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Sri Lanka’s Financial Meltdown Could Be End Of The Road For Rajapaksa Family

The Russia-Ukraine war which has led to a steep hike in oil prices has further amplified Sri Lanka’s economic problems. The crisis resulting from Sri Lanka running out of foreign reserves has led to shortages of almost everything.

Sri Lankan bus drivers are carrying empty oil containers as fuel price hike badly hits the country.
Sri Lankan bus drivers are carrying empty oil containers as fuel price hike badly hits the country. AP

Is this the end of the road for President Gotabaya Rajapaksa and the powerful Rajapaksa brothers that had dominated Sri Lankan politics for decades? Going by the anger in the streets triggered by financial mismanagement and the near melt down of the island’s economy, the Rajapaksa family firm is running  out of steam. Protest marches are now a daily occurrence. "Go back Gota" slogans and placards are held out by the same people who not long ago hailed the Rajapaksas as heroes.

The Russia-Ukraine war which has led to a steep hike in oil prices has further amplified Sri Lanka’s economic problems. The crisis resulting from Sri Lanka running out of foreign reserves has led to shortages of almost everything- from petroleum and cooking gas, to medicines, essential food staples, vegetables, fruits and all other items. Colombo, the thriving capital of the island state, is now a place of empty shelves and serpentine queues. Supermarket shelves are empty, there are long queues for bread.

The army had to be deployed to oversee the situation in petrol stations and kerosene distribution centres. Troops were called in after three elderly citizens dropped dead during the long wait in the queues.

People spend hours to collect a few litres of petrol, short-tempered drivers waiting in line are getting into scuffles with other equally tired and angry car owners. School exams are all cancelled indefinitely as the country has run out of paper. It is a nightmare for citizens. Power cuts are as long as 7.5hours daily, despite assurances from the country’s leadership that power outages would come to a halt from March 5. Summer in the island is hot and humid.   

"Most of us in Sri Lanka are plagued by uncertainty and fear. Our list of uncertainties keeps rising. We will we run out of milk powder, rice or vegetables. Will there be electricity and fuel? Will the gas cooker explode because the gas supplier has fiddled with the composition of gas? Will there be water? Will there be enough supplies of medicines.....the list goes on and on,’’ Samantha Mendes (name changed because of corporate rules), a senior professional, told Outlook.

This is her description of what she saw a few days back in a posh colony in Colombo.

"I was at HSBC Bank down Flower Road when I noticed a line of gas cylinders. Did a double take and realized that the line of empty cylinders was as far as the eye could see. Apparently, people came in as early as 6 am and they were still waiting at 1 pm. This was not a one-off event but a daily routine. I talked to a young lawyer who told me that he chased a gas delivery lorry for several kilometers and finally managed to get one.’’  

She blames this on the 'lack of strategic thinking by the top leadership of the country.'

Sri Lanka's economy depends heavily on tourism, but the pandemic had stopped all tourist inflows. The 2019 Eastern bombings in Colombo squeezed out western tourists. The government  believes that nearly $14 billion was lost due to non- arrival of tourists over the last two years. The economy is estimated to have contracted by 1.5 % in July, September 2021, according to the central bank.

While the government cannot be blamed for the lack of visitors, President Gotabaya’s sudden announcement on last April  of a complete ban on chemical fertislisers to make Sri Lanka the first in the world to go completely organic, wreaked havoc on the economy. Agriculture is the mainstay of nearly 70 per cent of the people, and the overnight change without careful planning backfired. Gotabaya said he took the decision because of health considerations, but also spoke of the need to cut imports due to the economic crisis. At that time, W.A. Wijewardena, a former central bank deputy governor, was reported in the local press as saying that the President’s overnight organic leap was “a dream with unimaginable social, political and economic costs”. The isla­nd’s US $1.5 billion tea industry that employs a million people was also badly affected  by the fertiliser ban. Got­abaya finally had to withdraw the ban.

Gotabaya had refused to go to the IMF to bail him out of the economic mess. That was recommended by experts over three months back. Now, reluctantly, he has done so. Earlier, he appealed to India, China and Bangladesh for help.

India gave Colombo a one-billion-dollar credit line to help ease foreign exchange shortage and provide for food and medicines during finance minister Basil Rajapaksa’s recent visit. In January India had extended a $400 million currency swap and also offered $500 million credit for purchase of petroleum products.

China which had invested heavily in Sri Lanka had also extended credit and allowed a currency swap. Colombo is now approaching China for a fresh $2.5 billion to firm up its dwindling finances. Talks are on but the Chinese ambassador in Colombo had said that the loan would be in "competitive terms" the envoy was quoted by the local press as saying. Many in Sri Lanka are sceptical of Chinese terms, considering that in 2017 it had to lease the Hambantota port for 99 years, to China to convert it into equity as it failed to repay the huge loan.  Despite China’s large footprints across the island state, there is growing public mistrust over Chinese credit. However a desperate government has little option at the moment and will take whatever conditions China offers. 

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