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Explainer: Why Sri Lanka’s economy collapsed and the next steps | Government. & Politics

Associated Press with KRISHAN FRANCIS and ELAINE KURTENBACH

Colombo, Sri Lanka (AP) —Sri Lanka’s Prime Minister says The island nation’s debt-bearing economy has “collapsed” I ran out of money to pay for food and fuel. We are seeking help from neighboring India and China, as well as the International Monetary Fund, as we are short of cash to pay for the import of such necessities and are already in default.

Prime Minister Ranil Wickremesinghe Inaugurated in MayEmphasized the monumental work he faced in turning the economy around, which he said was heading for “solid”.

Sri Lankans skip meals to endure shortages and line up for hours to buy the shortage of fuel. For a country with a rapidly growing economy, that is a harsh reality, A growing and comfortable middle class, Until the recent crisis deepens.

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How serious is this crisis?

Tropical Sri Lanka is usually not short of food, but people are hungry. According to the United Nations World Food Program, 9 out of 10 families skip meals or crouch to stretch their food, and 3 million receive emergency humanitarian aid.

Doctors are using social media to get important equipment and medicines. More and more Sri Lankans are looking for passports to go abroad in search of work. Civil servants were given three months of extra holidays to give them time to grow their food. In short, people are suffering and anxious to improve.

Why is such a Dire Straits economy?

According to economists, the crisis is caused not only by domestic factors such as long-standing mismanagement and corruption, but also by other problems such as growth. $ 51 billion in debt, Impact of pandemics and terrorist attacks on tourism and other issues.

Much of the anger of the people President Gotabaya Rajapaksa And his brother, former Prime Minister Mahinda Rajapaksa. The latter resigned after weeks of anti-government protests that eventually became violent.

The situation has deteriorated over the past few years. 2019, Easter suicide bombing More than 260 people have died in churches and hotels. It has devastated tourism, the main source of foreign exchange.

The government needed to increase revenues due to the surge in external debt on large infrastructure projects, but instead Rajapaksa pushed for the largest tax cut in Sri Lanka’s history, which has recently been revoked. Creditors downgraded Sri Lanka’s rating and reduced foreign exchange reserves, preventing Sri Lanka from borrowing more money. Then, during the pandemic, tourism leveled off again.

In April 2021, Rajapaksa suddenly banned the import of chemical fertilizers. By promoting organic farming, farmers have reduced surprises and staple rice cultivation and pushed up prices. Imports of other items considered luxury goods have also been banned in order to save foreign exchange. Meanwhile, the Ukrainian war has pushed up food and oil prices. Inflation in May rose by nearly 40% and food prices rose by nearly 60%.

Why did the Prime Minister say that the economy had collapsed?

Such harsh declarations could undermine confidence in the state of the economy and did not reflect certain new developments. Wickremesinghe sought the help of the IMF and faced criticism of the lack of improvement since taking office a few weeks ago, apparently emphasizing the challenges the government faces in turning things around. .. He also fends off domestic criticism. His comments may be intended to buy more time and support as he is trying to get the economy back on track.

According to the Ministry of Finance, Sri Lanka’s foreign exchange reserves are only $ 25 million. It remains without funds to pay for imports, not to mention paying off billions of debts.

Meanwhile, the value of Sri Lankan rupees has fallen by nearly 80% from about $ 360 to $ 1. It makes the cost of imports even more exorbitant. Sri Lanka has stopped repaying approximately $ 7 billion of its $ 25 billion due by 2026, which is due this year.

What is the government doing about it?

Wickremesinghe has a wealth of experience. This latest is his sixth term as Prime Minister.

So far, Sri Lanka has been confused and is backed primarily by a $ 4 billion credit line from neighboring India. Indian delegations discussed further support in the capital Colombo on Thursday, but Wickremesinghe warned that India did not expect Sri Lanka to emerge for a long time.

“Sri Lanka has last hope for the IMF,” the headline of the Colombo Times on Thursday said, and the government is in talks with the IMF on a bailout plan.

The government is also seeking further support from China. Other governments such as the United States, Japan and Australia are providing hundreds of millions of dollars in additional support.

Earlier this month United Nations has launched a global public appeal For help. So far, projected funding has barely hurt the $ 6 billion surface that the country needs to float for the next six months.

Wickremesinghe to combat Sri Lanka’s fuel shortage Told the Associated Press In a recent interview, he said he would consider buying more significantly discounted oil from Russia to help him overcome the crisis and survive the country.

Kurtenbach, AP’s Asian Business Editor, contributed from Bangkok.

Copyright 2022 AP communication. all rights reserved. This material may not be published, broadcast, rewritten, or redistributed without permission.

Explainer: Why Sri Lanka’s economy collapsed and the next steps | Government. & Politics

Source link Explainer: Why Sri Lanka’s economy collapsed and the next steps | Government. & Politics

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