New Sri Lanka prime minister says economy ‘has collapsed’

COLOMBO, Sri Lanka—Sri Lanka’s debt-laden economy has “collapsed” after months of shortages of food, fuel and electricity, the prime minister told lawmakers Wednesday in comments that underscored the country’s dire situation as it seeks help from international lenders.

Ranil Wickremesinghe told Parliament the South Asian nation faces “a far more serious situation” than the shortages alone, and he warned of “a possible fall to rock bottom.”

“Our economy has completely collapsed,” he said.

The crisis on the island of 22 million is considered its worst in recent memory, but Wickremesinghe did not cite any specific new developments. His comments appeared intended to emphasize to critics and opposition lawmakers that he has inherited a difficult task that cannot be fixed quickly.

“He’s setting expectations really, really low,” said Anit Mukherjee, a policy fellow and economist at the Center for Global Development in Washington.

Wickremesinghe’s remarks also sent a message to potential lenders: “You can’t let a country of such strategic importance collapse,” said Mukherjee, who noted that Sri Lanka sits in one of the world’s busiest shipping lanes.

The Sri Lankan economy is foundering under the weight of heavy debts, lost tourism revenue and other effects of the pandemic, as well as surging costs for commodities. The result is a country hurtling towards bankruptcy, with hardly any money to import gasoline, milk, cooking gas and toilet paper.

Lawmakers from the two main opposition parties are boycotting Parliament this week to protest Wickremesinghe, who became prime minister just over a month ago and is also finance minister, for failing to deliver on his pledges to turn the economy around.

Wickremesinghe said Sri Lanka is unable to purchase imported fuel due to heavy debt owed by its petroleum corporation.

The Ceylon Petroleum Corporation is $700 million in debt, he told lawmakers. “As a result, no country or organization in the world is willing to provide fuel to us. They are even reluctant to provide fuel for cash.”

The crisis has started to hurt Sri Lanka’s middle class, which is estimated to be 15 percent to 20 percent of the country’s urban population. The middle class began to swell in the 1970s after the economy opened up to more trade and investment. It has grown steadily since.

Until recently, middle-class families generally enjoyed economic security. Now those that never had to think twice about fuel or food are struggling to manage three meals a day.

“They have really been jolted like no other time in the last three decades,” said Bhavani Fonseka, a senior researcher at the Centre for Policy Alternatives in Colombo, Sri Lanka’s capital.

“If the middle class is struggling like this, imagine how hard hit the more vulnerable are,” Fonseka added.

The situation has derailed years of progress toward relatively comfortable lifestyles aspired to across South Asia.

Government officials have been given every Friday off for three months to save on fuel and grow their own fruits and vegetables. The inflation rate for food is 57 percent, according to official data.

Wickremesinghe said IMF assistance seems to be the country’s only option now. Officials from the agency are visiting Sri Lanka to discuss the idea. A staff-level agreement is likely to be reached by the end of July.

“We have concluded the initial discussions, and we have exchanged ideas on various sectors,” Wickremesighe said.

Krutika Pathi and Bharatha Mallawarachi in Colombo and Paul Wiseman in Washington contributed to this report.

Image credits: AP/Eranga Jayawardena