Before the 31-year-old Chathurya could travel from her hometown of Anuradhapura in northern Sri Lanka to the capital Colombo this week, her husband kept an eye on the gas stations near their home. “He figured out exactly where the fewest people were, so we could fill up with petrol yesterday.”
There are long queues at the pump on the island these days, because fuel has become scarce. So long, that the heat killed some of the waiting elderly. Since fighting broke out in Colombo, the army has been monitoring. Other daily necessities such as building materials or milk powder are no longer available everywhere, or they are very expensive.
On Thursday, police used tear gas and water cannons to disperse angry protesters outside President Gotabaya Rajapaksa’s home. The protesters demanded his resignation. Dozens of participants were injured, the police also made dozens of arrests. On Friday there were again disturbances and a state of emergency was declared on the island. A curfew is now in place until Monday morning, pending more protests.
When Chathurya (she doesn’t want her last name in the paper) calls earlier in the week from a friend’s house she’s staying with in Colombo, she’s in the dark. Since the beginning of March, the power has been cut off for several hours every day. The government announces at what times of the day that happens, but you can’t always rely on that either, she sighs. “Sometimes there is no gas for cooking. The government shops check how much rice we buy, while the groceries are much more expensive in the other supermarkets. We have to constantly improvise.”
Due to a paper shortage, tests have been canceled at school and the weekend newspaper no longer appears
In the junior high school where she teaches, tests have been canceled due to lack of paper. Because of the same shortage, the national newspaper The Island no more weekend edition. Normally, Chathurya, her husband and in-laws get by in Anuradhapura. They now avoid the expensive shops, they are economical with fruit and vegetables. “I’m concerned about the day laborers,” she says. “If they have to queue for a day for their purchases, they can’t work.”
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Photo Ishara S. Kodikara/AFP
War as the last push
Sri Lanka is facing its worst economic crisis since independence in 1948, analysts say. “It was impossible to keep up with the external blows,” says economist Ganeshan Wignaraja of the international think tank ODI. While tourism seemed to have just started to recover from the 2019 Easter bombings in Colombo, the coronavirus pandemic has brought the sector to a standstill. After that, the war in Ukraine caused a sharp rise in the price of oil and other products, a major problem for a country that has had trade deficits for years and imports a lot. In addition, Ukrainians and Russians, the largest groups of holidaymakers, are now staying away.
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“The war gave the final push,” said Wignaraja, who wrote a paper on the problems facing the smaller South Asian economies in South Asia because of rising commodity prices and raising inflation. “The duration of the war and the sanctions will determine the severity of the impact here. But the immediate effect is already noticeable.”
When the protracted war between the army and the Tamil Tigers came to an end in 2010, Sri Lanka was expected to flourish economically. However, while the government took out loans for development projects, the ‘peace dividend’ was never actually delivered. Sri Lanka was already in the same boat in 2016, when it turned out that previous governments had taken out too many loans for large infrastructure projects. The country did not have sufficient foreign reserves and the International Monetary Fund (IMF) had to come to the rescue.
This year, the country has to repay about 4 billion dollars (3.6 billion euros) in debt. The next deadline, for a government bond of 1 billion, is in July. But the country has only 2.3 billion in reserves.
Some citizens are already seeking refuge elsewhere. The first economic refugees arrived by boat in the Indian state of Tamil Nadu last week. Local authorities expect “at least several thousand”.
India is closely associated with the island, which lies in the Indian Ocean along major transit routes. New Delhi pledged several aid packages from January, with Indian rupees to replenish reserves and a line of credit for Indian fuel. When it turned out on Tuesday that a Sri Lankan hospital had no medical devices for the usual treatments, reported Foreign Minister Subrahmanyam Jaishankar will promptly look into additional loans for the import of essential goods.
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Photo Dinuka Liyanawatte/Reuters
Chinese debt trap
Besides India, China is also a major player in the island’s economy. After the war, China provided loans for major infrastructure projects. In January, Sri Lanka requested a debt restructuring, which the government in Beijing refused. Some suspect China is providing the credits in order to get a better grip on an ailing Sri Lanka. „There is a lot of talk about such a Chinese debt trap† But of the debts that Sri Lanka has with other countries, only about 10 percent is to China,” said economist Wignaraja. “Of course Sri Lanka has to be careful when taking out loans. China will not soon be more lenient to us than to other countries. But it is also not good for China’s image to give credit and then be associated with economic failure.”
Ultimately, he says, the International Monetary Fund offers the only way out. “Although an IMF program is not free,” Wignaraja warns. In a recent report on Sri Lanka’s economic situation, the IMF already some recommendations† For example, the island would have to increase income tax and VAT rates, reform state-owned enterprises and lift import restrictions. The strict demands of structural reforms have previously prompted the government to avoid the fund. But ‘own’ solutions are not enough. Sri Lanka has asked for help after all, talks with the IMF are scheduled for April.
Bhavani Fonseka, a human rights lawyer and researcher at the Sri Lankan Center for Policy Alternatives, is not yet confident that the government is serious about reforms. “No long-term plans have been announced at this time.”
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President Rajapaksa, who as a former defense minister is blamed for the disappearance of thousands of Tamils in the final stages of the war, was elected in 2019 after a campaign in which he pledged stability, she recalled. The fact that he has soldiers posted at the gas stations is a sign that Rajapaksa does not want to institute a new policy. “Now he says these economic problems are not his fault because they have been in the works for some time. The government refuses to take responsibility.”
This article was updated on Saturday, April 2 to include the curfew.