Friday, March 29

“No money left”: Covid crisis leaves Sri Lanka on the brink of bankruptcy | Sri Lanka


Sri Lanka faces a deepening financial and humanitarian crisis and fears it could go bankrupt in 2022 as inflation soars to record highs, food prices soar and its coffers dry up.

The collapse facing the government, led by President Gotabaya Rajapaksa, is partly caused by the immediate impact of the Covid crisis and the loss of tourism, but is exacerbated by high government spending and tax cuts that erode taxes. state revenue, large debt repayments to China and foreign exchange reserves at their lowest levels in a decade. Meanwhile, inflation has been spurred by the government’s printing of money to pay for domestic loans and foreign bonds.

World Bank estimates 500,000 people have fallen below the poverty line since the start of the pandemic, the equivalent of five years of progress in fighting poverty.

Inflation hit an all-time high of 11.1% in November and escalating prices have left formerly well-off individuals struggling to feed their families, while staples are now unaffordable for many. After Rajapaksa declared that Sri Lanka was in an economic emergency, the army was given power to ensure that essential items, including rice and sugar, were sold at prices set by the government, but this has done little to alleviate the problems. people’s problems.

A man pays for vegetables in a market in Colombo.
A man pays for vegetables in a market in Colombo. Soaring prices have left previously well-off people struggling to feed their families. Photograph: Allison Joyce / Getty Images

Anurudda Paranagama, a driver from the capital Colombo, got a second job to pay for rising food costs and cover her car loan, but it wasn’t enough. “It is very difficult for me to repay the loan. When I have to pay electricity and water bills and spend on food, I have no money left, “he said, adding that his family now eats two meals a day instead of three.

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He described how the grocer in his village would open 1 kg packages of powdered milk and divide them into 100 g packages because his customers could not pay for the entire package. “Now we buy 100g of beans when we used to buy 1kg per week,” said Paranagama.

The loss of jobs and vital foreign income from tourism, which typically contributes more than 10% of GDP, has been substantial, with more than 200,000 people losing their livelihoods in the travel and tourism sectors, according to the World Council of Travels and tourism.

The situation has gotten so bad that long lines have formed at the passport office as one in four Sri Lankans, mostly young and educated, they say they want to leave the country. For senior citizens, it is reminiscent of the early 1970s when import controls and low production in the country caused severe shortages of basic goods and led to long lines for bread, milk and rice.

A man working outdoors in Colombo
One of the most pressing problems for Sri Lanka is the huge external debt burden. Photograph: Vimukthi Embuldeniya / Pacific Press / Rex / Shutterstock

Former deputy central bank governor WA Wijewardena warned that ordinary people’s struggles would exacerbate the financial crisis, which in turn would make their lives more difficult. “When the economic crisis deepens beyond redemption, it is inevitable that the country will also have a financial crisis,” he said. “Both will reduce food security by reducing production and not importing due to a shortage of foreign exchange. At that point, it will be a humanitarian crisis. “

One of the most pressing problems for Sri Lanka is the huge external debt burden, particularly with China. It owes China more than $ 5 billion in debt and last year took an additional $ 1 billion loan from Beijing to help with its acute financial crisis, which is being paid in installments.

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In the next 12 months, in the government and private sector, Sri Lanka will have to repay approximately $ 7.3 billion in domestic and foreign loans, including a $ 500 million international sovereign bond repayment in January. However, as of November, available foreign currency reserves were only $ 1.6 billion.

In a common approach, Government Minister Ramesh Pathirana said they hoped to pay off their past oil debts to Iran by paying them in tea, sending them $ 5 million worth of tea every month to save “much-needed currency.”

The opposition deputy and economist Harsha de Silva recently told parliament that foreign exchange reserves would be 437 million dollars in January next year, while the total foreign debt payable would be 4.8 billion dollars from February to October 2022. “The nation will be totally bankrupt,” he said.

Central Bank Governor Ajith Nivard Cabraal publicly assured Sri Lanka would be able to pay its debts “smoothly,” but Wijewardena said the country was at substantial risk of defaulting on its payments, which would have catastrophic economic consequences.

Meanwhile, Rajapaksa’s sudden decision in May to ban all fertilizers and pesticides and force farmers to go organic without warning has brought a former thriving farming community to its knees like many farmers, who had become used to using , and often abusing fertilizers and pesticides, they were suddenly without means to grow healthy crops or fight weeds and insects. Many, fearing loss, chose not to farm at all, adding to food shortages in Sri Lanka.

A vegetable farmer removes weeds in his potato field in Keppetipola.
A government decision in May to ban all fertilizers and pesticides has forced farmers to switch to organic produce without warning. Photograph: Eranga Jayawardena / AP

The government took a radical turn in late October and farmers are now struggling to cover the high costs of imported fertilizers without help.

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“The costs of growing rice [wheat] they have risen astronomically … The government has no money for fertilizer subsidies. Many of us farmers are reluctant to invest money because we don’t know if we will make any profit, ”said one farmer, Ranjit Hulugalle.

In an attempt to temporarily ease problems and avoid difficult and probably unpopular policies, the government has turned to temporary relief measures, such as lines of credit to import food, medicine and fuel from its neighbor ally. Indiaas well as Indian currency swaps, China Y Bangladesh and loans to buy Omani oil. However, these loans only provide short-term relief and must be repaid quickly at high interest rates, increasing Sri Lanka’s debt burden.

Anushka Shanuka, a personal trainer, was one of the people who used to have a comfortable life, but are now struggling to survive. “We can’t live like we used to before the pandemic,” he said, saying that vegetable prices had risen more than 50%.

“The government promised to help us, but nothing came, so we are managing the best we can. I don’t know how long we can continue like this. “


www.theguardian.com

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