What’s Happening in Sri Lanka? What to Know About the Protests and Economic Crisis

Here’s what you need to know.

Why are Sri Lankans protesting?

Public anger has steadily risen over the government’s handling of Sri Lanka’s economy. Food inflation has soared, while rolling blackouts and lengthy queues for fuel and cooking gas have become fixtures of daily life, hitting particularly hard for those already struggling to make ends meet.

In late March, sporadic nationwide protests calling for Mr. Rajapaksa’s resignation and political change began to galvanize around daily demonstrations outside the president’s office, along an oceanfront promenade in the capital, Colombo. Much of the anger has been focused on Mr. Rajapaksa, whose powerful family has dominated Sri Lanka’s political landscape for much of the past two decades. The economic crisis has intensified accusations of nepotism and corruption from protesters and political opponents, which the family denies.

Gotabaya Rajapaksa’s brother,

Mahinda Rajapaksa,

served two previous terms as president and was also prime minister until he stepped down in May. The pair gained widespread popularity among the country’s Sinhalese Buddhist majority after ending a decadeslong civil war in 2009. Two other brothers, Basil and Chamal, were finance and irrigation ministers, respectively, before stepping down in April. Mahinda’s son Namal was youth and sports minister.

What’s behind the economic crisis?

The coronavirus pandemic—which decimated foreign-currency earnings from tourism—and global inflation helped tip Sri Lanka’s economy over the edge, but its precarious financial position had taken root earlier, stemming from an accumulation of debt on infrastructure spending and sweeping tax cuts that drained government revenue. An abrupt ban last year on chemical fertilizers, in favor of organic alternatives, also resulted in disastrous crop yields.

As its debt pile grew, Sri Lanka increasingly took to international sovereign bonds to roll over existing debt at effectively commercial interest rates. But as its financial position deteriorated, credit-rating firms marked down the country’s sovereign-credit rating, cutting off its access to on-market borrowing.

Despite months of warnings from top economists that it needed to default on its debt and use its foreign reserves to pay for the imports of basic essentials, Sri Lanka continued to prioritize its sovereign-debt repayments through to the start of the year.

How have officials responded?

Sri Lanka suspended foreign debt repayments in April, and formally defaulted the next month. It has entered talks with the IMF for financial relief but any disbursement of funds is likely still months away. Mr. Wickremesinghe, the prime minister, has said Sri Lanka still requires about $6 billion in bridging finance to tide the country through to the end of the year.

After digging in his heels for months, President Gotabaya Rajapaksa agreed to resign effective July 13, the country’s parliamentary speaker said. Mr. Wickremesinghe has also said he will resign, after just two months in the job.

What happens next?

The IMF said it was nearing a staff-level agreement with Sri Lanka, after it concluded a working visit to Colombo last month. But executive board approval and the disbursement of funds would require Sri Lanka to demonstrate that it can restore its economy and debt levels to a sustainable footing. That would require Sri Lanka to commit to difficult reforms, including tax increases and cuts to its bloated public sector.

An IMF-backed staff-level agreement will also help provide Sri Lanka a level of credibility as it seeks to bring its creditors to the negotiating table. The largest slice of its $35 billion external debt is owed to holders of its international sovereign bonds, while China, Japan and India are among its largest bilateral lenders. Persistent political turmoil, however, could slow progress.

This article may be updated.

Write to Philip Wen at [email protected]