BENGALURU - Bankrupt Sri Lanka has postponed local polls and is seeing a new wave of protests by workers and professionals as it awaits a bailout from the International Monetary Fund (IMF) and foreign investments to chart its path towards economic stability.
Thousands of public sector staff at Sri Lankan hospitals, banks and ports in the capital Colombo defied a ban on protests to walk out on the streets on March 1. Teachers wore black clothes and armbands, as they protested against the cost of living which they said has become unbearable.
Food inflation is at around 94 per cent, and the World Food Programme, in its January update, estimated that 33 per cent of Sri Lankan households are food insecure.
In January 2023, the government hiked income taxes to up to 36 per cent, raised power tariffs by two-thirds and postponed local body elections slated for next Thursday, as it attempts to put its finances in order and qualify for the US$2.9 billion (S$3.9 billion) IMF bailout provisionally agreed in September 2022.
After the electricity tariff hike, Sri Lankan President Ranil Wickremesinghe announced on Feb 21 that his government had completed the last of the 15 tasks the IMF prescribed. These include tax reforms and improving government income.
“Now it is up to the IMF,” he said.
Sri Lanka had hoped to get the IMF funds by December 2022, or at least January 2023, but struggled to secure the required assurances from its biggest lenders that they will negotiate the repayment of loans.
Mr Wickremesinghe’s acknowledgment that there had been “delays over Chinese willingness to restructure Sri Lankan debt” had caused problems. China holds the biggest chunk (19.6 per cent) of Sri Lanka’s external debt of US$51 billion, followed by Japan (9 per cent) and India (2 per cent).
But the costliest part of the debt are the international sovereign bonds, which are borrowings at high interest rates from the global market. They make up 36 per cent of the total debt but 70 per cent of total yearly interest Sri Lanka pays.
As the country’s usable foreign exchange reserves have plummeted to US$500 million, and it is barely managing to import essential foods and fuel, the International Finance Corporation, the World Bank’s investment arm, on Feb 28 provided it with a US$400 million cross-currency swap facility to help fund essential imports.
India has been extending credit lines to Sri Lanka since early 2022 for the supply of petroleum products for the island country to overcome grave fuel shortages. The day-long queues at fuel stations and 12-hour power cuts triggered by fuel shortages had triggered nationwide protests against former president Gotabaya Rajapaksa and prime minister Mahinda Rajapaksa that led both to eventually resign in July and May 2022, respectively.
“The only improvement from three months ago in Sri Lanka is that the fuel lines are not there any more. Bankruptcy, hunger, debt, inflation – they’re all still there,” said former hotelier Darindu Perera, 46, who closed his bed-and-breakfast in Kandy, in the central part of the country, in 2022 and has taken up accounting consultancy to earn a living.
“Most of my work right now is to help people close their books and sell assets after their businesses shut down,” he added.
Meanwhile, Sri Lanka received its first foreign investment since it declared bankruptcy in April 2022, from the scandal-hit India’s Adani Group, which lost US$125 billion in market capitalisation since January after US investment research firm Hindenburg accused it of stock manipulation and improper use of tax havens.
On Feb 23, Sri Lanka’s Board of Investment announced that Adani Green Energy will invest US$442 million to set up two wind power plants in the island’s north.
The investment comes after the island awarded the US$700 million strategic Colombo port terminal project to the group in 2021, a concession that was widely seen as an attempt to mollify India’s growing concerns about Chinese influence in the region.
