COLOMBO, Sri Lanka – Sri Lanka’s Prime Minister said at the end of last month that the island’s economy had “collapsed” due to a lack of funds to pay for food and fuel. Lack of funds to pay for such basic necessities and the failure to repay its debt, it is seeking support from neighboring India and China and the International Monetary Fund.

Prime Minister Ranil Wickremesinghe, who took office in May, is highlighting the huge task he has undertaken in turning the economy into what he said is “going down”. On Saturday, he and President Gotabaya Rajapaksa agreed to resign over pressure from protesters who destroyed all their homes and burned down one of the houses.

Sri Lankan people are skipping food because they are enduring the shortage and lining up for hours trying to buy essential oils. This is especially true in a country whose economy is growing rapidly, with middle-aged and middle-income people, until the most recent crisis.

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HOW DOES THE PROBLEM WORK?

The government has a debt of $ 51 billion and is failing to repay interest on its loans, let alone stopping its borrowing. Tourism, a key driver of economic growth, has been hit by the epidemic and post-terrorist security concerns in 2019. And its revenue has fallen by 80%, leading to higher inflation and unpredictable inflation, and food. costs are up 57%, according to official data.

As a result, the world is falling apart, and there is no money to buy oil, milk, cooking oil and toilet paper.

Political corruption is also a problem; not only did it help the country to destroy its economy, but also disrupted the savings of Sri Lanka.

Anit Mukherjee, a co-founder and economist at the Center for Global Development in Washington, said any assistance from the IMF or World Bank should come with strong conditions to ensure that aid is not mismanaged.

However, Mukherjee also said that Sri Lanka is on a busy road in the world, so allowing such an important country to fall is not an option.

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HOW DOES IT CAUSE REAL PEOPLE?

Tropical Sri Lanka often lacks food, but people are starving. The UN World Food Program estimates that nine out of 10 families are skipping meals or jumping out to spread their food, while 3 million are receiving emergency medical care.

Doctors have turned to social media to try to find weapons and sophisticated drugs. More and more Sri Lankans are looking for passports to go overseas in search of work. Government workers have been given an extra day of three months to find time to grow their own food.

In short, people are suffering and want change.

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WHY ARE WEALTHS IN SUCH A PROBLEM?

Economists say the problems stem from domestic factors such as years of mismanagement and corruption.

Extreme public outrage has erupted over President Rajapaksa and his brother, former Prime Minister Mahinda Rajapaksa. The protesters resigned in May after weeks of protests against the government.

Things have gotten worse for the past few years. In 2019, suicide bombings in churches and hotels killed more than 260 people. That destroyed tourism, a major source of foreign exchange.

The government was supposed to raise funds for its foreign debt, but instead Rajapaksa reduced the largest taxes in Sri Lankan history. Tax cuts were reversed recently, but after lenders lowered Sri Lankan prices, and banned borrowing, its foreign reserves declined. Later, the tourism industry was restored during the plague.

In April 2021, Rajapaksa abruptly banned the release of chemical fertilizers. The pressure on organic farming surprised farmers and the decline in rice crops led to higher prices. In order to save foreign exchange, importing some of the supposedly valuable items was also banned. Meanwhile, the Ukrainian war has raised food and fuel prices. The decline in prices was around 40% and food prices rose by about 60% in May.

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WHY did the prime minister say that the economy had collapsed?

The June announcement of Wickremesinghe, who is in his sixth term as prime minister, has threatened to undermine any confidence in the economy and will not signal a new development. The Prime Minister seems to be emphasizing the difficulties his government is facing in seeking support from the IMF and is facing criticism for not changing since taking office a few weeks ago. The comment may have been made to try to buy more time and assistance as they tried to recover the property.

The Ministry of Finance says Sri Lanka had only $ 25 million in foreign reserves. As a result, it is not able to pay its bills abroad, leaving billions of dollars in debt.

So far, the Sri Lankan rupee has depreciated into 360 US dollars. This makes foreign purchases very restrictive. Sri Lanka has stopped repaying about $ 7 billion in foreign debt which this year from $ 25 billion to repay by 2026.

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WHAT IS THE GOVERNMENT DOING ON THE PROBLEM?

So far Sri Lanka has been in turmoil, largely with $ 4 billion in loans from India. Indian envoys arrived in the capital, Colombo, in June to discuss further aid, but Wickremesinghe warned against expecting India to retain Sri Lanka for long.

“Sri Lanka has the last hope of the IMF,” said a June headline in the Colombo Times. The government is in talks with the IMF over a bailout plan, and Wickremesinghe has said he hopes to have a first agreement by the end of the summer.

Sri Lanka has also asked for help from China. Some governments, such as the US, Japan and Australia, have provided millions of dollars in aid.

In early June, the United Nations launched an international appeal for help. At present, the expected budget will not exceed the $ 6 billion the country needs to maintain over the next six months.

To address the oil crisis in Sri Lanka, Wickremesinghe told The Associated Press in a recent interview that he had decided to buy the lowest oil prices in Russia.

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Kurtenbach, AP’s Asian business editor, contributed from Bangkok.



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