Sri Lankan economic crisis to linger without political stability

Unless there is a trusted political leader in the driving seat of the Sri Lankan government, global donor agencies would not be able to offer bailout packages to resolve the country’s economic crisis created by the political turmoil, says Zahid Hussain.

The former lead economist of the World Bank’s Dhaka office made the remark while talking to The Business Post on Sri Lanka’s crises that made the country insolvent.

“Sri Lanka has become a country with a government. There is still a government but it is not accepted and trusted by the citizens. In the case of offering a bailout package for troubled Sri Lanka, global lenders such as International Monetary Fund (IMF) and the World Bank (WB) need to negotiate the deal.

“But right now there is no government in true sense to discuss the terms and conditions or the modal of the funding,” Zahid said.

So, the precondition for bailout packages from the lenders is a stable and trusted political government, which will gain the people’s trust and the protesters will stop violent activities and return home, he added.

Bloomberg in a report on Tuesday said Sri Lanka’s bailout hope was slipping further away as the nation is now without a leader. The political vacuum will probably delay an agreement with IMF. The country is also seeking bridge loans from India, Japan and China.

Sri Lanka is already in talks with the IMF for a $6 billion bailout package and has appointed international experts to help restructure its debt.

As part of political stability, an all-party government will be formed. But young protesters are accepting that the new administration will have representatives of the Sri Lanka Podujana Peramuna party.

Sri Lankan President Gotabaya Rajapaksa fled the country to the Maldives on Wednesday and hundreds of protesters stormed the prime minister’s office demanding his ouster, as a people’s uprising over a devastating economic crisis overwhelmed security forces, reports Reuters.

Before fleeing, Gotabaya told the speaker of parliament that Prime Minister Ranil Wickremesinghe should be interim president, infuriating Sri Lankans struggling with months-long shortages of food, fuel, and power.

Wickremesinghe had offered to resign as prime minister but did not repeat that offer after he became acting president on Wednesday. If he does go, the speaker would be acting president until a new president is elected on July 20 as scheduled.

Saying Wickremesinghe is allied to the powerful Rajapaksa clan — which has dominated politics in the South Asian country for the last two decades, protest leaders have warned of a “decisive fight” if he does not resign.

Gotabaya’s elder brother Mahinda Rajapaksa had resigned as prime minister in May after protests against the family turned violent.

“If the politicians for whom Sri Lanka is in this crisis are involved in the new all-party government, the problem will not be solved,” said Zahid.

“The protesters will not accept that government. It is also unclear how other smaller opposition parties will form a government,” he said.

In such a situation, the World Bank or IMF will not be able to cooperate even if they wanted to, because it will not be clear with whom the agencies will negotiate, Zahid said. “A stable and accepted government is needed for that.”

However, he opined that political instability will not be a problem in getting humanitarian aid. “It’s possible to send the aid to the people through the United Nations or NGOs, for which the government’s involvement is not necessary.