4bn (£1.13bn) a year.
How Sri Lanka's war heroes became villains
Sri Lanka's suffering was avoidable - bank boss
The switch to organic fertilisers resulted in widespread crop failure, exacerbating foreign currency
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shortages
When Sri Lanka's foreign currency shortages became a serious problem in

early 2021, the government tried to limit them by banning imports of chemical
fertiliser.
It told farmers to use locally sourced organic fertilisers instead.
This led to widespread crop failure. Sri Lanka had to supplement its food
stocks from abroad, which made its foreign currency shortage even worse.
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11/01/2023, 13:20 Sri Lanka: Why is the country in an economic crisis?

Asia China India

Sri Lanka: Why is the country in an

A state of emergency was declared after President Gotabaya Rajapaksa fled

What has been happening in Sri Lanka?

Inflation is running at more than 50%.

Sri Lankan PM tells military to restore order

A dramatic day and moment of danger for Sri Lanka

What happens when a country runs out of money?

This can further harm confidence in its currency and economy.

What's the plan to tackle the crisis?

Before stepping down he made Prime Minister Ranil Wickremesinghe acting

Mr Wickremesinghe declared a state of emergency across the country and

The president's departure threatens a potential power vacuum in Sri Lanka.

It needs a functioning government to tackle the financial crisis.

The International Monetary Fund (IMF) is discussing a possible $3bn (£2.5bn)

Banging dishes together to protest at the food price hikes.

Mr Wickremesinghe had already said the government would print money to

He also said state-owned Sri Lankan Airlines could be privatised.

What led to the economic crisis?

However, many experts blame President Rajapaksa's poor economic

How Sri Lanka's war heroes became villains

Sri Lanka's suffering was avoidable - bank boss

When Sri Lanka's foreign currency shortages became a serious problem in

It told farmers to use locally sourced organic fertilisers instead.

Asia Sri Lanka

Further delays to US flights expected after FAA issue

Iran ready to execute British citizen, family say

Elon Musk's drop in fortunes breaks world record

20 of the best films to watch in 2023 How to build astonishing self-control

The people living in multiple timelines

1 Ukraine battle hints at rift in pro-Russian forces

2 Further delays to US flights expected after FAA issue

3 Elon Musk's drop in fortunes breaks world record

4 Demi Lovato poster ban over offence to Christians

5 The mystery buses behind Brazil Congress attack

6My Research Folder

7 Iran ready to execute British citizen, family say

8 Banshees of Inisherin wins big at Golden Globes

9 Storms relentless as California drenching goes on

10 Why Americans seem more pro-Harry than Brits

BBC News Services

Get news alerts

Contact BBC News

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