May 30, 2023

COLOMBO, Sri Lanka (AP) — Sri Lankans who have endured months of fuel and food shortages are bracing for more pain as a newly formed government tries to find solutions to the Indian Ocean nation’s economic emergency.

Like many others, fishmonger Gamini Mallawarachchi says he is pinning his hopes on President Ranil Wickremesinghe his ability to revive the economy and restore stability after months of unrest and protests.

“Things are really, really bad now and my life is almost ruined,” said Mallawarachchi, who gave up selling fish because he couldn’t find fuel to get to the village where he was buying it, and his customers were buying anyway less and less.

Mallawarachchi said he considered Wickremesinghe “his last hope”.

“I think something will do. With his experience and knowledge, I believe he has the potential,” Mallawarachchi said. “However, it must show some results before the end of this year, otherwise it will also have to face protests from the people,” he said.

Sri Lanka moved closer to ending its dire economic and humanitarian crisis with the appointment of Wickremesinghe’s new government on July 20 after months of protests and unrest. But, daunting obstacles lay ahead.

Lawmakers supported him in extending the state of emergency This gives the president broad powers to crack down on any violence. That may buy him time to try to reach an agreement with the International Monetary Fund on a $3 billion bailout request.

By his own admission, this is easier said than done.

On Saturday, Wickremesinghe said he pushed back a month his goal of reaching a deal by early August after talks with the IMF stalled amid recent political turmoil.

So far, there has been little sign of progress in negotiations with Sri Lanka’s other creditors over the more than $50 billion it owes lenders.

“Because the public debt is assessed as unsustainable,” IMF approval “would require adequate financing assurances from Sri Lanka’s creditors that debt sustainability will be restored,” the lending agency said in a statement. This would require lenders, public and private, to agree to accept smaller bond payments, lower interest rates or longer repayment terms.

The IMF terms may also include tax increases, better anti-corruption safeguards and other reforms, such as the privatization of state-owned companies such as the national airline.

The World Bank issued a statement last week expressing “deep concern” for Sri Lanka and saying it would not provide more funding pending plans for “deep structural reforms” to address the causes of the crisis.

“They are in a bind,” said Tamanna Salikuddin of the US Institute of Peace, an independent think tank based in Washington, DC.

Austerity measures are a bitter pill for people who are hungry and walk or cycle to work because they can’t afford fuel. And raising taxes would likely erode support from ruling party stalwarts who have benefited from tax cuts that have helped drain state coffers, he noted.

In June, Wickremesinghe, then prime minister for the sixth time, proposed a conference of major donors, including India, China and Japan. Sri Lanka, whose foreign reserves have been largely depleted, is seeking “bridge financing” to enable it to buy fuel and other essential supplies to keep the economy running.

“We have to hope that friendly countries will support Sri Lanka in the short term,” said political analyst Jehan Perera.

In a visit last week to New Delhi, Samantha Power, administrator of the US Agency for International Development, criticized India’s aid to China, and urged Beijing to do more. India’s government says it has provided more than $1.5 billion in credit to buy fuel, food, medicine and other essentials.

Asked about Sri Lanka’s debt impasse – and criticism that China’s lending is not transparent – Foreign Ministry spokesman Zhao Lijian accused the US and other “Western capital” of manipulating Sri Lanka’s creditworthiness, speculating on its markets and prevent it from receiving new funding.

“We hope that the US can really help Sri Lanka overcome its current difficulties, ease its debt burden and realize sustainable development instead of ruthlessly using every possible opportunity to shift blame, slander other countries and seek geopolitical games,” Zhao said.

Official Chinese lending to Sri Lanka represents only about 10% of its debt, but the amount of additional commercial borrowing from China is unclear.

“Until the rest of their debt is restructured, I don’t see the Chinese doing anything,” Salikuddin said. “They never make the first move.”

As talks with Sri Lanka’s lenders continue, its people carry on, finding ways to make ends meet and often waiting days in lines for gas, sometimes even returning home empty-handed.

“Even if a deal is agreed (with the IMF), Sri Lanka still faces a difficult road to economic recovery. By no means is a deal agreed and things are getting back to normal very quickly,” Gareth Leather of Capital Economics said in a recent online briefing.

The state gas company has started distributing cylinders of cooking gas – a mixture of propane and butane – but most people have to wait at least overnight before they can buy them and the price has more than tripled since October.

The government has also introduced an application for rationed petrol purchases: 4 liters (1 gallon) per week for motorcycles, 20 liters (5.3 gallons) per week for cars and 40 liters (10.6 gallons) per week for buses .

The aim is to reduce long queues at gas stations and crack down on the black fuel market. Priority is given to school buses, agriculture, fishing, tourism and public transport.

Many say they have decreased or practically gave up eating fish and meat because of the high prices. Powdered milk is hard to come by and prices of most staples, including bread and lentils, have tripled.

“People will be more patient and ready to wait while acute shortages are addressed,” Perera said. “Otherwise, it will be like a box – you can see angry people on the streets every day with their cars, their motorbikes. Angry people, it’s a messy situation and a spark would lead to more turmoil.”

Mallawarachchi, the fishmonger, earned about 6,000 rupees ($16) a day. Now he lives off his savings.

Sithum Udara, an office worker, still commutes to work, but what used to be a quick, comfortable commute by motorbike has become a misery crammed into buses or trains.

“Going to the office is now a nightmare. I’m really fed up and I think this is the worst time of my life,” Udara said. “I have no choice but to go to work.”

But Udara believes Wickremesinghe should have “significant time” to revive the economy and solve other problems. “He can’t do it overnight. People need to understand this reality.”

At present, a large part of the president’s job is managing expectations.

“The first thing he has to do is meet the finances,” Salikuddin said. “It’s the failing economy that brought people to the street,” he said.

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