Yves here. Not that the US would have done much for Sri Lanka even in the best of circumstances, but our insistence of throwing money into the arms makers/arms dealers sinkhole called Ukraine assures that we have excuses for not helping out.
But another reason for featuring this story is Sri Lanka (or perhaps somewhat less dire versions) is where many low income countries are likely to wind up as energy and food costs continue to rise, and a sky high dollar makes their terms of trade even worse. And that’s before getting to the Fed’s desire to slow inflation by killing the US economy (when that won’t produce more oil or fertilizer or aluminum or wheat) denting global growth, which will also hurt the countries in Sri Lanka’s boat.
By Rashmee Roshan Lall, who writes on international affairs. She has lived and worked in eight countries in the past decade, including Afghanistan, Haiti and Tunisia, has a PhD, blogs at www.rashmee.com and is on Twitter @rashmeerl. Originally published at openDemocracy
Sri Lanka is in a state of chaos. Faced with the worst economic crisis of its 74 years of independence, the country has been roiled by days of violent unrest – leading the government to the brink of collapse.
For months, nationwide protests have taken place over soaring food prices, severe shortages of everyday essentials, weeks of power cutslasting up to ten hours a day, and crippling petrol and diesel costs, which are up 92% and 76% respectively since January.
A national emergency remains in force, the army is enforcing a nationwide curfew and threatening to shoot looters on sight and some Western countries are issuing advisories to warn their citizens against non-essential travel to Sri Lanka.
Its growing notoriety – as a failing state and an unstable no-go area – is a bitter blow for the tear drop-shaped island nation, which once counted tourism as its third-largest foreign-exchange earner and was not too long ago hailed by the World Bank as South Asia’s “development success story”.
State of Play
President Gotabaya Rajapaksa’s government is struggling to remain in office as he attempts to cobble together a national unity administration. This would replace the 26-member cabinet, whose members resigned in unison last month bar the president and his elder brother, the prime minister, Mahinda Rajapaksa.
The situation is volatile. Mahinda, who hung on until Monday, when he also resigned, has had to be evacuated by the army, after protesters tried to storm his official residence in the capital, Colombo. He is currently sheltering at a naval base in the north-eastern city of Trincomalee.
On 12 May, Ranil Wickremesinghe was sworn in as Sri Lanka’s prime minister for the sixth time, but it’s not clear if cabinet formation will be speedy and smooth. The lack of a new cabinet is taking its toll on Sri Lanka’s people and its prospects. On 11 May, the head of Sri Lanka’s central bank, Nandalal Weerasinghe, said the country has just 48 hours to save itself, lest “the economy will completely collapse”.
Meanwhile, angry protesters chant “Go Gota, go”, while the International Monetary Fund (IMF) – with which the government is urgently negotiating a bailout – has said talks for a loan can advance only once a new cabinet is in place.
The IMF also expressed concern over “rising social tensions and violence”, according to a statement shared with local media.
A mounting debt crisis has left Sri Lanka unable to refinance foreign debt totalling more than $50bn. And with foreign currency reserves as low as $50m, the country is unable to import food, medicine and fuel.
Its 22 million people have suffered weeks of severe shortages of everyday essentials. Even the most basic food has become unaffordable. Lentils, for instance, rose from 168 Sri Lankan rupees (37 pence) per kilo in October to 500 rupees (£1.11) in April. Meanwhile soaring fuel costs are forcing public transport and private vehicles off the roads and leaving farmers unable to run tractors or start their rice paddy crops, despite it being planting season.
How Did It Come to This?
But how did Sri Lanka get here? It was the first South Asian country to embrace market liberalisation way back in 1977 and was often compared to Singapore, says P. Jayaram, a visiting professor at Amrita University in Coimbatore, India, who reported from Colombo in the 1980s and 1990s.
Barely a decade ago, a report for the research-focused International Growth Centre was hailing Sri Lanka’s 7% growth rate and its “substantial reduction in poverty”. As recently as 2018, Sri Lanka’s per capita GDP was more than $4,000 (by 2020 this had fallen to $3,680). According to UNESCO, an astonishing 92.5% of Sri Lankans are educated, with non-profit Borgen Project declaring the country’s relatively new education system “has shocked the world with its success”. Sri Lanka’s free and universal healthcare was celebrated as “a success story in South Asia”.
On 16 May 2009, Mahinda Rajapaksa, then the president, declared victory in the nearly three-decade civil war against Tamil Tiger rebels. There wasdancing on the streets of Colombo and a stream of congratulatory messages poured in from world leaders for this stunning defeat of ‘terrorism’.
Sri Lanka seemed poised to reap the harvest of peace and prosperity. But the decisions made after the end of the war put the country on a quite different, perilous path.
“Sri Lanka made a series of flawed choices after the end of the civil war,” Sumit Ganguly, a professor of political science at Indiana University, told openDemocracy.
“Amongst other matters, it went on a borrowing spree and it cut taxes. The debts came due and the revenue losses undermined public finances.”
Sri Lanka was Asia’s largest high-yield bond issuer, borrowing heavily in the years following the war for several ambitious infrastructure projects, such as South Asia’s tallest self-supported tower and wide highways in the hinterland. Critics call these projects “the Rajapaksa white elephants”. The pile of debts continued to grow, with roughly a third owed to international bondholders and China and India as other large creditors.
Mahinda was in charge of the country from 2005 until 2015; his thumping election victory in 2010 leading political analysts to label him “a man with a Midas touch”. But that seemed not to extend to the country’s finances, with Mahinda taking Chinese loans to build the expensive Hambantota port in his southern home district.