Prof. Dr. Mohamed Abdelaziem Elchime
Associate Professor of Political Science – Helwan University
With protesters storming the presidential palace in Sri Lanka, prompting President Gotabaya Rajapaksa and Prime Minister Ranil Wickremesinghe to resign, and the formation of a unity government comprising all political parties was subsequently announced. It has yet to be formed, but the new government’s first task will be to calculate the costs of the legacy of debt that has crippled the country’s economy and pushed millions into poverty through hyperinflation that has led to food and medicine shortages.
It is unclear what the next government will look like and what it can do right away to address shortages of food, medicine, fuel and other necessities. Sri Lanka’s economy is coming to a halt, and the country needs billions of dollars to stabilize its economy. The indicators of the economic situation in Sri Lanka are also unbelievable, as its total debts amount to 51 billion dollars. Japan is its largest lender, followed by the Asian Development Bank (ADB), and China comes in third place, which has sought to advance its own global agenda through Sri Lanka’s strategic position among the sea lanes of communication by over-lending to Sri Lanka when. But it indicated that it will play a “positive role” in restructuring its debt, the size of which is indebted to China, representing about 10 percent.
Sri Lanka needs $7 billion to meet its debt obligations to operate for the rest of this year, but total foreign reserves represent $1.7 billion, and the Central Bank of Sri Lanka has declared only $25 million “usable”. You acknowledge that the request for assistance from the International Monetary Fund was sent too late.
Lending rates exceeded 15 percent, so the inflation rate for July is expected to reach 60 percent amid allegations of nepotism and gross corruption by Rajapaksa – the resigned Sri Lankan president – whose family has controlled the country for most of the past 17 years. Sri Lanka’s inability to meet debt repayments last week led to bankruptcy, but international banks have already stopped accepting letters of credit from the country’s state-run companies, including the Ceylon Petroleum Corporation (CPC), which buys and imports state fuel. In full, through seven oil suppliers at a cost of $800 million, the next shipment of oil won’t be due until July 22 after farcical attempts to find alternative sources arrive early in the country failed.
The shortage of gasoline has led to a million demonstrators in the capital, demanding the resignation of Rajapaksa. They stormed the presidential residence, while others burned the prime minister’s house and reduced it to ashes. But the idea is that Rajapaksa could ask for $6 billion from the International Monetary Fund — which is controlled by the United States, Europe and Japan — as he did last week, to cover financial commitments over the next five months and to fund cheap oil purchases from Russian President Vladimir. Putin, it’s a very foolish move.
Technically, this could be implemented and the sanctions imposed for Moscow’s invasion of Ukraine avoided if the oil was obtained through a third party but the IMF would take a bleak view, and with no credit, the only option to finance such a deal would be through some kind of of barter arrangements.
Herein lies another problem. The indicators of Sri Lanka’s participation in the trade are very small, especially considering the bad rice harvest this year, which also resulted from Rajapaksa’s request for farmers to give up fertilizers and grow their crops organically, due to the country’s financial inability to import urea, which prompted Rice prices to rise. Hence, Sri Lanka needs a guarantor, a debt restructuring, and a package of measures to refinance its economy to be able to ensure that the country’s basic needs are met – food, energy security, health, and education. The IMF is the only institution capable of fulfilling on all fronts a task that will cost 22 million Sri Lankans their economic sovereignty, at least for several years to come, and requires the support of all major lenders.
The question raised here about the international community’s abandonment of its role in supporting the Sri Lankan economy may have led to the deterioration of the situation to this extent. The Ukrainian-Russian war is one of the factors leading to such a situation in Sri Lanka and also led to the dispersal of the efforts of the international community to support the economy of that country before the collapse. Then, the current situation in Sri Lanka and its deterioration in security and internal social, may it be the beginning of a series of disturbances that may strike the world in separate regions according to the divisions by the international community and the negative effects of a war that may continue for several months to come, and does the international community pay attention to the seriousness of the situation and Understand the danger of the unrest in Sri Lanka?
