On the surface, calm has returned to Sri Lanka since the South Asian nation plunged into political chaos and virtual bankruptcy last summer. Gone are the fuel lines that meandered by blocks; a stretch of coastline that had been the site of a protest encampment for months was ablaze during the holidays with Christmas lights and carnival rides.
But deep down, the island nation’s economy remains on a ventilator, and the government has yet to secure a way out of crushing debt. Sri Lankans have resigned themselves to a sad reality: reduced meals, reduced income and reduced expectations.
Many young people are desperately trying to find a way out of the country. Those who cannot escape must count on the likelihood that any economic recovery will be modest at best, erasing the earlier promise of mobility in this once-middle-income nation.
Perhaps most of all, what has puzzled Sri Lankans is that, even after a popular uprising that toppled the dictatorial president in July, the same political elite continues to make the decisions, with little responsibility for mismanagement and excesses that ruined the country.
The economic data paints a picture of markedly diminished lives. Inflation, which peaked at around 90 percent during the worst of the crisis, remains a punishingly high 59 percent. For two out of five households, food purchases consume at least 75 percent of expenses. Nearly 30 percent of the population suffers from food insecurity, according to the United Nations.
Some semblance of stability has come not through fixing the economy, but through a series of painful tax increases and subsidy cuts that have further restricted demand. While necessary, the moves are unpopular and offer stamina to the political opposition, raising the risk that this or the next government could back down.
In the lush central plains of Sri Lanka, HM Dissanayake, 65, a farmer, and his wife, Malani Mangalika, 64, who runs a corner shop, have reduced their consumption of fish and meat from three times a week to once a month.
The couple looked at each other as they tried to remember the last time they drank milk.
“Six months ago,” Mangalika said.
“How long since we had eggs?” asked Mr. Dissanayake.
“Two months,” she said.
Whether Sri Lanka, a country of 22 million people, succeeds in turning things around or instead plunges deeper into economic trouble, what officials and diplomats have described as a potential domino effect is being closely watched. Dozens of other smaller nations are similarly struggling with unsustainable debt, a hole made even more difficult to climb out of with the economic hit of the pandemic and rising prices related to Russia’s war on Ukraine.
What is inflation? Inflation is a loss of purchasing power over time, which means your dollar won’t go as far tomorrow as it did today. It is usually expressed as the yearly change in the prices of everyday goods and services, such as food, furniture, clothing, transportation, and toys.
Many of these countries have something in common: they owe a large part of their debt to China.
Sri Lanka defaulted on its debt last spring and is now in talks with the International Monetary Fund over a bailout package that could inject $2.9 billion in much-needed cash into its economy and, importantly, restore some confidence. with creditors.
As part of the conditions for finalizing the IMF package, Sri Lanka must obtain guarantees from its bilateral creditors such as China on the restructuring of the terms of its outstanding debt. Most of Sri Lanka’s roughly $50 billion in debt comes from multilateral lenders and sovereign bonds. China is the largest bilateral donor, with around $7 billion in outstanding debt, according to the Sri Lankan government.
Sri Lanka had hoped to complete the IMF deal by December, but the date was repeatedly pushed back as the Chinese response was slowed by last fall’s Communist Party congress and the Covid outbreak that has since swept the country, they said. The authorities.
India, another major donor, has given its guarantee on debt restructuring. China last week sent an initial response to the IMF that Sri Lankan officials said was promising, but it was unclear whether the offer would satisfy the IMF.
Beijing has been moving deliberately, analysts said, in part because it faces a mountain of bad loans to other nations, and any concessions it makes to Sri Lanka could set a precedent.
Brad Parks, executive director of the AidData lab at the College of William and Mary, which has been studying Chinese lending patterns, said Beijing’s playbook has been to emphasize that any talks about lending will remain bilateral and low-key. And while China has been generous in offering payment extensions or other assistance, it has limited itself to lowering interest rates or canceling loans.
“You have all these big fires popping up around the world, and being able to deal with them in a timely and effective manner really requires a coordinated rescheduling approach,” said Mr. Parks. “So it’s very uncomfortable for China, because they had actually inserted clauses, boilerplate clauses, into their loan contracts that expressly prohibit the borrower from participating in coordinated rescheduling.”
While waiting for China, the Sri Lankan government has been moving on other parts of the IMF’s terms to narrow its budget gap: raising taxes, cutting subsidies on essentials like fuel and electricity, and trying to roll back the loss of money from public companies.
Shehan Semasinghe, state finance minister, said the government had improved the supply and availability of essential items since the worst months of the crisis. But he acknowledged that Sri Lanka’s foreign exchange reserves were still “negligible” and that the country was still caught up.
The government’s difficult effort to control and manage economic challenges “does not mean we are in the ideal stabilization period,” Semasinghe said in an interview. “We have used a number of tools that are not the preferred tools to use – we have suppressed demand to a greater extent.”
Farmers like Dissanayake have never experienced such austerity before, even during the island nation’s three-decade civil war, which ended in 2009.
The part of the economic crisis that you have felt the deepest was self-inflicted by the government. Gotabaya Rajapaksa, the president ousted by protests, banned chemical fertilizers on a whim in spring 2021 to push the country towards organic farming.
The effect was catastrophic, with the United Nations estimating a drop of around 50 percent in agricultural production. When the government lifted its ban in the face of protests, it had run out of foreign reserves to import fertilizer.
This season, the government supplied urea to rice farmers at a reduced price, although it still cost them more than 20 times the price they paid before, with subsidies now cut. Mr. Dissanayake and other rice farmers in his village, as well as government officials, hope that production of rice, a staple crop, will return to normal.
Vegetable and fruit farmers, however, are at the mercy of the market.
“The government does not provide us with fertilizer, as we are not a rice farmer,” said MDS Wijesinghe, who was once a successful papaya and tomato farmer before the political disaster left his family surviving on a small papaya plantation. coconut trees and pawning family jewels. . “We cannot afford to buy fertilizers in the market.”
In Colombo, the only business that is booming are agencies that promise job opportunities abroad: a ticket to escape the depressing uncertainty.
Government figures showed that a record 300,000 people left the country to work abroad in 2022. The desperation is such that a fake job advertisement in Turkey lured some 500 people from different parts of the country to the capital.
“Everyone wants to leave this country,” said Ravi Selliah, general manager of a recruiting firm. “Even CEOs of companies come and ask for any kind of job abroad.”
Kugan Sivanathan, a 21-year-old bank clerk, has been filing application after application without much luck. When he got his job at the bank after graduating from college, he thought his earnings and his father’s salary as a cookie factory worker would provide a comfortable life for the family of four. he.
But as prices soared and the country’s currency plummeted, Sivanathan’s salary has been cut in half: a third now goes towards his daily bus ride and lunch. His father’s salary was cut by 80 percent when production at the cookie factory plummeted due to reduced demand.
“At this stage, I thought I might buy a bike,” Mr. Sivanathan said. “I still take the bus.”
keith bradsher contributed reporting from Beijing.