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How did Sri Lanka get into such a bad situation?

Image: Reuters Berita 24 English - Sri Lanka's President Gotabaya Rajapaksa seems to have finally lost his job because of the country&#...


Image: Reuters

Berita 24 English - Sri Lanka's President Gotabaya Rajapaksa seems to have finally lost his job because of the country's bad economy.

Rajapaksa left the country early on Wednesday, hours before he was supposed to leave office. He is likely headed to the Maldives.

After violent protests on Saturday, when protesters broke into the president's home and set fire to the prime minister's home in Colombo, the country's parliamentary speaker said Rajapaksa would step down.

Anti-government protesters have been angry about power outages, shortages of basic goods, and rising prices for a long time. They have been asking Rajapaksa to step down for months, but the retired military officer has been ignoring them and using emergency powers to keep control.

Violence and political chaos are affecting the 22-million-person island nation, which is in the middle of talks with the International Monetary Fund (IMF) about a rescue plan and proposals to restructure its sovereign debt. Both of these plans could be thrown into chaos by the violence and political chaos.

HOW DID THIS HAPPEN?

Analysts say that poor economic management by successive governments has hurt Sri Lanka's public finances. As a result, the country spends more than it brings in, and it doesn't make enough goods and services that can be sold.

Deep tax cuts passed by the Rajapaksa government soon after it took office in 2019 made the situation worse. After a few months, the COVID-19 pandemic hit.

This destroyed a lot of Sri Lanka's sources of income, especially the lucrative tourism industry. At the same time, money sent home by Sri Lankans working abroad dropped, and an unchangeable exchange rate made things even worse.

Rating agencies were worried about Sri Lanka's finances and its inability to pay back its large foreign debt, so they lowered the country's credit ratings starting in 2020. This made it impossible for Sri Lanka to use international financial markets.

To keep the economy going, the government relied heavily on its foreign exchange reserves, which fell by more than 70% in two years.

Sri Lanka, which was once seen as a model for a developing economy, has been hit hard by the crisis. Because of a lack of fuel, there are long lines at gas stations and frequent blackouts. Hospitals are also running out of medicine. The central bank has said that out-of-control inflation reached 54.6% last month and could reach 70%.

WHAT DID THE GOVERNMENT DO?

Even though the economy was getting worse quickly, the Rajapaksa government put off talks with the IMF at first.

For months, opposition leaders and some financial experts told the government that something needed to be done, but the government didn't move because it was hoping that tourism and money sent home by workers would improve.

When the government finally realised how bad the crisis was getting, it did ask for help from countries like India and China, which have always competed for control over the strategically placed island.

India has given loans worth billions of dollars to help pay for important supplies. This year, New Delhi says it has given help worth more than $3.5 billion.

China has been less public about its involvement, but it has said it backs efforts to help the island nation restructure its debt.

Early in 2022, Rajapaksa asked China to change the way Sri Lanka paid back about $3.5 billion in debt. At the end of 2021, China also gave Sri Lanka a $1.5 billion swap in yuan.

Sri Lanka did start talking with the IMF in the end.

WHAT IS GOING TO HAPPEN?

There has never been a time in Sri Lanka's history since it got its independence when street protests got rid of a sitting president.

The country's constitution says that if the president steps down, the prime minister will take over.

But the current prime minister, Ranil Wickremesinghe, has also said he will step down.




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