Since March, the economic crisis in sri Lanka, a South Asian island nation, has become a political crisis, with more and more people taking to the streets to demonstrate, and clashes between police and civilians.
The qualitative change first occurred on the evening of March 31, when hundreds of protesters surrounded the presidential residence on the outskirts of the capital, Colombo, demanding the resignation of President Gotabaya Rajapaksa. During the standoff, protesters threw stones at police, who returned fire with tear gas and high-pressure water guns, sparking bloody clashes.
Early the next morning, President Rajapaksa ordered the country to enter a 96-hour state of emergency that would end on April 4. But the order did not succeed in stopping the protesters' movements, and in the next 2 days, 20 more police officers were injured in the clashes and more than 50 protesters were arrested.
To this end, the police had to implement a 36-hour curfew policy on the 3rd, and anyone who entered a public place during the curfew was arrested or detained. Mainstream social platforms in Sri Lanka, such as Twitter and Facebook, will also be inaccessible in case people launch larger anti-government demonstrations. But on April 3, hundreds of protests continued in the capital, Colombo, but fortunately no clashes with security forces broke out. So far, however, the number of arrests for curfew violations has risen to 664.
In addition to arrests, curfews and the closure of social platforms, the Sri Lankan government has also adopted some compromises. On the evening of April 3, the Sri Lankan government announced that all 26 government ministers, with the exception of President Gotabaya Rajapaksa and his brother Mahinda Rajapaksa, who is the prime minister, have collectively resigned, and the composition of the new cabinet will be announced on the 4th.
However, some protesters said gotabaya Rajapaksa, the main person responsible for the economic crisis, should also step down. Protesters also argue that the so-called collective resignation of the government is only a "delaying tactic" and that some of the officials who have resigned may be reappointed.
For now, whether the protest movement can be quelled in the short term will depend largely on whether there will be new rallies and demonstrations after the end of the state of emergency on April 4 and the announcement of the list of new cabinet members. If not, then the crisis will come to an end and the Sri Lankan government will have valuable respite to adjust its economic policies for the next phase. On the contrary, the protest movement will continue, and most of the Sri Lankan government's energy will be involved in the protest movement, and the economic problems will be difficult to solve, which will lead to larger protests and fall into a vicious circle.
In the long run, if the Sri Lankan government wants to resolve the political and economic crisis, the most fundamental way is to complete economic transformation and upgrading, strengthen the competitiveness of major export industries such as textiles, rubber, and tea, or find new export products. In addition, it is necessary to abandon unreasonable organic agriculture policies and allow farmers to use pesticides, so as to improve agricultural production efficiency and reduce dependence on imported agricultural products.
However, it is easier said than done, due to the economic downturn of the past nearly 10 years, coupled with the impact of the epidemic on tourism, a major economic pillar. Now that Sri Lanka's debt has soared to its highest level since independence in 1948, equivalent to 104% of GDP in 2021, sri lanka alone has nearly $7 billion in interest to be paid at the end of the year alone, making the risk of debt default extremely high.
Meanwhile, Sri Lanka's foreign exchange reserves are already less than $1 billion, enough to sustain imports of necessities for less than half a month. Indeed, Sri Lanka's food, fuel and medicines have been extremely scarce in recent times because of insufficient foreign exchange reserves and inability to pay for imports, and there have been many cases of clashes resulting from the rush to buy essential goods. On the evening of March 31, protesters besieged the presidential palace in large part because the power plant lacked fuel and had to carry out a 13-hour power outage, the longest blackout since Sri Lanka's independence.
So for the Sri Lankan government, even if it wants to solve the problem, it is already weak and too late. According to China's ambassador to Sri Lanka, China is considering agreeing to Sri Lanka's $2.5 billion credit request, of which $1 billion will be disbursed directly to Sri Lanka and the remaining $1.5 billion will be used in the form of a credit line to pay for Sri Lanka's imports of Chinese goods. Qi Zhenhong also mentioned that since the outbreak of the new crown epidemic, China has provided Sri Lanka with a total of 2.8 billion US dollars of long-term loans and foreign exchange swap contracts.
In addition, India also provided Sri Lanka with a $1 billion loan on the 19th of last month, and this month is also preparing to ship 40,000 tons of rice to Sri Lanka to smooth the country's rice prices, which have doubled from last year. Earlier, India had also borrowed $500 million from Sri Lanka to cover the cost of importing oil.
However, these helps can only solve the needs of the moment. The key question now is whether the International Monetary Fund, one of Sri Lanka's biggest creditors, agrees to hold sri lanka off repayments of $5.1 billion in borrowings. If the talks fail, in Sri Lanka's current state, interest of up to $7 billion at the end of the year is likely to lead to a default on the country's debt and no longer be able to borrow a penny. However, the conditions of the International Monetary Fund are too harsh, for example, the Sri Lankan government has devalued its currency by 25% in accordance with relevant requirements, resulting in inflation and price increases at home. If the IMF makes more excessive demands, the Sri Lankan government will also face a dilemma. All in all, Sri Lanka's current debt problem is very serious, and although China has done a small job, whether the final problem can be solved depends on the attitude of the International Monetary Fund and other international capital.