Explained | Why is Sri Lanka under a state of Emergency?   

What has brought on the economic crisis in the island nation? How are India and other countries helping?  

April 03, 2022 12:44 am | Updated 11:05 am IST

Anger rages: Protesters burn vehicles during a demonstration outside the Sri Lankan president’s home in Colombo on March 31.

Anger rages: Protesters burn vehicles during a demonstration outside the Sri Lankan president’s home in Colombo on March 31. | Photo Credit: AFP

The story so far: On Friday night, a day after angry citizens converged in front of President Gotabaya Rajapaksa’s Colombo residence, demanding he step down immediately, he declared a state of Emergency in Sri Lanka. An extraordinary gazette notification said the Emergency, coming into immediate effect, was “in the interests of public security, the protection of public order and the maintenance of supplies and services essential to the life of the community.” On Saturday, the government imposed an all-island curfew, restricting movement until Monday morning. Sri Lanka is in the midst of a sharp economic downturn that has led to severe food shortages and growing public resentment.

What triggered the crisis?

Sri Lanka’s economic crisis can be traced to two key developments in the immediate past — the Easter Sunday bombings of 2019 that deterred tourists, and the pandemic since early 2020 that stalled recovery and further drained the economy. As it grappled with an unprecedented challenge, the Rajapaksa regime made policy choices that are now proving to be costly. It cut the government’s tax revenue substantially and rushed into an ‘organic only’ agricultural policy that will likely slash this year’s harvest by half. The weak and debt-ridden economy with the lingering strain of the pandemic, and ill-advised policies accelerated the downward spiral.

What were the economic indicators?

COVID-19 hit Sri Lanka’s key foreign revenue earning sectors hard. Earnings from tourism, exports, and worker remittances fell sharply in the last two years. But the country could not stop importing essentials, and its dollar account began dwindling. Fast draining foreign reserves, a glaring trade deficit, and a related Balance of Payments problem came as crucial signals. Colombo’s huge foreign loan obligations and the drop in domestic production compounded the economic strain.

When did things begin to worsen?

The long-simmering crisis made its first big announcement during last August’s food emergency, when supplies were badly affected. It was soon followed by fears of a sovereign default in late 2021, which Sri Lanka averted. But without enough dollars to pay for the country’s high import bill, the island continued facing severe shortage of essentials — from fuel, cooking gas, and staple foodgrains to medicines.

How did the crisis manifest itself on the ground?

Consumers could not find the most basic things such as petrol, LPG cylinders, kerosene, or milk in the market. They spent hours waiting in long queues outside fuel stations or shops. Supermarket shelves were either empty or had products with high price tags that most could not afford. For instance, the price of one kg of milk powder, a staple item in dairy-deficient Sri Lanka, suddenly shot up to nearly LKR 2000 in March. Be it cooking gas, oils, rice, pulses, vegetables, fish, meat, consumers found themselves paying substantially more, or simply had to forego the item. The fuel shortage has led to long blackouts — up to 13 hours — across the island.

What is the situation now?

The value of the Sri Lankan rupee has dropped to 300 against a U.S. dollar (and even more than 400 in the black market), putting importers in a difficult spot. The government is unable to pay for its import shipments, forcing consignments to leave the Colombo port. For the average citizen contending with COVID-induced salary cuts and job losses, the soaring living costs have brought more agony.

Editorial | Sri Lanka’s rage

Has the government sought help?

Yes, including from India which has extended $2.4 billion this year, and China, that is considering a fresh request from Colombo for $2.5 billion assistance, in addition to the $2.8 billion it has extended since the pandemic broke out. The government has decided to negotiate an International Monetary Fund programme, while seeking support from other multilateral and bilateral sources. But even with all this help, Sri Lanka can barely manage. Recovery will neither be fast nor easy, say experts.

Watch | Protests in Sri Lanka before the country goes into curfew

How has it affected the people?

Sri Lankans are seething with anger, going by public demonstrations and protests. They want the President to step down immediately and the ruling clan to leave the country’s helm. They have been agitating in different parts of the country, including near the President’s home. Former military man Gotabaya Rajapaksa, who came to power on a huge mandate in 2019, is Sri Lanka’s most unpopular leader today. In a televised address on March 16, he promised “tough decisions to find solutions to the inconveniences that people are experiencing.” Following the protests near his home, Mr. Rajapaksa said “extremists” were plotting an ‘Arab Spring’ and on Friday night, he declared a state of Emergency. 

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