What is happening in Sri Lanka?

CTV National News: Sri Lankan PM’s office stormed Protesters stormed Sri Lanka’s prime minister’s office and demand the country’s leaders officially step down. Melanie Nagy reports.

COLOMBO, Sri Lanka — Sri Lanka's president, who had announced he would resign Wednesday, has fled the country after months of turmoil culminated in protesters converging on the presidential palace. Here's what's happening in Sri Lanka:

Sri Lanka's prime minister, who said he'll step down after a new government is installed, says the island nation's debt-laden economy has “collapsed” as it runs out of money to pay for food, fuel and medicine. It's been relying on help from neighboring India, China and from the International Monetary Fund.

Outgoing Prime Minister Ranil Wickremesinghe, who took office in May, was emphasizing the monumental task he faces in turning around an economy he said is heading for “rock bottom.”

Sri Lankans are skipping meals as they endure shortages, lining up for hours to try to buy scarce fuel and cooking gas. 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.

Here's the situation in Sri Lanka:

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 Finance Ministry says Sri Lanka has only $25 million in usable foreign reserves. It needs $6 billion to stay afloat over the next six months.

The result is a country on the edge of bankruptcy, with hardly any money to import gasoline, milk, cooking gas, medicine and even toilet paper.

WHAT ROLE DID POLITICS PLAY?

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 Gotabaya Rajapaksa and his brother, former Prime Minister Mahinda Rajapaksa. The latter resigned after weeks of anti-government protests that eventually turned violent.

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.

The government needed to boost its revenues as foreign debt for big - and questionable - infrastructure projects soared, but instead Rajapaksa pushed through the largest tax cuts in Sri Lankan history. Creditors downgraded Sri Lanka's ratings, blocking it from borrowing more money as its foreign reserves sank.

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 of 10 families are skipping meals or otherwise skimping to stretch out their food, while 3 million are receiving emergency humanitarian aid.\

The Ukraine war has pushed prices of food and oil higher. Inflation was near 40% and food prices were up nearly 60% in May.

Doctors have resorted to social media to try to get critical supplies of equipment and medicine. They also warned people to do anything to avoid falling ill or getting into accidents. 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.

WHAT IS THE GOVERNMENT DOING ABOUT IT?

This latest is Wickremesinghe's sixth term as prime minister. His appointment was one of many moves to instill confidence in the government and get the economy back on track as protesters demanded the end of the Rajapaksa dynasty.

So far, Sri Lanka has been muddling through, mainly supported by $4 billion in credit lines from neighboring India. An Indian delegation was in the capital Colombo on June 23 for talks on more assistance, but Wickremesinghe warned against expecting India to keep Sri Lanka afloat for long.

Earlier in June, the United Nations began 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.

Wickremesinghe told The Associated Press in a June 12 interview that he would consider buying more steeply discounted oil from Russia to help tide the country through its crisis.

Some of the policies that contributed to economic damage have since been reversed, including the 2019 tax cuts and last year's chemical fertilizer import ban, but it will take time before any effects are evident.

WHAT'S NEXT FOR SRI LANKA?

“Sri Lanka pins last hopes on IMF,” said a recent headline in the Colombo Times newspaper. The government is in negotiations with the IMF on a bailout plan and Wickremesinghe said June 22 that he expected to have a preliminary agreement with the IMF by late July. But that also hinges on his replacement and a new government being installed.

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. Sri Lanka's leaders agreed that lawmakers will elect a new president July 20 but struggled Tuesday to decide on the makeup of a new government.

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.