Article by Gopiga Arulchelvam - MI International
These past months, Sri Lanka has faced an unprecedented economic crisis and is still in a recovery process. In July 2022, due to lack of fuel, food and electricity shortage, protesters have invaded the former president’s residence in Colombo. Thus, Gotabaya Rajapaksa fled the country and withdrew later from his presidential functions. The newly elected president, Ranil Wickremesinghe, remains unpopular among many protesters who perceive the former prime minister as also responsible. To understand the roots of this economic and political crisis, we need to look at history, state expenditure, and recent global/geopolitical events.
The Sinhalese majority in power: marginalization of ethnic minorities
Since Sri Lanka’s independence in 1948, political parties were formed around different aspects of the society like ethnicity and religion. The Sinhalese represent the majority ethnic group in Sri Lanka and have constituted the dominant political parties. From the decolonization until today, parties like the Sri Lanka Freedom Party, the United National Party, and the Sri Lanka Podujana Peramuna have played a major role to strengthen the Sinhalese power. In addition, these political parties contributed to discriminate ethnic minorities such as Tamils and Muslims. Indeed, several policies and laws established by these political parties marginalized ethnic minorities notably from the political sphere and education.
These tensions led to the civil war between the government armed force and the Liberation Tigers of Tamil Eelam from 1983 to 2009. Thus, the Sri Lankan government spent a high budget on military expenditure and had to rely on foreign loans. Moreover, Sri Lanka continues to maintain a military presence in the north-east of the island where Tamils live[3]. Concerning Muslims, they are suffering from anti-Muslim propaganda and the government is ignoring attacks perpetrated to Muslim shops and mosques. After the Sri Lanka Easter bombings, in 2019, the case of “Dr. Shaffi, a gynecologist, falsely accused of forcibly sterilizing Sinhala women” also demonstrated the way political parties use fear to attract votes.
With the recent economic crisis, Sinhalese people realized government’s failures and protested in mass in the capital. The “go Home Gota” campaign reunited people from all ethnicities and religions. However, Muslims and Tamils are aware of past misinformation spread about them by nationalists and pro-government entities. Thus, their support to protesters was mainly limited to the resignation of Rajapaksa who is a part of a dynasty that used minorities as a scapegoat. Furthermore, the restrained response from the Tamil community is related to the lack of accountability and concrete peace resolution regarding the aftermath of the civil war.
Sri Lanka’s economic policies: mismanagement and corruption
Since the middle of the 2000s, Sri Lanka’s economic structure is based on the import substitution with several tariff barriers to protect domestic industries. Hence, these companies could easily sell on the local market. Nevertheless, these industries are not enough encouraged innovating which make them less attractive to the global stage in terms of supply chain and export market. In addition, Sri Lanka only signed a few free trade agreements and exports mainly textile and tea. The remaining exports concern spices, gems, coconut products, fish, and rubber. Consequently, Sri Lanka should focus on higher value-added products to increase its profit from exportation.
Besides, Sri Lanka’s economic crisis is also the result of years of mismanagement and corruption from successive governments. During the Mahinda Rajapaksa era, there were a lot of development projects that enrich business circles and political elites. Since 2009, Sri Lanka took Chinese loans at high interest rates which funded unprofitable companies and superficial projects like the Colombo Lotus Tower. Moreover, several populist policies were proposed to attract votes. Hence, the government implemented policies like “subsidized rice, cheap bread, free fertilizer, and lower taxes” and offered state jobs. In 2021, Sri Lanka employed 1.4 million state workers whose salaries represented 86 percent of the country’s tax revenue. Consequently, these policies and investments increased the public debt as well as the flow of money and participated to the sudden high inflation of these past months.
Global/geopolitical events: impact on the society and the support of multilateral institutions
Recent events contributed to weakening Sri Lanka’s economic situation. The COVID-19 impacted tourism which is a major revenue. The Russia-Ukraine war globally elevated oil prices and resulted in an intense shortage of fuel in Sri Lanka. Furthermore, Sri Lanka’s foreign reserves drastically decreased from 8 billion dollars in 2020 to 2.31 billion in 2022. Thus, population must bear the consequences in their daily lives with unemployment, food shortage, lack of fuel and power cut.
According to the UN News, Sri Lanka’s health system fell apart due to power cut, shortage of medicines and equipment. The lack of fuel conducted medical staff not to be able to reach their workplace. This situation is especially difficult for pregnant women. Therefore, the United Nations Population Fund called for 10.7 million dollars to provide aid for women.
In early September 2022, the President Ranil Wickremesinghe met the International Monetary Fund delegation. They concluded a temporary agreement for a loan of 2.9 billion dollars that needs to be approved under certain conditions by IMF executive board. The final decision is expected by the end of the year. In the meantime, the country is required to negotiate with private and bilateral creditors like China, India, and Japan to get financial assurances.
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