After President Is Overthrown, Sri Lanka Suffers Economically
By: Zhihan Jiang
On July 22nd, Ranil Wickremesinghe is elected to office as Sri Lanka’s president after the previous president Gotabaya Rajapaksa was ousted from office by protesters earlier this month.
As Ranil Wickremesinghe, a six-time prime minister, steps into office, Sri Lanka’s economy is slipping into an undeniable economic crisis. The country has massive food inflation reaching up to 80%, pushing people into poverty, along with fuel line queues that are over a mile long.
In addition to these, Sri Lanka’s defaulted on its 51 million dollars in foreign debt ended in May, the first time the country has ever defaulted. Defaulting can ruin a country’s reputation with investors, making them less likely to loan them money the country needs on the international market, damaging trust in its currency and economy.
"Our position is very clear, we said that until they come to the restructure [of our debts], we will not be able to pay.” said central bank governor P Nandalal Weerasinghe “There can be technical definitions... from their side they can consider it a default. Our position is very clear, until there is a debt restructure, we cannot repay."
“Countries with high debt levels and limited policy space will face additional strains. Look no further than Sri Lanka as a warning sign,” Kristalina Georgieva, the managing director of the IMF at the G-20 summit this month added.
Once considered a country with high standard of living and education, Sri Lanka is now under a “perfect storm” along with other developing countries such as Pakistan to Egypt to Kazakhstan that now face instability.
“You have a combination of the aftereffects of the pandemic, prices of commodities shooting up because of the war in Ukraine, climate issues, and particularly, underlying political instability and bad management,” Dane Chamorro, a partner at the consultancy Control Risks said.
“It just shows you how much impact bad management and outright corruption can really derail what would otherwise be a wealthy country,” he added.
In addition to this, the country has also instituted a ban on chemical fertilizers, which crashed agricultural reproduction.
“There are high chances that though an agreement [with IMF] might happen this year, the aid would not likely come this year,” officials said. “There is a lot of uncertainty.”