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Sri Lanka’s unprecedented economic crisis has spiraled into a full-scale political upheaval. President Gotabaya Rajapaksa’s house was stormed and the president chased away while Prime Minister Ranil Wickremesinghe’s residence was also set on fire. As Sri Lanka stares at an uncertain future, anxiety has also shifted to other South Asian countries like Nepal. Kamal Dev Bhattarai of ApEx speaks to Nisha Arunatilake, senior economist and director of research at the Institute of Policy Studies of Sri Lanka.  

What in your view is the root cause of Sri Lanka’s economic crisis? 

It’s difficult to put a finger on the root cause. This crisis manifested through many irregularities in the system. Most importantly, extreme politicization of institutions resulted in improper appointments in leadership positions, improper overall recruitment of people, mismanagement, corruption, lack of transparency and accountability. 

All of these resulted in unsustainable budget deficits and weak institutions, unplanned development projects with low returns, and insufficient investments in sustainable development projects. Constant changes to the organization of the institutions and reorganization of ministries, and changing the number of ministries to suit individuals reduced the efficiency of government processes. Such a weak system could not withstand the shock of the Covid-19 pandemic.

It is said populist and hasty decisions of political leadership led to the crisis. Is it true? 

Yes, very true. Take Sri Lanka’s public service. Successive governments have recruited people to the public sector without adhering to proper procedures. In the estimated budget for 2022, the government needed more than 40 percent of government revenues just to pay the wages and salaries of public workers. This was unsustainable, especially as the government also had to foot about 50 percent of the revenue for interest payments. This left very little funds for social spending and development. 

Another example was development planning. This was not done according to the needs of the country, but based on individual needs of political leaders. Many such projects have resulted in increasing government debt without contributing much to development or job-creation. One such example is the Hambantota port, which costs a lot to operate but has very little return. 

What are the takeaways from this economic crisis? Are Chinese loans responsible? 

The constitution of Sri Lanka has undergone many changes in recent times. Not all those changes were done in the country’s best interest. These need to be rectified. 

The main lesson from the crisis is the importance of strengthening public institutions and ensuring that qualified and experienced individuals are chosen to run them. Also, it is important to implement procedures to ensure the transparency and accountability of institutions. 

I wouldn’t say Chinese loans are directly responsible for this crisis. The main problem is that those loans were invested in projects that were unsustainable. There should have been systems in place to make sure that the returns from the investments made using the loans were higher than the costs of the loans. This was not the case for many of the loans. 

How long will it take for Sri Lanka to recover from this crisis?

This is not an easy question to answer. My guess is it will take several years. The country needs to first bring in macro-stability. For that, we need to improve tax collections and widen the tax-base. Given the current economic conditions, this cannot be done in a hurry. 

We also need to reduce public spending. We have too large a public service and it is not possible to reduce its size overnight and without triggering social unrest. This needs to be done gradually. Also, changing the system requires improving the capacity of public servants. Many are used to operating in a different system and in a different culture. It will take time to bring in changes. 

Additionally, Sri Lanka must increase and diversify the sources of foreign exchange earnings. We will need to attract foreign direct investment (FDI). This is also not easy given the current uncertain political and economic environment. 

What are the lessons for other South Asian countries here?

The main lesson is not to wait until you are in a crisis to fight for change. The costs of bringing about change will be much more if you wait too late to demand change. Any course correction needs to happen early, to minimize the economic and social costs of change. 

Prime Minister Ranil Wickremesinghe was sworn in as Sri Lanka’s interim president Friday until Parliament elects a successor to Gotabaya Rajapaksa, who resigned after mass protests over the country’s economic collapse forced him from office, Associated Press reported.

The speaker of Sri Lanka’s Parliament said Rajapaksa resigned as president effective Thursday and lawmakers will convene Saturday to choose a new leader. Their choice would serve out the remainder of Rajapaksa’s term ending in 2024, said Speaker Mahinda Yapa Abeywardana. He expects the process to be done in seven days.

That person could potentially appoint a new prime minister, who would then have to be approved by Parliament. With Rajapaksa done, pressure on Wickremesinghe was rising.

Wickremesinghe in a televised statement said that in his short term, he will initiate steps to change the constitution to clip presidential powers and strengthen Parliament. He also said he will restore law and order and take legal action against “insurgents.”

Referring to clashes near Parliament on Wednesday night when many soldiers were reportedly injured, Wickremesinghe said true protesters will not get involved in such actions.

“There is a big difference between protesters and insurgents. We will take legal action against insurgents,” he said.

Opponents had viewed Wickremesinghe’s appointment as prime minister in May as alleviating pressure on Rajapaksa to resign. He became the acting president when Rajapaksa fled Sri Lanka on Wednesday, according to Associated Press.

Rajapaksa arrived in Singapore on Thursday and his resignation became official on that date. The prime minister’s office said Wickremesinghe was sworn in Friday as interim president before Chief Justice Jayantha Jayasuriya.

Sri Lanka has run short of money to pay for imports of basic necessities such as food, fertilizer, medicine and fuel, to the despair of its 22 million people. Its rapid economic decline has been all the more shocking because, before this crisis, the economy had been expanding, with a growing, comfortable middle class.

Protesters cooked and distributed milk rice — a food Sri Lankans enjoy to celebrate victories — after Rajapaksa’s resignation. At the main protest site in front of the president’s office in Colombo, people welcomed his resignation but insisted Wickremesinghe also should step aside.

“I am happy that Gotabaya has finally left. He should have resigned earlier, without causing much problems,” Velayuthan Pillai, 73, a retired bank employee, said as patriotic songs were blaring from loudspeakers.

But he added that “Ranil is a supporter of Gotabaya and other Rajapaksas. He was helping them. He also must go.”

Protesters who had occupied government buildings retreated Thursday, restoring a tenuous calm in the capital, Colombo. But with the political opposition in Parliament fractured, a solution to Sri Lanka’s many woes seemed no closer, Associated Press reported.

The nation is seeking help from the International Monetary Fund and other creditors, but its finances are so poor that even obtaining a bailout has proven difficult, Wickremesinghe recently said.

The country remains a powder keg, and the military warned Thursday that it had powers to respond in case of chaos — a message some found concerning.

Abeywardana promised a swift and transparent process for electing a new president.

“I request the honorable and loving citizens of this country to create a peaceful atmosphere in order to implement the proper Parliamentary democratic process and enable all members of Parliament to participate in the meetings and function freely and conscientiously,” he said Friday.

The protesters accuse Rajapaksa and his powerful political family of siphoning money from government coffers for years and of hastening the country’s collapse by mismanaging the economy. The family has denied the corruption allegations, but Rajapaksa acknowledged that some of his policies contributed to Sri Lanka’s meltdown.

Maduka Iroshan, 26, a university student and protester, said he was “thrilled” that Rajapaksa had quit, because he “ruined the dreams of the young generation.”

Months of protests reached a frenzied peak over the weekend when demonstrators stormed the president’s home and office and Wickremesinghe’s official residence. On Wednesday, they seized his office.

Images of protesters inside the buildings — lounging on elegant sofas and beds, posing at officials’ desks and touring the opulent settings — captured the world’s attention.

The demonstrators initially vowed to stay until a new government was in place, but they shifted tactics Thursday, apparently concerned that an escalation in violence could undermine their message following clashes outside the Parliament that left dozens injured, according to Associated Press.

“The fear was that there could be a crack in the trust they held for the struggle,” said Nuzly, a protest leader who goes by one name. “We’ve shown what power of the people can do, but it doesn’t mean we have to occupy these places.”

CPN (Maoist Centre) Chairman Pushpa Kamal Dahal left for a three-day visit to India on Friday.

He was accompanied by his personal secretary Ramesh Malla and daughter Ganga Dahal.

Speaking at a press conference organized at the Tribhuvan International Airport before leaving for New Delhi, he said that his visit would be focused on strengthening bilateral ties between the two countries.

Saying that his visit to India will be a goodwill visit, Dahal urged not link it with the recent visit of Chinese Communist Party leaders to Nepal.

He left for India at the invitation of Bharatiya Janata Party (BJP) President JP Nadda.

According to Dahal’s Secretariat, he will be welcomed at the BJP headquarters in New Delhi-based Deen Dayal Upadhyay Marg. He will hold a meeting with BJP President JP Nadda there.

It has been learnt that Vijay Chauthaiwale, the chief of the Foreign Affairs Department of the Indian ruling Bharatiya Janata Party, among other senior leaders will be present in the meeting.

On the occasion, Dahal will also hold a meeting with Ajit Doval, National Security Advisor to Indian Prime Minister Narendra Modi.

He is also scheduled to meet Minister for External Affairs S. Jaishankar and Foreign Secretary Binay Mohan Kwatra.

The meeting with Indian Prime Minister Modi has not been fixed yet.

He will return home on July 17.

The RECOFTC Nepal has expressed its solidarity with the Unity for Sustainability campaign launched by Annapurna Media Network to lead the climate dialogue.

The RECOFTC Nepal, a leading organization working in the sector of forest for the past three decades, signed a Memorandum of Understanding (MoU) on Thursday to take the climate change dialogue ahead through the campaign of Annapurna Media Network.

Though global warming is having a negative impact on climate change on all countries, developing and semi-developed countries are the most affected ones.

Small countries like Nepal should work hard to reduce the effects of climate change.

Sambhu Prasad Dangal, Director of RECOFTC Nepal, said that this campaign would help raise and hold discussions on the important issues of climate change.

As it is not possible to combat the effects of climate change with single effort, a joint effort is needed, he said.

Dangal further said that they are happy to announce themselves and RECOFTC as the green partners.

On the occasion, program manager of the Annapurna Media Network Chiranjibi Neupane said that the campaign would cooperate with all the concerned organizations to raise awareness about climate change.

The price of gold has dropped by Rs 800 in the domestic market on Friday.

According to the Federation of Nepal Gold and Silver Dealers' Association, the yellow bullion is being traded at Rs 93, 800 per tola today.

Meanwhile, tejabi gold is being traded at Rs 93, 300 per tola.

The yellow metal was traded at Rs 94, 600 per tola Thursday.

Similarly, the price of silver has dropped by Rs 35 and is being traded at Rs 1,145 per tola today.

The Janata Samajbadi Party (JSP) has decided to give continuity to the five-party alliance till the federal and provincial elections.

The Central Executive Committee and Central Committee meeting of the JSP that concluded in Birgunj on Thursday decided to give continuity to the coalition in the forthcoming elections.

Making public the decisions by organizing a press conference in Birgunj on Friday, Chairman Upendra Yadav said that the party will give continuity to the alliance till the elections.

He said that the meeting made this decision as the coalition, which was formed to defeat the regression after the then Prime Minister KP Sharma Oli dissolved the House two times, took the country towards political stability by safeguarding the democracy and defeating the regression.

“However, the party has some bitter experiences in the local level elections as well. But we have thought that the coalition is still necessary for the country,” he said, adding, “That is why, we will move ahead by forging an alliance in the elections.”

He also said that the meeting has decided to remove federal council Chairman Baburam Bhattarai from the party.

Along with Bhattarai, the meeting has also decided to relieve eight other central executive members of their duties, Yadav said.

Similarly, the meeting has unanimously elected senior leader Ashok Rai as the chairman of the federal council.

On a different note, Chairman Yadav said that the Citizenship Bill presented in the Parliament will be endorsed through fast track.

Three persons of a family died when the power house of the Bhitri Khola Hydropower Project at Acharyalihi in Hima Rural Municipality-1 of Jumla caved in, in the wee hours of Friday.

The deceased have been identified as Bimala Raut (30), her nine-year-old son Bharat and eight-year-old son Surya Raut. Bimala is the wife of Gorakh Bahadur Raut, security guard of the power house.

According to rural municipality Chairman Laxman Bahadur Shahi, the incident occurred at around 1 am today.

All of them were sleeping when the tragedy occurred.

Further investigation into the incident is underway.

Long lines are back at food banks around the US as working Americans overwhelmed by inflation turn to handouts to help feed their families, Associated Press reported.

With gas prices soaring along with grocery costs, many people are seeking charitable food for the first time, and more are arriving on foot.

Inflation in the US is at a 40-year high and gas prices have been surging since April 2020, with the average cost nationwide briefly hitting $5 a gallon in June. Rapidly rising rents and an end to federal COVID-19 relief have also taken a financial toll. 

The food banks, which had started to see some relief as people returned to work after pandemic shutdowns, are struggling to meet the latest need even as federal programs provide less food to distribute, grocery store donations wane and cash gifts don’t go nearly as far.

Tomasina John was among hundreds of families lined up in several lanes of cars that went around the block one recent day outside St. Mary’s Food Bank in Phoenix. John said her family had never visited a food bank before because her husband had easily supported her and their four children with his construction work.

“But it’s really impossible to get by now without some help,” said John, who traveled with a neighbor to share gas costs as they idled under a scorching desert sun. “The prices are way too high.”

Jesus Pascual was also in the queue.

“It’s a real struggle,” said Pascual, a janitor who estimated he spends several hundred dollars a month on groceries for him, his wife and their five children aged 11 to 19.

The same scene is repeated across the nation, where food bank workers predict a rough summer keeping ahead of demand. 

The surge in food prices comes after state governments ended COVID-19 disaster declarations that temporarily allowed increased benefits under SNAP, the federal food stamp program covering some 40 million Americans, according to Associated Press. 

“It does not look like it’s going to get better overnight,” said Katie Fitzgerald, president and chief operating officer for the national food bank network Feeding America. “Demand is really making the supply challenges complex.”

Charitable food distribution has remained far above amounts given away before the coronavirus pandemic, even though demand tapered off somewhat late last year.

Feeding America officials say second quarter data won’t be ready until August, but they are hearing anecdotally from food banks nationwide that demand is soaring. 

The Phoenix food bank’s main distribution center doled out food packages to 4,271 families during the third week in June, a 78% increase over the 2,396 families served during the same week last year, said St. Mary’s spokesman Jerry Brown.

More than 900 families line up at the distribution center every weekday for an emergency government food box stuffed with goods such as canned beans, peanut butter and rice, said Brown. St. Mary’s adds products purchased with cash donations, as well as food provided by local supermarkets like bread, carrots and pork chops for a combined package worth about $75.

Distribution by the Alameda County Community Food Bank in Northern California has ticked up since hitting a pandemic low at the beginning of this year, increasing from 890 households served on the third Friday in January to 1,410 households on the third Friday in June, said marketing director Michael Altfest.

At the Houston Food Bank, the largest food bank in the US where food distribution levels earlier in the pandemic briefly peaked at a staggering 1 million pounds a day, an average of 610,000 pounds is now being given out daily, Associated Press reported.

That’s up from about 500,000 pounds a day before the pandemic, said spokeswoman Paula Murphy said.

Murphy said cash donations have not eased, but inflation ensures they don’t go as far. 

Food bank executives said the sudden surge in demand caught them off guard. 

“Last year, we had expected a decrease in demand for 2022 because the economy had been doing so well,” said Michael Flood, CEO for the Los Angeles Regional Food Bank. “This issue with inflation came on pretty suddenly.”

“A lot of these are people who are working and did OK during the pandemic and maybe even saw their wages go up,” said Flood. “But they have also seen food prices go up beyond their budgets.”

The Los Angeles bank gave away about 30 million pounds of food during the first three months of this year, slightly less than the previous quarter but still far more than the 22 million pounds given away during the first quarter of 2020. 

Feeding America’s Fitzgerald is calling on USDA and Congress to find a way to restore hundreds of millions of dollars worth of commodities recently lost with the end of several temporary programs to provide food to people in need. USDA commodities, which generally can represent as much as 30% of the food the banks disperse, accounted for more than 40% of all food distributed in fiscal year 2021 by the Feeding America network. 

“There is a critical need for the public sector to purchase more food now,” said Fitzgerald. 

During the Trump administration, USDA bought several billions of dollars in pork, apples, dairy, potatoes and other products in a program that gave most of it to food banks. The “Food Purchase & Distribution Program” designed to help American farmers harmed by tariffs and other practices of US trade partners has since ended. There was $1.2 billion authorized for the 2019 fiscal year and another $1.4 billion authorized for fiscal 2020, according to Associated Press.

Another temporary USDA “Farmers to Families” program that provided emergency relief provided more than 155 million food boxes for families in need across the US during the height of the pandemic before ending May 31, 2021. 

A USDA spokesperson noted the agency is using $400 million from the Build Back Better initiative to establish agreements with states, territories and tribal governments t o buy food from local, regional and underserved producers that can be given to food banks, schools and other feeding programs, Associated Press reported.