MAny middle-income or developing country is currently suffering from an a mix of internal political dysfunction, external economic shocks caused primarily by COVID-19 as well as the conflict in Ukraine. Sri Lanka’s experience is an example of how countries can be warned for similar problems in their own regions.
Sri Lanka is not considered a poor nation. Adjusted for purchasing power, the per capita GDP of this country with 22 million inhabitants is greater than that in South Africa or Peru, Egypt, Egypt, and Indonesia. The country is now facing a serious political crisis due to severe shortages in food, fuel and electricity. The currency is collapsing, and the government can’t afford imports or to make its debt payments. Recent weeks have seen violent demonstrations that threatened to escalate out of control.
Were we meant to be here?
A quarter century of civil war, which ended in 2009, has created a legacy of violence at the heart of Sri Lanka’s politics. International headlines were made in 2019 by an ISIS-inspired Islamist terrorist group attacking minority Christians. A series of explosions in churches and hotels on Easter Sunday resulted in the deaths and injuries of hundreds. The insecurity created by those attacks on the island nation and the feeling they gave off helped elected Gotabaya Rajapaksa (a former defense minister who has a reputation of toughness).
As the president is well-known, Gota named Mahinda his brother as prime minister. A landslide election victory in 2020 gave the Rajapaksas a two-thirds parliamentary majority, which then allowed them to rewrite Sri Lanka’s constitution to give the president extraordinary new powers.
Then came hubris. Friends and family were promoted to important positions in the government. A number of economic missteps including the populist tax cut, deprived the government of income and made it more difficult to borrow funds abroad.
External shocks have also played a big role in Sri Lanka’s troubles. COVID-19 devastated a tourism sector still reeling from terrorism, a sector that’s critical for government revenue and job creation in the country. Remittances were money that Sri Lankans sent back home from work abroad.
To help Sri Lanka escape even worse economic circumstances, Rajapaksas are becoming increasingly infuriated and refuse to compromise on the necessity of tax hikes and spending cuts. A ban on chemical fertilizers to push farmers toward organic farming in the middle of the economic crisis made matters worse for the country’s food supply.
Then came Russia’s invasion of Ukraine and the damage it is now inflicting on global food and fuel prices. Russia and Ukraine both are major exporters and consumers of grain. However, much of this production is now shut down due to the conflict. Russia and its ally Belarus, which also faces Western sanctions for allowing Russia to use his country’s territory as a launchpad for attacks on Ukraine, are leading producers of fertilizer. Supply worries have led to higher fuel prices. Oil has risen above $100 per barrel. Sri Lanka also imports over 80 per cent of its medical supplies. Donors in India and in Europe have helped, but there’s a limit to how much they are willing to do.
Public anger in Sri Lanka reached its peak early May when it was sparked by the government’s decision to close down the airport.. Infighting within Rajapaksa’s Rajapaksa clan, especially between prime minister and president, was exacerbated by economic pressures. Bloodshed followed after the government sent counter-protesters in an apparent attempt to intimidate the mostly peaceful protestors calling for the resignation of the prime minister. Enraged anti-government protesters then went on an arson spree, attacking the homes of Rajapaksa family allies, and threatening the prime minister’s own residence. He was eventually forced to resign and needed security protection for an evacuation at 4 AM.
All over the county, a state of emergency has been declared. Anger mobs launched new attacks against politicians and their houses. In the last few weeks hundreds have been hurt and others have even died. One member of Parliament was hit by a car and killed. Two more of President Rajapaksa’s siblings and a nephew have resigned their cabinet posts.
Late last month, Sri Lanka defaulted on its debt for the first time in the nation’s history.
How do you get started?
In an attempt to save his political life, President Rajapaksa has pledged that he will reverse the changes to Sri Lanka’s constitution which have given him more power. He has accepted help for Sri Lanka’s economy from India and China, and he’s appealed to the IMF for a bailout. Ranil Wickremesing is a former politician who has brutally spoken out about the magnitude of Sri Lanka’s problems and called for urgent action. To get a bailout payment from the International Monetary Fund, he said that Sri Lanka would increase its tax rate. In a television speech, he called on the protest movements to participate in reform. He promised that members of parliamentary committees could allow experts, youth and legislators to come together.
For now, the protesters continue to demand President Rajapaksa’s resignation, though there don’t appear to be enough votes in parliament to impeach him, and the opposition looks to have little interest in sharing responsibility for cleaning up this mess by joining a government of national unity.
In short, a chastened Sri Lankan government will try to muddle through, hope the pandemic and Russia’s war in Ukraine end soon, and do its best to secure long-term financial health.
It’s a pattern that will be repeated in many developing countries in coming years.
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