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Island nation in deep water: Sri Lanka needs a government at the earliest to steer it out of crisis

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The critical need, is the formation of a government, even an interim one, at the earliest to steer the nation out of its worst political-economic crisis since its independence.

Escalating nationwide protests in Sri Lanka—against crippling shortages of essentials, double-digit food and fuel inflation, and long power cuts—have descended into a spiral of violence against the rule of the Rajapaksas. Prime minister Mahinda Rajapaksa has resigned and fled to the safety of a naval base in Trincomalee, a port city on the north-eastern coast. Sri Lanka’s tri-forces have been given shoot-at-sight orders to bring the violence under control. Even before these orders, there was an enhanced deployment of the army, triggering fears that the pretext of violence and instability may pave the way for military rule. The critical need, is the formation of a government, even an interim one, at the earliest to steer the nation out of its worst political-economic crisis since its independence.

Although president Gotabaya Rajapaksa has stated that all “efforts will be made to restore political stability through consensus”, efforts to form a government have proven futile. The opposition is not keen to form one under the leadership of a Rajapaksa or with the ruling Sri Lanka Podujana Party. The largest opposition party, Samagi Jana Balawegaya, does not have the numbers to form a government but wants all opposition parties to pass a no-confidence motion against the government, initiate the abolishment of the executive presidency, and impeach the president. The outcome of the president’s likely meetings with leaders of all political parties is thus uncertain.

Political instability is not what the island nation needs for now to stem its economic woes through a bailout package with the International Monetary Fund, which was to begin another round of technical discussions from May 9-23. It hopes for a Rapid Finance Instrument facility as well as an Extended Fund Facility to overcome its balance of payments crisis, which has left it with limited foreign reserves—as low as $50 million to pay for fuel, food, and other essentials. Last month, it decided to suspend international bond payments. With a $50 billion foreign debt, Sri Lanka owes around $8 billion in debt repayments. Fund packages come with conditionalities which many emerging economies balk at. But the need of the hour is to implement a credible and coherent strategy to restore macroeconomic stability with social safety nets to cushion the impact of the economic crisis on the vulnerable sections of the population. Sri Lanka is no stranger to implementing IMF-driven macroeconomic stabilisation programmes. It has done so for nearly 70% of the last four decades, as has been pointed out by former chief economic advisor Arvind Subramanian. The salvation for its external payments crisis and economic meltdown requires the formation of a government at the earliest.

Considering Sri Lanka’s strategic location in the Indian Ocean, neighbours like India cannot remain immune to its rapid descent into chaos. India has extended $3.5 billion in economic assistance including a $400 million currency swap, $500 million loan deferment, and credit lines for importing fuel, food, and medicines, which have already been used. Around 16,000 MT of rice has been supplied. There is a slight difference in India’s stance— it is now pledging support to the Sri Lankan people. India thus has firmly stated that it will “always be guided by the best interests of the people of Sri Lanka expressed through democratic processes”. The best interests of the 22 million populace lies in the formation of a post-Rajapaksa government through democratic processes to address the economic crisis that impacts all of them.

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