COLOMBO (Agencies): Sri Lanka’s embattled Prime Minister Mahinda Rajapaksa has pleaded for “patience” as thousands continue to take to the streets to protest against his family’s rule, with public anger at a fever pitch over the country’s worsening economic crisis.
Sri Lanka’s 22 million residents have seen weeks of power blackouts and severe shortages of food, fuel and even life-saving medicine in the country’s worst downturn since independence in 1948. Rajapaksa and his younger brother, President Gotabaya Rajapaksa, have become a focus of the protests that started over shortages of fuel, food and other essentials and daily power outages.
Most of those items are paid in hard currency, but Sri Lanka is on the brink of bankruptcy, saddled with dwindling foreign reserves and $25bn in foreign debt. Nearly $7bn is due this year. Protesters have rallied daily since Saturday against the president in capital Colombo and across the island nation, chanting “Gota go home” and calling for his government’s removal. In his first address since the crisis, Mahinda – the patriarch of the powerful Rajapaksa family omnipresent in Sri Lanka’s politics for two decades – said he needed more time to pull the nation out of the deep end.
“Even if we can’t stop this crisis in two or three days, we will solve it as soon as possible,” Rajapaksa said in his televised address. “Every minute you protest on the streets, we lose an opportunity to earn dollars for the country,” he said. “Please remember that the country needs your patience at this critical moment.” Pressure on the powerful Rajapaksa family has intensified in recent days, with the country’s vital business community also withdrawing support for them over the weekend.
Mahinda did not directly address the growing calls for him and Gotabaya to step down, but he defended his administration by saying that opposition parties had rejected their offer to form a unity government. “We invited all other parties to come forward and take up the challenge, but they did not, so we will do it on our own,” he said, also blaming Sri Lanka’s ballooning foreign debt on the pandemic. Critics accuse the Rajapaksas of borrowing heavily to finance projects that have earned no money, such as a port facility built with Chinese loans.
Supporters of camped-out protesters supplied drinking water, food and tea while ambulances and doctors stood by to deal with any health emergencies. Muslim protesters broke their Ramadan fast at the site, sharing food with those around them. Even political allies of Mahinda Rajapaksa called for him to be replaced with an interim prime minister and a multiparty government. They say they do not want the powerful Rajapaksa family in an interim government because it is at the centre of public ire. The crisis and protests prompted many cabinet members to resign. Four ministers were sworn in as caretakers, but many of the key portfolios are vacant.
Parliament has failed to reach a consensus on how to deal with the crisis after nearly 40 governing coalition legislators said they would no longer vote according to coalition instructions, significantly weakening the government. While the coronavirus-spurred restrictions and stoppages have torpedoed Sri Lanka’s vital tourism-driven economy, experts say the crisis was exacerbated by government mismanagement, years of accumulated borrowing and ill-advised tax cuts.
The government is preparing for bailout negotiations with the International Monetary Fund (IMF) this week, with finance ministry officials saying that sovereign bond-holders and other creditors may have to take a haircut. Sri Lanka expects $3bn from the IMF to support the island’s balance of payments in the next three years.
Meanwhile, Sri Lanka will temporarily suspend foreign debt payments to avoid a hard default, the governor of its central bank has said, pointing to the country’s limited foreign reserves that it needs to keep for imports of essentials such as fuel. “It has come to a point that making debt payments are challenging and impossible. The best action that can be taken is to restructure debt and avoid a hard default,” Governor P Nandalal Weerasinghe told reporters on Tuesday.
Sri Lanka is due to start talks with the International Monetary Fund (IMF) on a loan programme next week, with the country suffering from prolonged power cuts alongside shortages of food and medicines. The island nation’s foreign reserves stood at a paltry $1.93bn at the end of March, with foreign debt payments of about $4bn due this year, including a $1bn international sovereign bond maturing in July.
The announcement follows mounting calls for President Gotabaya Rajapaksa and his brother, Prime Minister Mahinda Rajapaksa, to resign. They have so far been defiant despite citizen protests against inflation that’s running at 20 percent and daily electricity cuts of as long as 13 hours. Rajapaksa’s party has lost its majority in parliament. The governor said the action was being taken in good faith, emphasising that the country of 22 million people had never defaulted on its debt payments.
“This will be on a temporary basis until we come to an agreement with creditors and with the support of a programme with the IMF,” said Weerasinghe, who took office last week amid growing public unrest triggered by the economic crisis. “We need to focus on essential imports and not have to worry about servicing external debt,” he said.
JP Morgan analysts estimate Sri Lanka’s gross debt servicing would amount to $7bn in 2022 and a current account deficit of approximately $3bn. “The market was expecting this default to come,” said Carl Wong, head of fixed income at Avenue Asset Management, which no longer holds Sri Lankan bonds. “Now we have to see how the new government handles the onshore chaos while talking to IMF.” Rajapaksa’s administration is also seeking aid from nations including India and China, which is one of its biggest creditors. “China has been doing its utmost to provide assistance to the socioeconomic development of Sri Lanka, and will continue to do so going forward,” a Foreign Ministry representative said at a briefing Tuesday.
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