Sri Lankan State Workers Strike, Protesting High Taxes

The pulse | Economy | South Asia

The government says it was forced to raise taxes to bolster state revenue, a key prerequisite for unlocking the IMF’s $2.9 billion package.

Sri Lankan state workers strike in protest of high taxes

An almost empty train station is seen during the one-day strike in Colombo, Sri Lanka, on Wednesday, March 15, 2023.

Credit: AP Photo

Health workers, railways, ports and other state workers in Sri Lanka went on strike on Wednesday to protest sharp increases in income taxes and electricity rates, as the island nation awaits approval of a package from the International Monetary Fund to help its bankrupt economy.

Most government hospitals across the country have suspended their outpatient clinics because doctors, nurses and pharmacists were on strike. The railways operated fewer trains, and armed soldiers guarded the carriages and train stations for fear of sabotage.

The unions say the increase in taxes and electricity rates has hit them hard amid the difficulties of the country’s worst economic crisis. They have threatened to extend the strike indefinitely if the government does not respond to their demands.

The government says it was forced to raise taxes to strengthen state revenues and electricity rates to cover production costs, key prerequisites for unlocking the IMF’s proposed $2.9 billion package. Authorities say they managed to operate some trains and most state banks despite the strike.

IMF Managing Director Kristalina Georgieva said last week that the fund’s board will meet on March 20 to consider final approval of Sri Lanka’s bailout package after China gave crucial debt restructuring guarantees.

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Sri Lanka announced last year that it would default on its foreign loans amid a severe currency crisis that has resulted in shortages of fuel, food, medicine and cooking gas, as well as lengthy power outages. The crisis sparked street protests that forced then-President Gotabaya Rajapaksa to flee the country and resign.

President Ranil Wickremesinghe, since taking office last July, has succeeded in ending power cuts and reducing shortages.

The central bank has said the country’s reserves have improved and the Sri Lankan rupee has started to strengthen after last year’s slide. The Central Bank has wrested control of currency trading from the black market, says the monetary authority.

However, critics say the strengthening currency could be related to import controls and that it will weaken once the country reopens for imports.

Wickremesinghe told parliament last week that difficult reforms are needed to stay on course with the IMF programme. Shunning them, as the country has done 16 times before, could spell danger, he added, noting that any break would force Sri Lanka to pay off $6-7 billion of foreign debt every year until 2029.

However, he has not found support from opposition parties and the public, who say he is shielding the ousted Rajapaksa family from corruption charges, which they say caused the economic crisis, in exchange for their support for his presidency.

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