Vish Govindasamy, the head of Sri Lanka’s oldest business lobby, recalls about a dozen frustrating meetings with the central bank, finance ministry and even President Gotabaya Rajapaksa last year, urging them to go to the International Monetary Fund as the nation careened toward its worst economic disaster.
His calls to seek a bailout and implement reforms “fell on deaf ears,” the 58-year-old chairman of the Ceylon Chamber of Commerce said in an interview. It was like “talking to a rock.”
After violence erupted across the island this week and the prime minister resigned, the chamber joined with other Sri Lankan industry bodies to make a fresh try. Their five-point agenda called on Rajapaksa — revered and feared in equal measure due to his authoritarian style of rule — to appoint a new government and then step down immediately.
Rajapaksa on Wednesday said he would appoint a new prime minister this week. A government is essential to lead talks with the IMF, which Rajapaksa’s administration eventually approached for help this year. With little more than $50 million in usable foreign reserves, Sri Lanka is essentially bankrupt and dependent on aid and credit lines from countries, such as neighboring India, for fuel and lifesaving drugs.
“It’s a complete disaster,” said Govindasamy, who is also the general managing director at Colombo-based Sunshine Holdings Plc, which sells pharmaceuticals, tea and dairy. Negotiations with the IMF and others for aid are probably on halt, he added. “Who would want to do this when the country is burning?”
A spokesperson for Sri Lanka’s president didn’t immediately respond to a request for comment.
The tumult is a new low for a country whose economy has sagged under a mountain of debt after spending lavishly on Chinese-built infrastructure projects. The government consistently ignored recommendations from technocrats before eventually seeking help from the IMF, the Central Bank Executive Officers’ Union said in a statement Tuesday. The political vacuum pushed even central bank Governor Nandalal Weerasinghe to threaten to resign unless a new cabinet is formed.
“It’s going to get worse before it gets better,” said Lakshini Fernando, head of macroeconomic research at Asia Securities in Colombo, who said this week’s turmoil would “definitely” delay a bailout. “We’re not at the bottom yet.”
For now, authorities are trying to keep crucial export industries running. Dollar-generating garment producers have been allowed to bypass snaking fuel queues and directly purchase diesel for generators so they can continue operating during hours-long power cuts.
Many are continuing to fulfill orders to global fashion chains such as Nike Inc. and Victoria’s Secret & Co. But Sri Lankan textile manufacturers described to Bloomberg tense calls with overseas buyers who are increasingly jittery and may look to shift production.
“There are a lot of doubts,” said Felix A. Fernando, director of Omega Line Ltd., which employs 13,500 people making underwear for Italy’s Calzedonia Holding SpA. “They might reduce.”
Other key sectors are struggling to survive. Officials in Sri Lanka’s tea industry say it will take time for produce to recover after Rajapaksa temporarily banned chemical fertilizers as the country ran out of dollars to pay for imports. Total tea production in March was down 15% from the same period a year earlier, according to the Sri Lanka Tea Board.
Even before Monday’s violence, multiple executives at hotels and travel firms spoke to Bloomberg about a raft of client cancellations as the protests and negative headlines scared off holidaymakers. Tourist arrivals plunged 41% in April to just under 63,000 from a month earlier, the lowest number this year, according to the Sri Lanka Tourism Development Authority.
While firms are struggling with rising costs of financing after the central bank raised the policy rate by a record 700 basis points, managers are also worried about their lower-rung employees as salaries can’t keep pace with runaway inflation. Kishan Nanayakkara, managing director of renewable power company Resus Energy Plc, said banks are now lending at unaffordable rates of 25% to 30%.
Sri Lanka’s consumer inflation — already at 30% — is expected to accelerate to 46% in the third quarter, according to Bloomberg Intelligence.
“Sri Lanka always bounced back with so many of these debacles,” Govindasamy said. “But this is a little different — it’s hugely self inflicted and reversing some of this is going to be very, very, very painful.”