Sri Lanka, an island nation of 22 million, faces an economic and political crisis, with protesters taking to the streets in defiance of curfews and government ministers stepping down en masse. The crisis has been years in the making, driven by a little bad luck and government mismanagement. Over the past decade, the Sri Lankan government has borrowed vast sums from foreign lenders to fund public services. This borrowing spree has coincided with a series of hammer blows to the Sri Lankan economy, from both natural disasters such as heavy monsoons to manufactured catastrophes, including a government ban on chemical fertilizers that decimated farmers’ harvests.
In South Asia, no other political dynasty has been as confidently nepotistic. During Mahinda Rajapaksa’s second term as President from 2010 to 2015, there were more than 40 Rajapaksa family members in government posts, apart from the cabinet. The Rajapaksa government’s decision to ban all chemical fertilizers in 2021, which was later reversed, also hit the country’s farm sector and triggered a drop in the critical rice crop.
Facing a massive deficit, President Gotabaya Rajapaksa slashed taxes in a doomed attempt to stimulate the economy. But the move backfired instead of hitting government revenue. That prompted rating agencies to downgrade Sri Lanka to near default levels, meaning the country lost access to overseas markets. Sri Lanka then had to fall back on its foreign exchange reserves to pay off government debt, shrinking its resources from $6.9 billion in 2018 to $2.2 billion. This impacted imports of fuel and other essentials, which sent prices soaring.
Anger against Sri Lankan President Gotabaya Rajapaksa’s handling of a deepening economic crisis in the island nation of 22 million people spiralled into violence. A severe shortage of foreign currency has left Rajapaksa’s government unable to pay for essential imports, including fuel, leading to debilitating power cuts lasting up to 13 hours. Ordinary Sri Lankans are also dealing with shortages and soaring inflation after the country steeply devalued its currency last month ahead of talks with the International Monetary Fund (IMF) for a loan program.
Critics say the root cause of the crisis is the financial mismanagement of successive governments that have created and maintained a double deficit, along with budget deficits and the current account deficit. “Sri Lanka is a classic double deficit economy. Twin deficits signal that a country’s national expenditure exceeds its national income, and that its production of tradable goods and services is inadequate”. With the country’s lucrative tourism industry and foreign workers’ remittances sapped by the pandemic, credit rating agencies moved to downgrade Sri Lanka and effectively locked it out of international capital markets. In turn, Sri Lanka’s debt management program, which depended on accessing those markets, derailed and foreign exchange reserves plummeted by almost 70 percent in two years.
For Sri Lankans, the crisis has turned their daily lives into an endless cycle of waiting in lines for essential goods, many of which are being rationed. In recent weeks, shops have been forced to close because they can’t run fridges, air conditioners or fans. Soldiers are stationed at gas stations to calm customers, who line up for hours in the searing heat to fill their tanks. Some people have even died waiting. Some are caught in an impossible position, like they have to work to feed their families but must also queue for supplies. One street sweeper with two young sons told CNN she quietly slips away from work to join lines for food before hurrying back. Even middle-class members with savings are frustrated, fearing they could run out of essentials like medicine or gas. And life is made more difficult by frequent power cuts that plunge Colombo into darkness, sometimes for more than 10 hours at a time.
Prime Minister Mahinda Rajapaksa, the President’s elder brother and a former president, told CNN that it was wrong to say the government had mismanaged the economy. Instead, Covid-19 was one of the causes. President Rajapaksa stated on April 4 but did not directly address the resignations, only urging all parties to work together for all the citizens and future generations. According to Rajapaksa, the current crisis results from several economic factors and global developments. As one of the leading democratic countries in Asia, solutions should be found to this within a democratic framework.
(Foto: Jessie Yeung – CNN)