How Sri Lanka went from fastest growing country in South East Asia to Bankrupt and Rajapaksa’s from War Heroes to Enemy of the state.
The Current Economic Crisis in Sri Lanka
Sri Lanka has a population twenty two million and an independent island off the coast of southern India not long ago there were south Asia’s most developed nation but right now there and a severe economic crisis. The country is fifty one billion dollars in debt rolling blackouts are rampant, the currency is crashing, medication and food is in short supply. Even school exams had to be cancelled because of the shortage of printing paper.
The economic crisis in Sri Lanka which is becoming increasingly dramatic with residents life savings virtually disappearing into thin air. One estimate from Johns Hopkins university shows real inflation at over one hundred and thirty percent in much the government is even asking airlines to stop refuelling in the country to save on fuel many Sri Lankans have had enough of the horrific situation the homes of government officials have been torched and the sitting prime minister even had to flee to a naval base for his own safety. Protesters have also storm the presidential residence there was swimming in the president’s pool eating his food and drinking his alcohol.
The Rajapaksa’s had been a powerful family in the country for a while the wealth came from rice and coconut farming. Their power from the activities and politics interlink and in politics you have to be somebody to be elected as Racine sally a professor at the national university of Singapore told the Washington post quote you cannot win in politics if you’re not from an established family the second of nine children Mahinda Rajapaksa us became president in 2005 and for ten years the country became a family business as the families influence grew soon other brothers sons nephews cousins daughter in laws and other relatives joined the government occupying top positions in various administration and Sri Lanka govt became a family affair.
He then named his brother as defence secretary while basil and the oldest brother Jamal were placed in charge of irrigation and economic development. Sri Lanka enjoyed years of growth fuelled by a mountain of foreign debt but for much of their rule things were going well. Apart from some critics many Sri Lankans we’re fans of the ruling family not only for bringing up the country and social standing but also for bringing peace to the nation.
From 1983 to 2009 there was a horrific civil war in the country a rebel group called the Tamil tigers would fight against the government citing discrimination after a twenty six year military campaign. The Sri Lankan armed forces militarily defeat of the Tamil tigers in may of 2009 and this brought the civil war to an end at that time Rajapaksa brother became the president and the defence ministry. After the defeat of the rebels the pair were hailed as heroes Mahindra enjoyed the adulation of voters who approved of his bloody yet decisive victory in a twenty six year civil war against the Tamil rebels but it wasn’t a squeaky clean image for the brothers allegations of corruption including questionable deals with Chinese state counterpart swirled around hinder his brother.
He as facing scrutiny over the purchase of make fighters from Ukraine but these scandals didn’t stop the family from spending big he promised huge infrastructure projects including a Chinese sponsored airport which sits largely empty. He tried to jumpstart growth by borrowing heavily and attracting foreign capital by propping up the Sri Lankan rupee in the short term the strategy worked the economy boomed causing a per capita gross domestic product to more than double from 2006 to 2014. This pushed Sri Lanka past Ukraine the Philippines and Indonesia. It lifted 1.6 million people out of poverty and gave rise to a large middle class. By 2019 Sri Lanka ascended to the ranks of the world bank’s upper middle income countries.
The Drastic Fall Of Sri Lankan Economy
All of that growth came at a cost Sri Lanka’s external debt tripled from 2006 to 2012 pushing total public debt to 119 percent of GDP In 2015 these policies were suspended but the debt continued to accumulate with each passing year the family government made even more mistakes each mistake led to ever greater risk when the military brother Gotabaya got into power in 2019 he promised tax cuts to get elected when this came around the government lost 25 percent of its revenue to make things worse in 2020 COVID smashed tourism for Sri Lanka tourist income was a huge source of funding to pay back foreign debt then 2021 rolls around and Russia and Ukraine go to war in an ill twist of fate before the war Russians frequently made up the biggest share of Sri Lankan’s tourism with Ukrainians not far behind as the flights to Moscow were suspended and the Ukrainians are at war Sri Lanka’s tourism industry suffers even more.
In April of 2021 the Rajapaksa government made another fatal mistake to prevent the drain of foreign exchange reserves. All fertilizer imports were completely banned. This move was extremely radical as no country can feasibly run their food supply on 100 organic fertilizer on a whim. Farmers overnight had to stop producing and the food supply collapsed the country had to start importing rice and other food goods and the price of food exploded rubber and tea two major exports also ground to a halt.
The government reversed the policy in November of 2021 but the damage was already done. Then things went from bad to worse the country was spending more than it made imported more than it exported as a consequence its foreign reserves began to run dry this in itself isn’t too unusual as a lot of countries do this and end up borrowing more money to keep themselves afloat but the difference here is that the foreign debt for Sri Lanka is so high that they can’t even pay the interest to keep the debt expansion going to make things even worse oil prices were exploding internationally so importing that cost even more than normal and being a small island dependent on deliveries by sea made this a nightmare for Sri Lanka.
The inability to import led to food shortages as foreign exchange reserves remain under strain in February of 2022 the official inflation numbers rose to 17.5 by June it was 55. The price of cooking gas for example is almost three times higher than it was just a few months ago and even printing paper is hard to come by forcing schools to close and cancel exams. In march of 2022 the Sri Lankan rupee posted its biggest single day decline in more than 40 years these next numbers highlight just how fast the situation is deteriorating Sri Lanka’s foreign currency reserves at the end of 2019 stood at 7.6 billion this had fallen to 1.93 billion in march of 2020 and by July of 2022 all that remains is 50 million there is no longer enough foreign currency to import basics such as fuel.
On June 29th 2022 the country suspended fuel sales as it only had enough fuel for just one more day and it will be given out in absolute emergencies it was the first country to ban sales of petrol since the fuel crisis in the 1970s before long the situation was horrific citizens began starving and there was a shortage of everything food and fuel being the most pressing. Long fuel lines are a common sight, arguments occur and fights break out and one rickshaw driver even dies of heat stroke.
The government is now so short on funds that it’s going to start printing money to pay employees salaries and most of us know how that turns out. It’s basically the end of the line for the Sri Lankan economy as Sri Lanka no longer has money to import goods and they can no longer function to produce enough revenue.
In April the government defaulted on its external debt worth 51 billion and 7 billion more is due at the end of the year. Starting in early April of 2021 protests began to erupt all over Sri Lanka. At first the government tried to squash the protesters triggering deadly crashes across the country but they couldn’t hold back the tide of anger.
The Rajapaksa brothers once held by many as heroes for winning the civil war are now reviled as leaders it’s a dramatic fall from grace for a family that dominated Sri Lankan politics for over a decade the former president Mahindra Rajapaksa had to be evacuated from his official residence after protesters attempted to storm the house. Other family houses of the Rajapaksa’s have also been targeted elsewhere.
Sri Lanka is in a very risky situation with great uncertainty. On June 10th hundreds of thousands of protesters broke into president Gotabaya’s official residence and they swarmed into the office of a president already fled at 10 am local time he fled Gotabaya’s motorcade was seen speeding down the highway out of the city.
His secretary and other officials didn’t know his whereabouts but he was later stopped at the airport trying to flee the country to Dubai. After he left, protesters wearing helmets and waving Sri Lankan flags broke into the president’s residence some cooking food in the kitchen while others are seen swimming in the pool there was even a piano sing-along in one of the rooms to lift morale and for the first time several Sri Lankan military personnel joined the protesters marking a turning point in the government’s control of the situation.
The protests and storming of the government residents also shows what happens when governments lose control of an economy and trust of people. Overall it’s a tragic situation of a potent combination of government mismanagement and external economic and geopolitical factors. Moreover without a stable government it’s going to be very difficult to negotiate loans or restructure the country’s debts. So it looks like the end of the Rajapaksa’s family dynasty and the long years of complete control it exercised over this island nation.
What’s Next For Sri Lanka
So basically the only option is to get loans. Sri Lanka is seeking emergency loans of 3 billion to pay for essential imports such as fuel. The world bank has agreed to lend 600M and the government is also asking for 4 billion from the international mandatory fund. The IMF said that the government must raise interest rates and taxes as a condition for the loan which would make the country’s cost of living crisis even worse.
They’re also seeking help from China, India, Qatar, Australia, Japan, the US and more. Sri Lanka and India have signed a 1B credit line for importing essentials including food and medicine. Sri Lanka owes 6.5 billion dollars to China and the two are in talks on how to restructure the debt. China agreed to bolster Sri Lanka’s foreign currency reserves by swapping the Sri Lankan rupee for its currency but china has signalled displeasure over Sri Lanka also approaching the IMF for help. The Rajapaksa’s are now not only concerned for their political future but also for their safety and security when a new government takes over.
On 21st July Ranil Wickremesinghe has been elected as new president of Sri Lanka. He faces the task of leading the country out of its economic collapse and restoring order after months of mass protests. We can only hope that things turn around for the nation and they can get the resources they need to rebuild their economy as no citizen of any nation deserves what has happened to the people of Sri Lanka.
Great initiative to empower and educate.