Sri Lanka’s economic crisis, explained

Experts say the crisis has been years in the making, driven by a little bad luck and a lot of government mismanagement.

Over the past decade, the Sri Lankan government has borrowed vast sums of money from foreign lenders to fund public services, said Murtaza Jafferjee, chair of Colombo-based think tank Advocata Institute.

This borrowing spree has coincided with a series of hammer blows to the Sri Lankan economy, from both natural disasters — such as heavy monsoons — to man-made catastrophes, including a government ban on chemical fertilizers that decimated farmers’ harvests.

Facing a massive deficit, President Gotabaya Rajapaksa slashed taxes in a doomed attempt to stimulate the economy.

But the move backfired, instead hitting government revenue. That prompted rating agencies to downgrade Sri Lanka to near default levels, meaning the country lost access to overseas markets.

Sri Lanka then had to fall back on its foreign exchange reserves to pay off government debt, shrinking its reserves from $6.9 billion in 2018 to $2.2 billion this year. This impacted imports of fuel and other essentials, which sent prices soaring.

Topping all that, the government in March floated the Sri Lankan rupee — meaning its price was determined based on the demand and supply of foreign exchange markets.

That move appeared aimed at devaluing the currency to qualify for a loan from the International Monetary Fund (IMF) and encourage remittances.

However, the plunging of the rupee against the US dollar only made things worse for ordinary Sri Lankans.

What does this mean for people on the ground?

For Sri Lankans, the crisis has turned their daily lives into an endless cycle of waiting in lines for basic goods, many of which are being rationed.

In recent weeks, shops have been forced to close because they can’t run fridges, air conditioners or fans. Soldiers are stationed at gas stations to calm customers, who line up for hours in the searing heat to fill their tanks. Some people have even died waiting.

One mother in the capital, Colombo, told CNN she was waiting for propane gas so that she could cook meals for her family. Others say the cost of bread has more than doubled, while auto rickshaw and taxi drivers say the fuel rations are too meager to make a living.

Some are caught in an impossible position — they have to work to feed their families, but must also queue for supplies. One street sweeper with two young sons told CNN she quietly slips away from work to join lines for food, before hurrying back.

Even members of the middle class with savings are frustrated, fearing they could run out of essentials like medicine or gas. And life is made more difficult by frequent power cuts that plunge Colombo into darkness, sometimes for more than 10 hours at a time.

What’s happening with the protests?

Protesters in Colombo took to the streets in late March, demanding government action and accountability. Public frustration and anger erupted on March 31, when demonstrators hurled bricks and started fires outside the President’s private residence.

Police used tear gas and water cannons to break up the protests, and imposed a 36-hour curfew afterward. President Rajapaksa declared a nationwide public emergency on April 1, giving authorities powers to detain people without a warrant, and blocked social media platforms.

But protests went ahead the next day in defiance of the curfew, prompting police to arrest hundreds of demonstrators.

Protests have continued in the days since, though they remained largely peaceful. On Tuesday night, crowds of student protesters surrounded Rajapaksa’s residence again, calling for his resignation.

The emergency ordinance was revoked on April 5.

What’s happening with the Cabinet?

The government’s entire cabinet was effectively dissolved on April 3 due to mass resignations by top ministers.

Some 26 cabinet ministers stepped down that weekend, including the President’s nephew, who criticized the apparent social media blackout as something he would “never condone.” Other major figures including the governor of the central bank also resigned.

Facing an administration in chaos, on Monday the President attempted a reshuffle he hoped would placate the opposition. Four ministers, including a finance minister, were appointed to temporarily run the government, while several others were handed new posts in an attempt to keep the country functioning “until a full cabinet is appointed,” according to a presidential news release….