The cash-trapped island nation, Sri Lanka, declared a state of emergency after days of intense demonstrations. The chaos was fuelled by the most severe economic crisis in the island nation’s history. Debt trap falls are the underlying reason.
STATE OF EMERGENCY DECLARATION
Agence France-Press (AFP) reported that hundreds of protesters tried to storm the Sri Lankan President’s house in Colombo on March 31 evening.
The crowds of protesters set fire to a military bus and police car along the way, knocked down the fence of the President’s neighbor, and attacked military police with bricks.
They showed their anger over an unprecedented economic crisis, calling for the President’s resignation.
According to France24, the President declared a state of emergency on April 1, giving sweeping powers to security forces. Colombo imposed an indefinite curfew following the violence.
According to the Independent, nearly 50 people got injured, and 45 were arrested after the protests.
UNPRECEDENTED ECONOMIC CRISIS
The economic crisis has spread to all aspects of life across Sri Lanka. It is the worst since its dependence in 1948.
On March 30, Sri Lankans underwent 7-hour and then 10-hour power cuts because there was no oil to power thermal generators.
Janaka Ratnayake, Chairman of the Public Utilities Commission of Sri Lanka, told Reuters that the drawn-out power cuts were partly due to the country’s failure to pay 52 million dollars for a 37,000-tonne diesel shipment waiting for offloading.
He said, “We have no forex to pay,” and added, “That is the reality.”
Public anger reached a tipping point as the residents have been experiencing record-long 13-hour blackouts and dire shortages of fuel, essential goods, and medicines.
Reuters reported that the power outage could continue into May, as Sri Lanka’s power minister said on March 31.
The island nation’s worst economic meltdown resulted from a serious shortage of foreign currency, preventing traders from financing imports.
The tourism sector, a key foreign exchange earner, has also been adversely affected by the Covid-19 outbreak. Money remittances from Sri Lankan working abroad have also dropped significantly.
Foreign exchange reserves have plunged by 70% in the past two years to 2.31 billion dollars as of February. Consequently, the South Asian nation has struggled to import essentials, such as goods and fuel.
The Indian Ocean island nation is going on a debt-increasing path, with debt making up 109% of GDP in 2021 and being projected to constitute 116.1% of GDP by 2025.
Moreover, the Sri Lanka Ministry of Finance predicted that the government must repay an annual average of 4.4-billion-dollar foreign debt between 2021 and 2025.
Bloomberg Economics estimates the South Asian nation will undergo funding needs of 5.7 billion dollars in 2022.
Sri Lanka has borrowed significantly from Beijing, partly under China’s Belt and Road Initiative (BRI). China is the crisis-hit nation’s largest bilateral creditor, accounting for about 10% of Sri Lanka’s foreign debt.
The Associated Press presented that one of the reasons Sri Lanka’s foreign exchange bottomed out was that projects financed by Chinese loans did not generate enough revenue.
Sri Lanka has asked Beijing to restructure nearly 3.5 billion dollars in debt repayments, but there has been no specific response.