A Timeline of How the Crisis in Sri Lanka Developed

Source: www.nytimes.com : 2022-07-13 15:11:56 : Mujib Mashal

Sri Lanka, an island nation of 22 million people, was once held up as an economic success story, with a rising middle class and one of the highest median incomes in South Asia. But the country is now essentially out of money, and many people are living on the edge, a result of poor political decisions, reckless spending and economic mismanagement.

That Sri Lanka was headed toward an economic crash had become increasingly clear to analysts in recent years, who warned that the country’s balance of payments and macroeconomic trends were out of alignment.

Over a period of decades, Sri Lanka had built a bloated state sector, robust social welfare programs that exceeded the country’s means, a large military and an elaborate series of postwar construction projects. As economic growth slowed, it kept borrowing to pay.

As food and fuel have run low in recent months, a swelling protest movement has pushed for the resignation of President Gotabaya Rajapaksa and other politicians tied to his family’s political dynasty. The situation came to a head this weekend when protesters breached the president’s residence.

Here’s how this crisis has developed:

  • The country is hit by a series of economic headwinds in early 2020, including the coronavirus pandemic. Sri Lanka closed its borders to tourists for nearly a year and a half when the pandemic hit, which devastated the tourism industry and deprived the nation of much-needed revenue.

  • Officials ban fertilizers the next year in hopes of turning the country toward organic farming. The move batters harvests and leads to fears of food shortages. While the misguided policy is lifted after seven months, the damage is already done.

  • The central bank starts printing money to paper over the holes in its balance sheet, sending inflation to a record high. The finance minister begs neighbors for credit lines to buy diesel fuel and milk powder. The government rations power.

  • Sri Lanka suspends payments on its international debt in April 2022, effectively putting the small island nation in default as it plunges deeper into an economic crisis.

  • As the country starts running out of foreign currency, supplies of food, fuel and other supplies dwindle, bringing protesters to the street. As protests intensify, demanding that the family dynasty leave government, Mr. Rajapaksa empties his cabinet of family members. In May, the prime minister — Mr. Rajapaksa’s elder brother — is forced out.

  • Ranil Wickremesinghe is sworn in as prime minister and quickly begins discussions with the International Monetary Fund on the terms of an economic bailout.

  • The situation gets increasingly desperate. China — which in past years has bankrolled many of Sri Lanka’s major infrastructure projects with loans — keeps its distance. India, a longtime patron, has already provided $4 billion in credit and loans, which Sri Lanka has burned through. Sri Lanka asks President Vladimir V. Putin of Russia for a credit line to buy fuel.

  • The government seeks to contain demand for fuel, ordering workers to stay home and introducing new rationing. Schools close in a bid to save fuel.

  • On Saturday, protesters take over the president’s residence in Colombo, as Mr. Rajapaksa goes into hiding. The atmosphere in the capital turns festive. The speaker of Parliament says the president has agreed to resign, as has the prime minister.

  • The president flees the country on Wednesday. With the leadership of the nation uncertain, protesters surrounded the prime minister’s residence in Colombo, where they are met with tear gas. The prime minister, Ranil Wickremesinghe, is named acting president and vows to retake government buildings overrun by protesters.

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