Sri Lanka is in turmoil after the war in Ukraine sent prices surging, leading to crippling shortages. Years of mismanagement make the island nation an extreme case, but it’s a warning on the risks even for sturdier economies, says ugalani
A demonstrator reacts after fire was set to a bus parked at the top the road to Sri Lankan President Gotabaya Rajapaksa's residence during a protest against him as many parts of the crisis-hit country faced up to 13 hours without electricity due to a shortage of foreign currency to import fuel, in Colombo, Sri Lanka March 31, 2022.
A worsening crisis mutes the impact of disjointed financial lifelines, including a $1.5 billion currency swap from China in December and rice and diesel shipments from India. The IMF notes that policies required to reduce debt to sustainable levels are neither economically nor politically feasible. Hence, Sri Lanka’s $1 billion bond maturing in July trades at 67 cents on the U.S. dollar, compared to about 74 cents at the start of February.
Whether countries rush to deal with surging prices with tax cuts, or ramping up subsidies, Sri Lanka’s speedy unravelling offers a warning of the political risks of complacency.- Multiple members of Sri Lanka’s cabinet offered to resign, multiple media outlets reported on April 4 adding that the resignations included neither Prime Minister Mahinda Rajapaksa nor his brother, President Gotabaya Rajapaksa.
- “We gave resignations to the prime minister saying we are willing to leave at any time,” Education Minister Dinesh Gunawardena told reporters in Colombo, Bloomberg reported on April 4. - On April 3 protesters in Colombo, Sri Lanka's largest city, held numerous small, peaceful demonstrations about the severe economic crisis, defying a nationwide curfew. Meanwhile, police used tear gas to disperse student protesters in the central city of Kandy. The president declared a state of emergency on April 1 as the island grapples with rising prices, shortages of essential goods and rolling power cuts.
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