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Intractable leadership jeopardises precarious path to recovery 

17 Apr 2022

Protests demanding the resignation of President Gotabaya Rajapaksa are intensifying by the day as there appears to be no indication of Rajapaksa stepping down any time soon. Amidst protests around the island, Premier Mahinda Rajapaksa addressed the nation on Monday (11) in what appeared to be a pre-recorded session.  The nation-addressing speech was widely criticised as it was merely a convenient recalling of Sri Lankan history. As usual, winning the three-decade-old civil war was flexed about, along with the construction of highways and ports, but no plans on fixing the economy or on how import expenditure, power cuts, and the fuel shortage would be fixed were disclosed, much to the dismay of many who expected a proper plan on how to fix the chaotic state of the economy and an apology on behalf of the millions of people who are suffering due to the Government’s poor and non-practical economic decisions.  Citi Group, a day before the speech, warned that the worsening crisis was increasing Sri Lanka’s risk of default, with two out of three key foreign exchange earning sources of the country – tourism and worker remittances – slumping in the face of the economic crisis. The country is sitting on an economic time bomb with a $ 1 billion International Sovereign Bond (ISB) payment to be made in July. The pressure is severe as the ongoing crisis has delayed potential loan requests. The ISB payment aside, not enough reserves are left even to finance food, fuel, and medicine imports at the moment, with increasing reports on the shortage of essential medicines.  On Tuesday (12), with too few reserves left for too many obligations, the Ministry of Finance announced an orderly default, while the International Monetary Fund (IMF) is expected to hold discussions on a potential loan. The current reserves of close to $ 2 billion are clearly insufficient to cover the swaps Sri Lanka has with Bangladesh, China, and India.  There has been some hope amongst the public and policymakers with the recent appointment to the helm of the Central Bank of Sri Lanka, which was soon followed by a whopping interest rate hike. However, external funding is required to keep the rupee, which is on a steep downward spiral, stable. Every minute that is delayed is pushing the country and its people to an economic abyss from which it would be hard to climb back.  A programme with the IMF is undoubtedly the need of the hour as once a programme is entered into, confidence might be boosted to a certain extent and other multilateral and bilateral lenders would be willing to lend a helping hand for Sri Lanka to overcome the crisis. Recovery might take years, but recovery is certain with an IMF programme, restructuring of debt, and sound macroeconomic policies.   


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