Finance Minister Basil Rajapaksa returned to Sri Lanka from India at the end of the week with confirmation of a USD 1 billion credit line. Speaking to reporters on his return, a fidgety Rajapakse playing with his shirt pocket said that the money had not been earmarked and can be used for anything. Rajapakse, widely discredited for the country’s current economic crisis together with Central Bank Governor Ajith Nivard Cabraal and President Gotabaya Rakjapakse, said the loan had to be repaid only after three years. He held back details of the interest rate when reporters asked him how much it is.
The credit line, a short term concessionary loan facility through the State Bank of India, is the key component of the four pillar economic cooperation agreement which India and Sri Lanka arrived at during Basil Rajapakse’s visit to New Delhi last December. It is expected to alleviate the stress on Sri Lanka’s foreign reserves for the country to be able to import medicines, food and other essential items. Sri Lanka’s Trade Minister Bandula Gunewardene said that the loan will be available to import essential food items and pharmaceuticals, specialized fertiliser, textiles and fibres, animal feed, cement and raw material for industrial purposes.
While Rajapakse was in New Delhi he also met Prime Minister Modi. Their bilateral discussions centered on agriculture, renewable energy, digitalization, tourism and fisheries among others. The Indian media reported that during Rajapakse’s talks with the Indian side, New Delhi and Colombo had agreed to set up a framework for short, medium and long term economic cooperation between the two countries to address Sri Lanka’s current economic challenges.
So far this year India has supported Sri Lanka with a 400 million SAARC currency swap, a 500 million credit line to procure essential fuel and the deferral of an Asian Clearing Union settlement of USD 515. 2 million.
Although the credit line is viewed by India as pathbreaking, there is political opposition in Sri Lanka to Indian involvement in the country’s infrastructure development. It was only last week that the two countries signed an agreement to jointly develop a solar power plant in Sampur in Trincomalee where the two neighbours are also jointly developing an oil tank farm.
Meanwhile, Sri Lanka’s worsening economic crisis, brought thousands of protestors to the streets in Colombo and other major cities.
On Tuesday a crowd of protestors from the Samagi Jana Balawegaya (SJB) estimated at between 110 and 130, 000 with its leader Sajith Premadasa in their midst, marched on the presidential secretariat where President Gotabaya has his offices. Their message was simple: do or leave they shouted to the president, burning effigies of him, carrying coffins and loaves of bread which like other essential food, has seen a price hike. Protestors who tried to storm the outer perimeter of the presidential secretariat were prevented from doing it by commandos and police with whom they ended up in a face to face stand- off. Speaking at the protest, Premadasa said it was the first step on the road to send the government home because it destroyed the country. He pledged his party will bring in a peoples’ government and a better economy for the country.
Thousands of youth from the Socialist Youth Union which is affiliated to the Janatha Vimukthi Peramuna (JVP) for whom there has been a groundswell of opinion, took to Colombo’s streets on Thursday. Shouting slogans at the government they wound their way to the presidential secretariat where they were able to effortlessly march into the inner precincts of the presidential secretariat and were met with little resistance by the presidential guard. The protestors said they wanted to hand over a petition to the president but burnt it because it could not be physically handed over to him. While protesting at the state of the economy, they also had several demands including the cancellation of the power deal with the American New Fortress Energy and the deal with India to manage the Trincomalee oil tanks.
Pockets of citizens holding candlelit vigils in Colombo and the suburbs have opened another front of protests. Their numbers have been growing over the weeks.
Despite the protests, consumers were in for a rude awakening when the prices of essentials not only shot up even further but were also in short supply. Both local but especially imported milk powder prices saw a sharp price increase with the rupee devaluation after the Central Bank floated the currency last week. The float is seen as a move which will bring Sri Lanka closer to getting help from the International Monetary Fund for a debt restructuring and to boost currency reserves. Laugfs, which is one of two gas suppliers in the country, announced a record increase in the price of its gas cylinders and there is speculation that the Ceylon Electricity Board will increase tariffs by as much as 500 percent.
People continued to queue for domestic gas and fuel which were in short supply as the government struggled to pay for stocks which had been brought into the port by ships but which could not be cleared because of the dollar shortage. In the past week, three elderly people died after waiting in queues for fuel and kerosene. One social media post had an image of a woman who had fainted while she was waiting in a 2 kilometer long queue for diesel. A journalist tweeted that very soon, the queue of dead people will be longer than the queue for fuel and gas.
The United Kingdom and Canada have issued travel advisories warning travellers to be aware of the country’s current economic situation. The British travel advisory said that the economic situation is deteriorating in Sri Lanka with shortages of basic necessities such as medicines, fuel and food because of a shortage of hard currency to pay for imports. It went on to say that “there may be long queues at grocery stores, gas stations, and pharmacies. Local authorities may impose the rationing of electricity, resulting in power outages’.
Canada also advised its citizens to keep supplies of food, water and fuel in hand in case of lengthy disruptions and to make sure to have sufficient supply of medicines in hand as they may not be available and monitor local media for the latest developments.
President Gotabaya Rajapaksa, who has been criticized for being insensitive to the needs of the people during the current crisis, started his address to the nation in the middle of the week with his claim that he is sensitive to the needs of the people. The president’s statement during his speech that the current crisis is not his making has been met with anger by the public. Rajapakse is an executive president who commands a two thirds majority in parliament and topped up his executive powers with the 20th Amendment. Although the government has been at pains to pin the crisis on the pandemic, critics point out that other countries in the region too went through the pandemic but their foreign exchange reserves have recorded a growth whereas Sri Lanka’s reserves have declined by 79 percent from 2019-2021. According to local think tank Verite Research, the percentage change in gross official reserves from the end of 2019 to the end of 2021 in Bangladesh was 41 percent, India 39 percent, Bhutan 35 percent, Pakistan 33 percent, Philippines 24 percent, Malaysia 13 percent, Indonesia 12 percent, Thailand 10 percent, Maldives five percent and Nepal four percent. Sweeping tax changes which were introduced in 2019 have deprived the country of about 600 billion rupees a year while also eroding the registered tax payer base by 33. 5 percent. The loss of migrant and foreign remittances from pegging the rupee to the dollar and keeping it artificially low was USD 1. 16bn in 2021.
