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Sri Lanka: Why is the country in an economic crisis? Sri Lanka: Why is the country in an economic crisis?
(about 16 hours later)
This video can not be played Soldiers guard the office of Sri Lanka's prime minister as a state of emergency is declared
To play this video you need to enable JavaScript in your browser. A state of emergency has been declared in Sri Lanka, and President Gotabaya Rajapaksa has fled the country.
Watch: Protesters storm Sri Lankan president's palace in Colombo, swim in the pool and set the PM's house on fire His departure follows months of mass protests over soaring prices and a lack of food and fuel.
Watch: Protesters storm Sri Lankan president's palace in Colombo, swim in the pool and set the PM's house on fire The country's foreign currency reserves have virtually run dry, and it has already missed debt interest payments.
Sri Lanka's president Gotabaya Rajapaksa has said he will step down, after crowds stormed his official residence in the capital, Colombo. Sri Lanka's president flees country on military jet
It follows months of protests over soaring prices and a lack of food and fuel. Rajapaksa told: 'Quit now or face massive protest'
The country's foreign currency reserves have virtually run dry, meaning it doesn't have enough funds available to buy goods from other countries. What has been happening in Sri Lanka?
What is happening in Sri Lanka?
The price of everyday goods has risen sharply. Inflation is running at more than 50%.The price of everyday goods has risen sharply. Inflation is running at more than 50%.
There have also been widespread power cuts.There have also been widespread power cuts.
A lack of medicines has brought the health system to the verge of collapse.A lack of medicines has brought the health system to the verge of collapse.
The country doesn't have enough fuel for essential services like buses, trains and medical vehicles, and officials say it doesn't have enough foreign currency to import more.The country doesn't have enough fuel for essential services like buses, trains and medical vehicles, and officials say it doesn't have enough foreign currency to import more.
This lack of fuel has caused petrol and diesel prices to rise dramatically since the start of the year.This lack of fuel has caused petrol and diesel prices to rise dramatically since the start of the year.
In late June, the government banned the sale of petrol and diesel for non-essential vehicles for two weeks. It's thought to be the first country to do so since the 1970s. Sales of fuel remain severely restricted.In late June, the government banned the sale of petrol and diesel for non-essential vehicles for two weeks. It's thought to be the first country to do so since the 1970s. Sales of fuel remain severely restricted.
Schools have closed, and people have been asked to work from home to help conserve supplies.Schools have closed, and people have been asked to work from home to help conserve supplies.
Long queues for fuel - like this one in Colombo - have made normal life impossible This video can not be played
To play this video you need to enable JavaScript in your browser.
Watch: Protesters storm Sri Lankan president's palace in Colombo, swim in the pool and set the PM's house on fire
Watch: Protesters storm Sri Lankan president's palace in Colombo, swim in the pool and set the PM's house on fire
What happens when a country runs out of money?What happens when a country runs out of money?
As well as not being able to buy goods it needs from abroad, in May Sri Lanka failed to make a payment on its foreign debt for the first time in its history. As well as not being able to buy goods it needs from abroad, in May Sri Lanka failed to make an interest payment on its foreign debt for the first time in its history.
The country had been given 30 days to come up with $78m (£63m) to cover interest payments, but central bank governor P Nandalal Weerasinghe said it could not pay. The country had been given 30 days to come up with $78m (£63m) to cover the interest due, but central bank governor P Nandalal Weerasinghe said it could not pay.
Long queues for fuel - like this one in Colombo - have made normal life impossible
Two of the world's biggest credit rating agencies also confirmed Sri Lanka had defaulted on its debt payments.Two of the world's biggest credit rating agencies also confirmed Sri Lanka had defaulted on its debt payments.
Failure to pay debt interest can damage a country's reputation with investors, making it harder for it to borrow the money it needs on international markets. This can further harm confidence in its currency and economy.Failure to pay debt interest can damage a country's reputation with investors, making it harder for it to borrow the money it needs on international markets. This can further harm confidence in its currency and economy.
Is there a plan to solve the crisis?Is there a plan to solve the crisis?
President Rajapaksa has appointed Prime Minister Ranil Wickremesinghe as acting president in his absence.
Mr Wickremesinghe has declared a state of emergency across the country and a curfew has been imposed in the western province while he tries to stabilise the situation.
Mr Rajapaksa's departure ends a family dynasty that has dominated Sri Lanka's politics for the past two decades
Sri Lanka's government has more than $51bn (£39bn) in foreign debt, $6.5bn of which is owed to China, and the two countries are in negotiations about how to restructure the debt.Sri Lanka's government has more than $51bn (£39bn) in foreign debt, $6.5bn of which is owed to China, and the two countries are in negotiations about how to restructure the debt.
The G7 group of leading industrial countries - Canada, France, Germany, Italy, Japan, UK and the US - has said it supports Sri Lanka's attempts to reduce its debt repayments. The G7 group of leading industrial countries - Canada, France, Germany, Italy, Japan, UK and the US - had said it supports Sri Lanka's attempts to reduce its debt repayments.
The Sri Lankan government is also in talks with the International Monetary Fund (IMF) about a possible $3bn (£2.5bn) loan.
The IMF - which works with its 190 member countries to stabilise the world economy - has said the government would have to raise interest rates and taxes as a condition of any deal.
It would also require a stable government to be in place, so it is unclear what can be done until the president officially steps down and a new government is in place.
The World Bank has agreed to lend Sri Lanka $600m, and India has offered at least $1.9bn.The World Bank has agreed to lend Sri Lanka $600m, and India has offered at least $1.9bn.
The Sri Lankan government has also been in talks with the International Monetary Fund (IMF) about a possible $3bn (£2.5bn) loan.
The IMF - which works with its 190 member countries to stabilise the world economy - said the government would have to raise interest rates and taxes as a condition of any deal.
It would also require a stable government to be in place, so any bailout may be delayed until a new administration takes over.
Banging dishes together to protest at the food price hikes.Banging dishes together to protest at the food price hikes.
Prime Minister Wickremesinghe has said the government will print money to pay employees' salaries, but has warned this is likely to boost inflation and lead to further price hikes. Acting President Wickremesinghe had already said the government will print money to pay employees' salaries, but has warned this is likely to boost inflation and lead to further price hikes.
He also said state-owned Sri Lankan Airlines could be privatised.He also said state-owned Sri Lankan Airlines could be privatised.
The country has asked Russia and Qatar to supply it with oil at low prices to help reduce the cost of petrol.The country has asked Russia and Qatar to supply it with oil at low prices to help reduce the cost of petrol.
Why is Sri Lanka in economic crisis? What led to the economic crisis?
The government blames the Covid pandemic, which affected Sri Lanka's tourist trade - one of its biggest foreign currency earners. The government has blamed the Covid pandemic, which affected Sri Lanka's tourist trade - one of its biggest foreign currency earners.
It also says tourists were frightened off by a series of deadly bomb attacks in 2019.It also says tourists were frightened off by a series of deadly bomb attacks in 2019.
However, many experts blame economic mismanagement.However, many experts blame economic mismanagement.
President Rajapaksa faced widespread calls to step downPresident Rajapaksa faced widespread calls to step down
At the end of its civil war in 2009, Sri Lanka chose to focus on providing goods to its domestic market, instead of trying to boost foreign trade.At the end of its civil war in 2009, Sri Lanka chose to focus on providing goods to its domestic market, instead of trying to boost foreign trade.
This meant its income from exports to other countries remained low, while the bill for imports kept growing.This meant its income from exports to other countries remained low, while the bill for imports kept growing.
Sri Lanka now imports $3bn (£2.3bn) more than it exports every year, and that is why it has run out of foreign currency.Sri Lanka now imports $3bn (£2.3bn) more than it exports every year, and that is why it has run out of foreign currency.
At the end of 2019, Sri Lanka had $7.6bn (£5.8bn) in foreign currency reserves, which have dropped to around $250m (£210m).At the end of 2019, Sri Lanka had $7.6bn (£5.8bn) in foreign currency reserves, which have dropped to around $250m (£210m).
President Rajapaksa has also been criticised for big tax cuts he introduced in 2019, which lost the government income of more than $1.4bn (£1.13bn) a year. Former President Rajapaksa had also been criticised for big tax cuts he introduced in 2019, which lost the government income of more than $1.4bn (£1.13bn) a year.
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The switch to organic fertilisers resulted in widespread crop failure, exacerbating foreign currency shortagesThe switch to organic fertilisers resulted in widespread crop failure, exacerbating foreign currency shortages
When Sri Lanka's foreign currency shortages became a serious problem in early 2021, the government tried to limit them by banning imports of chemical fertiliser.When Sri Lanka's foreign currency shortages became a serious problem in early 2021, the government tried to limit them by banning imports of chemical fertiliser.
It told farmers to use locally sourced organic fertilisers instead.It told farmers to use locally sourced organic fertilisers instead.
This led to widespread crop failure. Sri Lanka had to supplement its food stocks from abroad, which made its foreign currency shortage even worse.This led to widespread crop failure. Sri Lanka had to supplement its food stocks from abroad, which made its foreign currency shortage even worse.