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SITUATION UPDATE 10 May, 2022 Back

Situation Update - Sri Lanka's political and economic crisis

Leanne Self

Sri Lanka's political and economic crisis

Summary

  • On 9 May, Sri Lanka's Prime Minister Mahinda Rajapaksa resigned as protests over the country's deepening economic crisis intensify.
  • The move came after violent clashes between pro- and anti- government protesters at an encampment outside the offices of the prime minister and president in Colombo.
  • A curfew was implemented nationwide on 9 May, whilst the president declared a nationwide state of emergency on 6 May in response to the escalating protests.
  • The president has called for the formation of a "national unity government", but opposition parties have previously rejected this motion.
  • The dissolvement of the cabinet raises concerns over crucial talks with the IMF to secure emergency funds to buy food and fuel.
  • As the country continues to experience power outages and shortages of fuel, food and medicines, further anti-government protest and strike action is likely. Protesters are still calling for the resignation of President Gotabaya Rajapaksa.

Situation

Sri Lanka’s deepening economic crisis has morphed into a political one after Mahinda Rajapaksa resigned as the country’s prime minister on 9 May amid growing protests over the government’s alleged failures to manage the country’s economic woes. While reluctant to step down until now, Rajapaksa’s resignation came after violent clashes between Rajapaksa’s supporters and anti-government protesters erupted in Colombo earlier in the day. In a bid to quell the violent unrest, the authorities utilised tear gas and water cannons to disperse the crowd, as well as imposed a nationwide curfew that has been extended until 07:00 local time on 11 May.

Under the banners “Gota Go Home” and “Rajapaksa’s Go Home”, anti-government protesters have been camped outside the offices of Rajapaksa, and his younger brother, President Gotabaya Rajapaksa, at Galle Face Green since last month to demand their resignation over their alleged inaction to address soaring prices and ongoing acute shortages of staple food, fuel and power supplies. The encampment in Colombo has become the focal point of nationwide protests and, while the agitation has remained largely peaceful, with the exception of clashes in Rambukkana last month that killed one protester, Monday marked a violent shift in the demonstrations.

The prime minister‘s resignation is the latest concession made by the Rajapaksas, after three other Rajapaksas stepped down from their Cabinet posts in mid-April, amid growing anti-government protests. However, it appears to have done little to appease public anger, with violence continuing in the capital and other Sri Lankan cities into the night of 9 May despite the nationwide curfew. In addition to ongoing clashes between pro- and anti- government protesters and police, dozens of politician's residences across the country were targeted in vandalism and arson attacks, while outgoing Prime Minister Rajapaksa had to be rescued overnight after thousands of anti-government protesters stormed his official residence in Colombo’s Temple Tress neighbourhood. Protesters also reportedly blocked the entrance to Bandaranaike International Airport (CMB) in Katunayake in a likely attempt to prevent members of parliament (MPs) from leaving the country. The unprecedented violence has so far killed seven people, including a ruling party MP, and injured at least 200 others.

Sri Lanka has been under a state of emergency since 6 May, the second such move in two months. The emergency was declared by President Rajapaksa following an attempt by anti-government protesters to blockade access to and from parliament, as well as in response to the ongoing “Gota Go Home” encampment outside the prime minister and president’s offices. Under the measure, the president has been granted sweeping powers to suspend laws, detain people and seize property, which were extended to the military and police on 10 May.

The resignation of Rajapaksa as prime minister means that the country’s cabinet is dissolved, paving the way for a new government. In the wake of Rajapaksa’s resignation, the president has reiterated his call for all parliamentary parties to come together to form a national unity government to resolve the country’s political and economic crisis. However, similar calls last month had been rejected by opposition parties, whose leaders have instead called for fresh elections. Opposition parties are likely to maintain their stance against forming a national unity government as long as President Rajapaksa remains in power.

Analysis and Implications

Sri Lanka’s current political turmoil has been fuelled by the country’s worst economic crisis since it gained independence from Britain in 1948, which has largely been attributed to economic mismanagement. Sri Lanka’s economy has been on a downwards trajectory since late 2019, when the recently elected President Rajapaksa carried out a series of populist tax cuts in the hope of stimulating an economy that had been impacted by a series of national disasters and a reduction in tourism following the 2019 Easter terrorist bombings. However, instead of stimulating the economy, the tax cuts reduced revenues just months before the COVID-19 pandemic began and its associated lockdown restrictions further overwhelmed the economy.

Sri Lanka quickly lost access to overseas markets, forcing it to fall back on its foreign exchange reserves to settle government debt. As a result, the country’s reserves shrunk from 6.9 billion USD in 2018 to 2.2 billion USD in February 2022, which according to the country’s finance ministry has fallen even further to below 50 million USD this month. These dwindling reserves have left the government unable to pay for essential imports, including fuel and other basic commodities. Although the government hoped to recover economically once COVID-19 lockdown restrictions were lifted and the country reopened for tourism, large sums of foreign debt, soaring inflation, decreasing foreign currency reserves and a devaluation of the country’s currency have significantly hampered Sri Lanka’s economic growth. Rising global prices of oil and other commodities following Russia’s invasion of Ukraine in late-February has also put added pressure on Sri Lanka’s economy and has pushed more Sri Lankans into increasingly difficult living conditions. On 4 May, Sri Lanka’s finance minister warned that the country will face economic hardships for at least two more years.

Sri Lanka is currently on the brink of bankruptcy, with the political turmoil as well as sporadic outbreaks of violence threatening efforts to manage the country’s foreign exchange crisis. With the cabinet dissolved following the prime minister’s resignation, concerns have been raised over who will lead crucial talks with the International Monetary Fund (IMF) to secure emergency funds to buy food and fuel. As a result, the country’s economic crisis is expected to deepen in the coming weeks, with Sri Lanka’s finance minister warning on 4 May that the country will face economic hardships for at least two more years. Households and businesses will likely continue to experience prolonged power outages as the government struggles to pay for energy supplies, whilst ongoing shortages of fuel and basic commodities such as food, cooking oil and medicine, are expected to prompt long queues at gas stations, grocery stores and pharmacies, which have often led to impromptu protest action.

While Colombo’s streets appeared relatively calm on 10 May following the overnight unrest, tensions remain high. Despite the implementation of the state of emergency and curfew, anti-government protest action has the potential to continue in the coming days and weeks, particularly as the country’s economic crisis worsens. In a country that has a history of ethnic and religious conflict, the recent bout of unrest proves particularly significant, as tensions among ethnic and religious lines appear to have been side-lined with anti-government protesters coming together from all ethnicities and religions to demand the resignation of the Rajapaksa government. Whilst the outgoing prime minister hoped his resignation would resolve the situation, the move is highly unlikely to appease anti-government protesters while President Rajapaksa remains in power. The president currently shows no signs of quitting.

In addition to protests, national strike actions conducted by trade unions are also expected to continue. The latest such action occurred on 6 May and followed a week-long strike the previous week. Millions of workers have participated in previous strikes, which have brought transportation networks and factories to a halt across Sri Lanka.

As demonstrated on 9 May, protests have the potential to quickly devolve into violent clashes, with the use of tear gas, water cannons and other crowd dispersal measures by police and troops likely. Security checkpoints as well as a heavy police and troop deployment should be anticipated in Colombo, particularly outside the offices of the prime minister and president, along Galle Face promenade and other protest hotspots such as government buildings, railway stations and public squares. In the event of further unrest, transport and business disruptions should be anticipated, whilst officials may impose restrictions on telecommunication services if additional demonstrations become particularly violent.