A Forlorn Ceylon Reality: Lessons to Learn

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By Professor Shahab Enam Khan 

It’s a fascinating time for South Asia. Thousands of angry youth and anti-government slogans have filled the streets of Colombo, exposing uncharted economic fate for millions of Sri Lankans. Since its independence, Sri Lankans have never witnessed a financial crisis of this astronomical scale. Food, medicine, transportation, fuel, and electricity, and humanitarian fatigue has pushed the ordinary public to the brink of mere survival. 

For Gotabaya Rajapaksa, frequently called Gota, the nation’s political economy appeared out of control, which prompted him to declare a State of Emergency in early April 2022. His Cabinet, quite inexorably, heavy-handedly comprised the Rajapaksa kinfolks and insiders. The Cabinet had to resign amid the mass public uprising that can tempt anyone to compare it with the Arab Spring. The failure to deal with a twin crisis of balance of payment and the Sovereign Debt crisis will keep the Sri Lankan economy in tatters for a long time. 

This means the nation’s growth outlook will remain volatile if not uncertain and solvency issues will eventually trickle down to the poorest of the poor in the worst possible ways. Countries such as Brazil, Argentina, Mexico, Greece, and even Pakistan have been affected by twin shocks, still taking decades to painfully reform and recover. While Gota has named a panel of advisers to resolve the twin shock and engage with potential lenders – IMF, China, India, or the US, he is showing his political control over the nation despite his Government losing its parliamentary majority and surmounting calls for his and his brother Mahinda Rajapaksa’s resignation. 

Political crisis

As his media office claimed, Gota certainly hopes that the advisers will “provide guidance that will address the present debt crisis and lead towards sustainable and inclusive recovery for Sri Lanka.” But that will take ages, and a parliamentary motion of “no confidence” can lead to another political crisis in the coming days. As many as 42 lawmakers have left the Rajapaksa’s Sri Lanka Podujana Peramuna (SLPP) led coalition to independently represent themselves. SLPP now has less than 113 MPs required to sustain a simple parliamentary majority. But, of course, Gota and his political cohorts are confident that Gota will remain at the helm owing to the lengthy parliamentary and legal process to oust him. 

Meanwhile, those who willingly voted for Gota too have hit the streets of Colombo, being unable to pay for petrol that has become scarce and expensive, the price of cereal and food has escalated between 30-50 per cent in a week, and most unbelievably, a kilogram packet of milk powder now costs up to Sri Lankan Rs 1,900. On top of that, organic farming as an official policy has triggered farmer protests as the decline in the production of rice crops and tea for export became inevitable. Henceforth, the pandemic-induced strain on finance, the tourism industry, and declining food production pushed the Colombo policy circles to a near collapse. 

What makes livelihood even more difficult is the obligation to repay US$ 8.6 billion of debt this year amidst Asia’s highest double-digit inflation rate that is expected to continue at least through the first quarter of 2023. Even the country’s foreign exchange reserves have plunged to US$1.94 billion. Moreover, the Gota Government’s approach to managing the pandemic economy facilitated extraordinary yet unsustainable measures such as reduction in VAT, income and corporate taxes, and removal of the Auditor General’s constitutional authority to audit the Prime Minister’s Office and the Presidential Secretariat. 

Impunity

The impunity of the Government and the bureaucracy from corrupt practices became a reality with the 20th amendment to the Sri Lankan Constitution, adopted in 2020. A letter from Human Rights Watch to the IMF Managing Director noted, “the amendment undermined the independence of the judiciary, as well as key institutions including the National Audit Office and the Commission to Investigate Allegations of Bribery or Corruption (CIABOC), by giving Gota unfettered control of appointments of senior judges and officials. These changes make it harder to hold Government officials and others accountable for corruption and threaten the public’s ability to safely monitor their government’s spending decisions”. Hence, corruption is also at the heart of public uprising.   

As a result, the economic meltdown and misgovernance have barely left any parts of the society unscarred.

Public anger

The impact of the great Sri Lankan meltdown have made schools wind up, and some of the media cancelled publishing newspapers as these entities can’t afford the paper to print them on. Medical centres have declared a medical catastrophe as pharmacies and hospitals have run out of critical care facilities and drugs. Ominous warnings are spreading that starvation could be possible for the 22 million citizens as food supplies are slumping. This absolutely unprecedented situation will keep organically fueling public anger without any doubt.

The public anger then naturally targets the Rajapaksas, who have emerged as the most powerful and wealthy dynasty, accused of committing war crimes by the West. However, balancing the West and China for bailouts for the Rajapaksas has become complicated due to three foreign policy concussions. One is that the Biden Administration may add human rights clauses to the Bretton Wood bailouts as these institutions often lack their own sovereignty to reflect public interests. Of course, more Bretton Wood presence will toll Chinese-Japanese investments in Sri Lanka, many of which are deemed not to add positive value to GDP or growth. The other option is the Chinese bailout which can well remain limited to between US$1.5 billion and US$3 billion comprised of credit lines and syndicated loans, given the rising lack of confidence in the Rajapaksas for Beijing. The overrated narrative of the Chinese debt trap, too, will keep Beijing cautious. And the third one concerns Beijing and Delhi’s power tussle for exerting influence over the island leading to “us vs. them” situations that will hurt political choices for the Sri Lankan Government and polity. 

So, where will Sri Lanka be in the next few weeks? The people may continue to suffer from economic uncertainties, anxiety, and frustration. Politics is likely to see a sharp rise and fall within the dynasty and beyond. And the Government will face a tough political decision in the next few weeks on whether to prioritise international bondholders over saving scarce US dollars for crucial imports. So, it’s time for Sri Lankan policymakers to bite the bullet, to say the least.

And for the rest in South Asia? A wake-up call.

(The writer is currently the Professor in International Relations, Jahangirnagar University, Bangladesh. Email: [email protected])