The president has yet to directly address the Speaker of Parliament’s announcement that Mr. Rajapaksa will resign on Wednesday. His only message after mass protests overran his official residence was a statement from his office ordering officials to speed up the distribution of a shipment of natural gas that was due to arrive on Sunday.
Sri Lanka’s financial and political crisis, triggered by a combination of the country’s high indebtedness, rising inflation and poor economic management, is now a cautionary tale for a number of other indebted countries, which are now increasingly vulnerable to the recent confluence of food shortages, inflation and rising interest rates in the US.
People line up outside a bakery to buy bread in Sidon, Lebanon, last month.
Photo: mahmoud zayyat/Agence France-Presse/Getty Images
Countries such as Zambia and Lebanon are already in the grip of crises and are seeking international help to provide loans or restructure their debts, while Pakistan’s new government, which came to power in April, says it has barely averted a default in recent years. weeks, driven by soaring fuel import bills. Foreign reserves held by the central bank have dwindled to cover exports in less than two months, largely shutting down Pakistan’s prospects of tapping into international financial markets. China, a close ally, provided a $2.3 billion loan in June to shore up foreign currency reserves.
Islamabad is seeking help from the International Monetary Fund. The country removed a $600 million-a-month gasoline subsidy in June to stabilize state finances and allow for ongoing talks with the IMF. It has raised petrol and electricity prices multiple times in the past few weeks to keep up with the international price of oil.
In Laos, inflation reached an annual rate of 24% in June. A shortage of dollars is reducing imports of gasoline and other basic goods. The World Bank estimates that Laos had foreign exchange reserves of $1.3 billion at the end of 2021, enough to pay for just over two months of imports.
The World Bank recently cut its forecast for growth in emerging economies to 3.4% this year from 4.6% earlier, citing the effects of spiraling food and energy prices and rapidly rising borrowing costs after interest rate hikes percentages in the US
Russia’s invasion of Ukraine sent fuel and food prices soaring, while rising interest rates in the US sent many currencies to multi-year lows, making fuel and other imports more expensive. This presented countries that also service high levels of debt with a difficult choice.
There was no petrol at a petrol station in Colombo, Sri Lanka, last month.
Photo: chamila karunarathne/Shutterstock
In Sri Lanka’s case, the coronavirus pandemic – which wiped out foreign exchange earnings from tourism – and global inflation helped tip Sri Lanka’s economy to the brink, but its precarious financial situation had taken root earlier, stemming from the accumulation of debt on top of spending for infrastructure and sweeping tax cuts that drained government revenue, and a ban on chemical fertilizers that shrunk crop production. The country defaulted on its debt in May and a severe shortage of foreign currency has left it unable to secure energy supplies, leading to blackouts and shortages of petrol pumps. Food inflation jumped to 80.1% last month.
For most Sri Lankans, daily life in recent months has revolved around spending hours queuing for fuel or waiting for electricity to come back on. But those who wandered around the president’s residence on Sunday got a sobering glimpse into the lifestyles of the political elite who were managing the unfolding economic crisis.
Months of anti-government demonstrations and public anger at the government’s handling of the economy culminated on Saturday with thousands of protesters in the Sri Lankan capital Colombo storming and occupying the official residences of Mr Rajapaksa and Prime Minister Ranil Wickremesinghe . Mr Wickremesinghe said in a tweet that his resignation would pave the way for political party leaders in Sri Lanka to assemble an interim all-party government before new elections are held on a yet-to-be-determined date.
Security forces used water cannons to disperse anti-government protesters in Colombo, Sri Lanka, on Saturday.
Photo: chamila karunarathne/Shutterstock
Sri Lankan protesters lounged on couches at the prime minister’s official residence on Sunday.
Photo: Eranga Jayawardena/Associated Press
The development of events improved the mood of the new residents of the presidential residence, who lounged on beds and upholstered chairs, played the piano and even found time for a mock debate on the International Monetary Fund at a wide conference table. However, some were left angered by the contrast with ordinary Sri Lankans struggling to make ends meet.
“We have no fuel, no food and no cooking gas,” said 60-year-old wharf worker Wijitha Kumara. “But while we suffer, Gotabaya has lived a life of luxury.”
Some governments around the world are scrambling to cushion the blow from food and energy inflation, launching new subsidies and boosting social spending programs to stave off unrest and hunger amid rising costs of daily living. Many countries are approving new donations even as they grapple with budget deficits and economies still reeling from the changes of the pandemic. Analysts have warned that the subsidies and new social spending could push their governments into deep financial trouble.
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In Europe, governments from Germany to Greece, Spain and Portugal have announced tax breaks and energy subsidies in recent months. In Africa, Nigeria recently announced $9.6 billion to subsidize fuel prices, while Zambia spent $200 million to extend a fuel subsidy, despite mounting debt in both countries. Meanwhile, Asian countries including the Philippines, Singapore and Indonesia are increasing welfare spending, often targeting lower-income families with direct cash assistance.
Political turmoil in Sri Lanka could slow its efforts to emerge from the economic crisis. Mr. Wickremesinghe, the prime minister, is also the finance minister and the main person leading the country’s negotiations with the IMF for a possible multibillion-dollar bailout.
The global lender said on Sunday it was closely monitoring developments. “We look forward to a resolution of the current situation that will allow for the resumption of our dialogue on an IMF-supported program,” the statement said.
On Sunday, calm was largely restored to the streets of Colombo. A light security presence allowed protesters to freely enter and exit the presidential residence, a cave-like colonial-era building with whitewashed walls.
Mr Kumara, an employee of the wharf, said he urged everyone around him not to damage any property, given that it was paid for with public money. And although he was saddened to see the lavish lifestyle enjoyed by Mr Rajapaksa, Mr Kumara said he allowed himself the satisfaction of taking a selfie. “We also feel that we are victorious against a bad ruler,” he said.
Sri Lankan protesters enjoyed the swimming pool at the president’s official residence on Sunday.
Photo: DINUKA LIYANAWATTE/REUTERS
— Saeed Shah contributed to this article.
Email Philip Wen at philip.wen@wsj.com
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