- Sri Lanka has become a “bankrupt country” after running out of money, its prime minister said.
- Protests have erupted after food prices soared and fuel supplies were rationed due to shortages.
- The International Monetary Fund wants the situation to stabilize before resuming bailout talks.
The president of Sri Lanka, Gotabaya Rajapaksa, 73, resigned on Thursday after fleeing to Singapore in the wake of widespread protests across the island nation sparked by dire shortages of fuel, medicines and huge rises in the cost of basic foodstuffs in recent weeks.
The prime minister, Ranil Wickremesinghe, is now acting president until a new head of state is elected.
So what has gone wrong with Sri Lanka’s economy – and how might its problems be solved?
What triggered the protests in Sri Lanka?
Vladimir Putin’s invasion of Ukraine earlier this year sent the cost of oil, natural gas and commodities such as grain soaring globally. Sri Lanka’s economy was already poorly managed, according to many experts, and the price rises have proven to be the straw that breaks the camel’s back.
Rajapaksa’s older brother Mahinda has also served as president and their family has governed Sri Lanka for much of the past 20 years. Their decision to borrow huge sums from China in particular, partly for infrastructure projects of questionable value, and what the Financial Times has described as failed economic policies, caused Sri Lanka to default on its debt in May.
What is a default?
A default occurs when a government stops making interest payments to its creditors. In Sri Lanka’s case it owes $51 billion, the FT reported, and has become the first country to default since the Ukraine war began. Other less wealthy countries where a greater proportion of spending goes on food could also follow suit, economists fear.
What are the consequences?
Earlier this month Wickremesinghe said Sri Lanka was now a “bankrupt country,” CNN reported.
Because it has run out of foreign currencies such as US dollars, Sri Lanka can no longer pay for imports of fuel and food. People have been told to work from home in a bid to save energy, schools have closed and electricity supplies have become unreliable. Sales of petrol have been restricted, creating huge queues of rickshaw taxis trying to fill up in cities like the capital Colombo.
Read More: Why Sri Lanka Is a ‘Bankrupt’ Nation