Amid unprecedented political turmoil, the Sri Lankan government appears to be finding it hard to bring peace to the country as the citizens are demonstrating to highlight inflation and a shortage of various basic amenities.
With Sri Lanka facing its toughest economic challenge since gaining independence in 1948 from British rule, President Gotabaya Rajapaksa earlier this week urged opposition parties to join hands and form a unity government to help restore normalcy in the island nation.
The opposition, however, rejected the offer, thus dashing hopes of peace returning to the country soon.
On Tuesday, Rajpaksa’s party Sri Lanka Podujana Peramuna (SLPP) lost its majority in Parliament after 42 MPs declared that they would sit independently. These included 14 lawmakers from the Sri Lanka Freedom Party, 10 MPs from constituent parties of the government, and 12 from the main SLPP.
Dr. Gulbin Sultana, an analyst at the Manohar Parrikar Institute for Defence Studies and Analyses in New Delhi, whose area of research is Sri Lanka, spoke with Sputnik and deliberated about how the ruling government has failed to handle the country’s economy.
Sputnik: What has exactly led to the economic crisis in the island nation of Sri Lanka?
Dr. Gulbin: Sri Lanka is going through a severe economic crisis, and the main reason behind it is depleting foreign reserves. It started from 2021 onward. But the situation has turned alarming since November.
Sri Lankan economy is import-dependent. They are importing essential items like food, medicine and fuel. Even to export goods, they import the raw materials from other nations.
Currently, they are not able to import consignments that are packed at their Colombo port due to lack of foreign currency.
And people have been standing in long queues for hours (as a routine) for many months to buy essential items, power-cut turns a regular thing, and that’s why citizens are now agitated.
Now, the economic problem has taken the shape of a political crisis as people are demanding the resignation of Prime Minister Mahinda Rajapaksa and his government.
Sputnik: As you mentioned, the situation started to worsen last year. Why did the government fail to take preventive measures?
Dr. Gulbin: The problem started much before. In fact, if you look at the Sri Lankan economy, the decline in the growth started in 2014-15 onward. That was the time when they had to start repaying their loans.
In 2019, a bomb attack on Easter affected the tourism sector, one of the main earning sectors for Sri Lanka. Tourism, remittance, and exports are their primary revenue generation sectors.
In 2020, COVID lockdown hit the entire world and Sri Lanka too. Remittance and export too got affected as its result, and the foreign reserve started getting affected.
However, the opposition parties and many experts asked the ruling party to restructure the debt payment, delay it, or reschedule it. Because in Sri Lanka’s history, it has never defaulted its debt and they don’t want to tell investors about the economic crisis.
And, I think that was the main problem because the nation was not earning much, but they were paying a huge amount to other countries.
Meanwhile, the government has made several other policy-related decisions that were not correct, like banning the non-essential import, including chemical fertilisers and forcing farmers to adopt organic farming.
Sputnik: Who are the major creditors of the country?
Dr. Gulbin: Sovereign bonds, bilateral partners, majorly Japan, China and India. And, lots of foreign institutions. They avoided the International Monetary Fund (IMF) for a long time as the government and even the central bank governor felt that if they went to the IMF, they might have to bring some structural changes in their economy or the way of working.
But, in March, Sri Lankan government sought a loan from the IMF.
Sputnik: Do you think such a measure is satisfactory in view of the current turmoil in Sri Lanka?
Dr. Gulbin: I think the kind of step the government took to handle the economic crisis was either short-term or ad-hoc. They are addressing only immediate problems, how long can you ask bilateral partners for a loan? Every country has its limit.
Currently, they are dealing with two problems — Political and Economic. Unless political chaos is not resolved they cannot focus on economic issues.
They need a proper long term plan. There need to be some structural changes in the entire economic sphere, but they (political leaders) have to resolve political issues before that.
I don’t see any immediate solution… This problem will continue for some time in Sri Lanka.
Sputnik: How do you foresee Sri Lanka figuring out a solution to tackle its persistent debt problem?
Dr. Gulbin: They have to repay $ 5-7 billion of loans. To tackle the problem of loans, the government has to think about how it can make itself a trade deficit.
Currently, expenditure on imports is much more than revenue earned from the exports sector, so they will have to come out with some kind of solution where they can address the deficit trade problem.
Right now, whatever they are earning, they are either paying import bills or debts.
Moreover, before taking a loan from other countries, they need to think about its viability. For example, they took a loan from China between 2010 and 2015 for an infrastructure project.But now they are not making any profit from the project, and now they’ve to repay it with interest.
