Sri Lanka’s prime minister said late last month that the island nation’s debt-laden economy had “collapsed” as it runs out of money to pay for food and fuel. Short of cash to pay for imports of such necessities and already defaulting on its debt, it is seeking help from neighboring India and China and from the International Monetary Fund.

Prime Minister Ranil Wickremesinghe, who took office in May, was emphasizing the monumental task he faced in turning around an economy he said was heading for “rock bottom.” On Saturday both he and President Gotabaya Rajapaksa agreed to resign amid mounting pressure from protesters who stormed both their residences and set fire to one of them.

Sri Lankans are skipping meals as they endure shortages and lining up for hours to try to buy scarce fuel. It’s a harsh reality for a country whose economy had been growing quickly, with a growing and comfortable middle class, until the latest crisis deepened.

How serious is this crisis?

The government owes $51 billion and is unable to make interest payments on its loans, let alone put a dent in the amount borrowed. Tourism, an important engine of economic growth, has sputtered because of the pandemic and concerns about safety after terror attacks in 2019. And its currency has collapsed by 80%, making imports more expensive and worsening inflation that is already out of control, with food costs rising 57%, according to official data.

The result is a country hurtling towards bankruptcy, with hardly any money to import gasoline, milk, cooking gas and toilet paper.

Political corruption is also a problem; not only did it play a role in the country squandering its wealth, but it also complicates any financial rescue for Sri Lanka.

Anit Mukherjee, a policy fellow and economist at the Center for Global Development in Washington, said any assistance from the IMF or World Bank should come with strict conditions to make sure the aid isn’t mismanaged.

Still, Mukherjee noted that Sri Lanka sits in one of the world’s busiest shipping lanes, so letting a country of such strategic significance collapse is not an option.

How is it affecting real people?

Tropical Sri Lanka normally is not lacking for food, but people are going hungry. The U.N. World Food Program says nearly nine in 10 families are skipping meals or otherwise skimping to stretch out their food, while 3 million are receiving emergency humanitarian aid.

Doctors have resorted to social media to try to get critical supplies of equipment and medicine. Growing numbers of Sri Lankans are seeking passports to go overseas in search of work. Government workers have been given an extra day off for three months to allow them time to grow their own food.

In short, people are suffering and desperate for things to improve.

Why is the economy in such dire straits?

Economists say the crisis stems from domestic factors such as years of mismanagement and corruption.

Much of the public’s ire has focused on President Rajapaksa and his brother, former Prime Minister Mahinda Rajapaksa. The latter resigned in May after weeks of anti-government protests that eventually turned violent.

Conditions have been deteriorating for the past several years. In 2019, Easter suicide bombings at churches and hotels killed more than 260 people. That devastated tourism, a key source of foreign exchange.

The government needed to boost its revenues as foreign debt for big infrastructure projects soared, but instead Rajapaksa pushed through the largest tax cuts in Sri Lankan history. The tax cuts were recently reversed, but only after creditors downgraded Sri Lanka’s ratings, blocking it from borrowing more money as its foreign reserves sank. Then tourism flatlined again during the pandemic.

In April 2021, Rajapaksa suddenly banned imports of chemical fertilizers. The push for organic farming caught farmers by surprise and decimated staple rice crops, driving prices higher. To save on foreign exchange, imports of other items deemed to be luxuries were also banned. Meanwhile, the Ukraine war has pushed prices of food and oil higher. Inflation was near 40% and food prices were up nearly 60% in May.

Why did the prime minister say the economy has collapsed?

The stark declaration in June by Wickremesinghe, who is in his sixth term as prime minister, threatened to undermine any confidence in the state of the economy and didn’t reflect any specific new development. The prime minister appeared to be underscoring the challenges facing his government as it seeks help from the IMF and confronts criticism over the lack of improvement since he took office weeks earlier. The comment might have been intended to try to buy more time and support as he tries to get the economy back on track.

The Finance Ministry said Sri Lanka had only $25 million in usable foreign reserves. That has left it without the wherewithal to pay for imports, let alone repay billions in debt.

Meanwhile the Sri Lankan rupee has weakened in value to about 360 to the U.S. dollar.

That makes the costs of imports even more prohibitive. Sri Lanka has suspended repayment of about $7 billion in foreign loans due this year out of $25 billion to be repaid by 2026.

What is the government doing about the crisis?

So far Sri Lanka has been muddling through, mainly supported by $4 billion in credit lines from India. An Indian delegation came to the capital, Colombo, in June for talks on more assistance, but Wickremesinghe warned against expecting India to keep Sri Lanka afloat for long.

“Sri Lanka pins last hopes on IMF,” read a June headline in the Colombo Times. The government is in negotiations with the IMF on a bailout plan, and Wickremesinghe has said he expected to have a preliminary agreement later this summer.

Sri Lanka has also sought more help from China. Other governments like the U.S., Japan and Australia have provided a few hundred million dollars in support.

Earlier in June, the United Nations launched a worldwide public appeal for assistance. So far, projected funding barely scratches the surface of the $6 billion the country needs to stay afloat over the next six months.

To counter Sri Lanka’s fuel shortage, Wickremesinghe told The Associated Press in a recent interview that he would consider buying more steeply discounted oil from Russia.
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While inflation remains high and economic forecasters are warning of a possible recession, the U.S. Bureau of Labor Statistics Friday reported job growth in the United States remains strong, with the economy adding 372,000 jobs in June and the unemployment rate remaining at 3.6% for the fourth month in a row.

In its report, the bureau said the job numbers are comparable to where they were in February 2020, just before the COVID-19 pandemic hit. The report shows the most notable job growth in June occurred in the professional and business services, leisure and hospitality, and health care sectors.

“Today, we learned that our private sector has recovered all of the jobs lost during the pandemic and added jobs on top of that. This has been the fastest and strongest jobs recovery in American history,” President Joe Biden said in a statement.

The bureau reports manufacturing employment increased by 29,000 in June and has returned to its February 2020 level.

“The historic strength of our job market is one reason our economy is uniquely well positioned to tackle a range of global economic challenges – from global inflation to the economic fallout from Putin’s war,” said Biden. “No country is better positioned than America to bring down inflation, without giving up all of the economic gains we have made over the last 18 months.”

The continued strong job growth may ease fears of a recession. Analysts say the U.S. Federal Reserve may see it as an inflation indicator and prompt another rise in interest rates. Last month, the central bank raised interest rates by three-quarters of 1% in the hope of bringing down the highest inflation rate seen in nearly 40 years.

There is fear that further interest rate hikes – designed to bring down prices by cooling demand – could spark a recession.  

The Washington Post reports economists and policymakers are hoping U.S. jobs growth — which has been hovering around 400,000 new positions per month for much of the past year — will slow to a sustainable pace that could help moderate inflation, without a significant rise in unemployment.

Some information for this report was provided by the Associated Press and Reuters. 
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A U.N. study released Thursday shows the first three months of the war in Ukraine has driven up the global cost of fuel and food, creating record inflation that has helped drive 71 million people into poverty.

Speaking during a virtual news conference in Geneva, U.N. Development Program Administrator Achim Steiner said the analysis of 159 developing countries indicated that price spikes in key commodities were already having “immediate and devastating impacts on the world’s poorest households.”

The study shows that the economic shock of Russia’s invasion of Ukraine came after 18 months of COVID-19 pandemic lockdowns, which had a slower but cumulative and strong negative impact on world economies. He said the pandemic had already pushed about 125 million people into poverty.

At the same news conference, UNDP Senior Economist George Gray Molina said as a result many countries have faced 36 months of “shock after shock after shock.”

Molina said the impact of the war has been “drastically faster,” affecting global food and energy supplies and sparking the inflationary surge.

Steiner said failure by governments to take decisive and “radical” action risks sparking widespread unrest, as the patience and ability of people to cope with the situation runs out.

He pointed to the situation in Sri Lanka, where the government is in turmoil and the nation is facing food and fuel shortages and has defaulted on its national debt for the first time in its history.

The development program study offers some financial policy recommendations to address the crisis. Steiner suggested, for example, that it might be possible for some countries to tackle runaway inflation without resorting to the “blunt instrument” of raising interest rates.

He said multilateral investment institutions, such as the International Monetary Fund (IMF) could provide more capital to allow nations to address the crisis through targeted lending and other crisis-response measures.

Some information for this report was provided by the Associated Press and Reuters.
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The head of the FBI and the leader of Britain’s domestic intelligence agency raised fresh alarms Wednesday about the Chinese government, warning business leaders that Beijing is determined to steal their technology for competitive gain.

FBI Director Christopher Wray reaffirmed longstanding concerns in denouncing economic espionage and hacking operations by China, as well as the Chinese government’s efforts to stifle dissent abroad. But his speech was notable because it took place at MI5’s London headquarters and alongside the agency’s director general, Ken McCallum, in an intended show of Western solidarity.

The remarks also showed the extent to which Wray and the FBI regard the Chinese government as not only a law enforcement and intelligence challenge but are also attuned to the implications of Beijing’s foreign policy actions.

“We consistently see that it’s the Chinese government that poses the biggest long-term threat to our economic and national security, and by ‘our,’ I mean both of our nations, along with our allies in Europe and elsewhere,” Wray said.

McCallum said the Chinese government and its “covert pressure across the globe” amounts to “the most game-changing challenge we face.”

“This might feel abstract, but it’s real and it’s pressing,” he said. “We need to talk about it. We need to act.”

A spokesman for the Chinese embassy in Washington, Liu Pengyu, rejected the allegations from the Western leaders, saying in an emailed statement to The Associated Press that China “firmly opposes and combats all forms of cyber attacks” and called the accusations groundless.

“We will never encourage, support or condone cyber attacks,” the statement said.

In a nod to current tensions between China and Taiwan, Wray also said during his speech that any forcible takeover of Taipei by Beijing would “would represent one of the most horrific business disruptions the world has ever seen.”

Last week, the U.S. government’s director of national intelligence, Avril Haines, said at an event in Washington that there were no indications Chinese President Xi Jinping was poised to take Taiwan by military force. But she that did say Xi appeared to be “pursuing the potential” for such an action as part of a broader Chinese government goal of reunification of Taiwan.

After the appearance with his British counterpart, Wray said he would leave to others the question of whether an invasion of Taiwan was more or less likely after Russia’s invasion of neighboring Ukraine. But he said, “I don’t have any reason to think their interest in Taiwan has abated in any fashion,” and added that he hoped China had learned what happens “when you overplay your hand,” as he said the Russians have done in Ukraine.

The FBI director said there are signs the Chinese, perhaps drawing lessons from Russia’s experience since the war, have looked for ways to “insulate their economy” against potential sanctions.

“In our world, we call that behavior a clue,” said Wray, who throughout his speech urged caution from Western companies looking to do business in or with China. He said Western investments in China could collapse in the event of an invasion of Taiwan.

“Just as in Russia, Western investments built over years could become hostages, capital stranded (and) supply chains and relationships disrupted,” he said.

President Joe Biden said in May that the U.S. would respond militarily if China invaded Taiwan, offering one of the most forceful White House statements in support of Taiwan’s self-governing in decades. The White House later tried to soften the impact of the statement, saying Biden was not outlining a change in U.S. policy toward Taiwan, a self-governing island that China views as a breakaway province that should be reunified with the mainland.

The embassy spokesman said the Taiwan issue was “purely China’s internal affair” and said when it comes to questions of China’s territory and sovereignty, the country has “no room for compromise or concession.”

“We will strive for the prospect of peaceful reunification with utmost sincerity and efforts,” the statement said, though it noted that China will “reserve the option of taking all necessary measures in response to the interference of foreign forces.”
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За даними Вадима Мельника, ці компанії провели понад 400 закупівельних процедур на суму понад 65 мільйонів гривень
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Уряд затвердив постанову про покладання спеціальних обов’язків на учасників ринку електроенергії, які її зараз експортують в Європейський союз
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