Sri Lanka’s economy has ‘completely collapsed’, says the Prime Minister

Written by Javed Iqbal

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“Collapsed.” A “serious situation”. And potentially a “fall to the bottom.”

These are some of the ways Sri Lanka’s prime minister described his country’s faltering economy on Wednesday as the island nation faces extreme food and fuel shortages.

Prime Minister Ranil Wickremesinghe’s comments to parliament come after weeks of unrest caused by government incompetence, experts say – a dynamic exacerbated by global inflation and supply chain disruptions amid the Russian invasion of Ukraine and the persistent effects of the coronavirus pandemic.

Sri Lanka is closing down, families are fighting for food as the crisis deepens

“We are now facing a far more serious situation beyond the mere lack of fuel, gas, electricity and food,” said Wickremesinghe, who spoke in Sinhala. “Our economy has faced a complete collapse.”

Sri Lanka, a country of 23 million off the south-east coast of India, has essentially had the door to fuel supplies closed in its face as its national Ceylon Petroleum Corp. is $ 700 million in debt.

“No country or organization in the world is willing to give us fuel,” the prime minister said. “They’re even reluctant to provide fuel for cash.”

The economic chaos follows an explosion of political unrest: Protests triggered by creating economic insecurity and anger over corruption among the ruling Rajapaska family forced Gotabaya Rajapaska, the president, to oust his brother, Mahinda Rajapaksa, from the prime minister’s office last month. Wickremesinghe var appointed shortly after.

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Although Wickremesinghe’s proclamation was dramatic, it was not necessarily overrated. “The economy is definitely on the verge of collapse,” said Nirvikar Singh, a South Asian economics professor and expert at the University of California at Santa Cruz. The government has been “astonishingly irresponsible and incompetent,” having managed the country’s monetary and economic policies since 2019, he said.

In recent days, gasoline hoses have stretched for miles. On Monday, schools and government offices in major cities were closed for at least a week with fuel shortages forcing the country to a screaming stop.

Food insecurity has also plagued Sri Lanka, with data from the country’s central bank showing one sharp ascent in prices for all foods. Rice, a daily basis in the country, costs almost three times as much as a year ago. The prices of essential products such as tomatoes have risen four times compared to the previous year. Last week, government employees were asked to grow their food in their backyards.

Schools and government offices in Sri Lanka’s major cities were closed on June 19 for at least a week due to severe fuel shortages. (Video: Reuters)

Signs of the devastating crisis are everywhere, including drug shortages in hospitals and businesses on the verge of closure. At the public main hospital in the capital, Colombo, essential supplies such as medicines and catheters are scarce.

“We are trying to cope somehow, but there is a shortage,” said hospital spokeswoman Pushpa De Soysa. “We just have to be sensible in using what we have.”

In the nearby, once-bustling Colpetty neighborhood, restaurant owner Pradeep Vithanachchi has been forced to turn to the black market for cooking gas, which is hard to find and expensive when sporadically available.

“It’s now an existential crisis for both the company and us,” he said of the restaurant – a fixture there for four decades that he inherited from his father.

Sri Lanka is waiting for loan assistance from the International Monetary Fund, which Wickremesinghe said would not only provide tangible help but also act as an “approval stamp” so that “the world will trust us again”, allowing the country to receive low-interest loans from others nations.

Falling growth is a matter of serious concern, economists say. Ahilan Kadirgamar, an economist at the country’s Jaffna University, said the economy is likely to shrink by 10 percent. “People have given up production and there is no planning or process to address this,” he said, adding that it would take at least five years for the country to find a solid foothold again.

Singh said international financial aid “should be able to turn things around relatively quickly, although there will be painful repercussions.” He noted that Sri Lanka is a relatively small economy, which means that the finances needed to lift the island out of its economic implosion are “not large globally.”

Should Sri Lanka emerge from the chaos, the experience would provide an upside, Singh said, while economic concerns swirl globally.

“Sri Lanka is giving a lesson to other countries on the basics of economic management,” he said. “These lessons are not new, but they are sometimes forgotten.”

Masih reported from New Delhi and Farisz from Colombo.

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Javed Iqbal

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