In this comprehensive piece, Encyclopedia Geopolitica contributor Rhea Sethia considers the current situation in Sri Lanka, the factors driving its continuing descent into economic and political woe, and the potential consequences for the wider region.
It won’t have escaped most readers’ notice that Sri Lanka had a difficult 2022. Frustration at the Government’s economic mismanagement initially led to peaceful protests in March 2022. However, the situation took a turn for the worse in July 2022, when the president of the country, Gotabaya Rajapaksa, fled the country and did not resign. Both he and his brother, Prime Minister Mahinda Rajapaksa, refused to relinquish power. In the same month, protesters occupied the President’s House in Colombo and re-instated Ranil Wickremesinghe as President.
In attempting to quell the protests, the Government has resorted to various authoritarian measures, including those that violate the Sri Lankan Constitution, such as restricting social media in order to suppress dissent, as well as imposing draconian laws that violate individuals’ human rights. Perhaps the strongest example of such measures was the Prevention of Terrorism Act, which resulted in the arrest of peaceful protestors and the imposition of up to a year of detention without trial. The army has repeatedly violated freedom of expression and assembly by opening fire on protestors with live ammunition, resulting in several deaths and hundreds of injuries. “President Wickremesinghe’s [Rajapaksa’s successor] use of antiterrorism legislation to lock up people peacefully calling for reform sends a chilling message to Sri Lankans that rights won’t get priority during his administration,” said Meenakshi Ganguly, South Asia director at Human Rights Watch.
The protesters’ demands were to completely remove the Rajapaksa family, who have been blamed for years for exacerbating corruption, nepotism, and dishonesty, from key positions in the country. The family has a reputation for fostering a culture of awarding project contracts, as well as official positions, to unqualified friends and family, and this lack of competent governance has resulted in deep economic mismanagement, including soaring inflation, depreciating currency value, debt accumulation, and unfunded tax cuts.
Economic Mismanagement
Sri Lankan politics has devolved into a family affair, with the Rajapaksa Government plunging the country into a twin deficit— both a budget shortfall and a current account deficit. This was accelerated by unfunded tax cuts, an electoral campaign strategy proposed by the Rajapaksas. This action reduced government revenue, prompting rating agencies to downgrade Sri Lanka to near-default status, causing the country to lose access to international markets and foreign investment. Grandiose ‘white elephant’ infrastructure projects such as Hambantota Harbour and Colombo Port City have further depleted the treasury, and led to a massive trade imbalance that has drained the country’s foreign reserves.
The impacts of economic mismanagement were further exacerbated by the 2019 Easter bombings and the Covid pandemic, which both devastated the tourism industry and reduced foreign remittances from the country’s workers. Tourist expenditures fell by as much as 17.7%
In addition, the country must repay approximately $4 billion in debt, including a $1 billion international sovereign bond that has now matured. Sri Lanka had to call on its foreign exchange reserves to pay off government debt, eroding economic headroom and raising the prices of fuel, food, and other necessities. To add to these economic woes, Russia’s invasion of Ukraine has sparked a global food crisis, as the two countries between them exported nearly a third of the world’s wheat and barley. This was further exacerbated by Sri Lanka’s agricultural policy failure, in which all chemical fertilisers were banned in 2021, resulting in a loss of a third of agricultural land and an 85% loss of crop.
In order to obtain a loan from the International Monetary Fund (IMF), the Government floated the Sri Lankan rupee in March, but defaulted on its international debts in May. Efforts to restore financial sustainability have been ineffective, according to Citi Research, which warned that the Government was in denial about its situation back in December 2020, and a debt restructure was desperately needed. Because IMF bailouts have historically failed, the economic situation could become far worse.
The new Government’s negotiation of terms with foreign creditors to restructure those debts are taking place amidst a period of dissent, bringing the government’s credibility into question. If Sri Lanka’s international debts are not reduced significantly, domestic debts would also have to be restructured, causing a banking crisis where low-income groups would be most badly affected. Moreover, in order to address corruption, the IMF has committed to seeing “structural reforms to address corruption vulnerabilities,” while the World Bank said that, before it provides new financing, it is “working closely with implementing agencies to establish robust controls and fiduciary oversight to ensure these resources reach the poorest and most vulnerable.”
In September 2022, the IMF came forward to help Sri Lanka by providing them with a 48-month loan of $2.9 billion under the Extended Funds Facility. The aid aims to secure macroeconomic stability and creditworthiness. The loan will only go through if Colombo carries out previously agreed measures, including additional funding from multilateral partners and debt relief to bridge the financial gap. This loan begins with one of the lowest revenues in the world and will implement major tax reforms such as making personal income tax more progressive and expanding the tax base for corporate income tax and VAT, all of which will inevitably contribute to public dissatisfaction.
The UN has stated that the country must “reverse the drift towards militarisation” and end the crackdown on peaceful protests in a recent human rights report. “The High Commissioner encourages the international community to support Sri Lanka in its recovery, but also in addressing the underlying causes of the crisis, including impunity for human rights violations and economic crimes,” the 16-page report said. 37 new junior ministers have been appointed, including Rajapaksa’s nephew, ensuring the continuing ire of the protesters, as well as the nepostic state of affairs in the Government. The state, unable to secure essential commodities due to massive debt and corruption may have pushed the citizens to their breaking point.
The elite’s capture of the state has also fuelled public dissent. The Rajapaksa family and its factional allies have moulded and configured public institutions and systems towards their own political advantage, personal survival, and financial gain. They are responsible for capturing almost 70% of the national budget in just five ministries, with four Rajapaksa brothers in high executive positions.
Marginalisation of Tamils
However, this crisis is not just about economics, but also the long history of discrimination against minority groups. Tamils and Muslims in Sri Lanka for years have been subjected to mass discrimination and systematic violence. The country has a long history of civil war, which has had a devastating impact on ordinary civilians. Even after the end of the civil war in 2009, the aftermath is still felt by minorities, and a more subtle war of discrimination is in action, rather than any moves toward social and political reconciliation. For example, post-war militarisation and the territorial expansion in the North and East, encouraged by Rajapaksa, has led to extreme communal tensions throughout the country. This is coupled with a powerful military-intelligence complex, which has sanctioned enforced disappearances, torture, extortion, and other tools of terror.
Hate crimes are on the rise, and the pandemic exacerbated this discrimination, especially against Muslims, when the Rajapaksa Government instituted a nationwide moratorium on burials, which many Muslims saw as a violation of their religious rights. In pursuit of a Sinhalese-Buddhist nation, the targeting of ethnic minorities, deemed as foreign entities, has long been a part of Sri Lankan politics. “Article 9 of the current constitution (adopted in 1978) states that “the Republic of Sri Lanka shall give to Buddhism the foremost place and accordingly it shall be the duty of the State to protect and foster the Buddha Sasana, while assuring to all religions the rights granted by Articles 10 and 14(1)(e).” Tellingly, the framers of the 1978 constitution prioritized support for the buddhaśāsanaya, or Buddhism’s social and institutional manifestations, whereas other groups were merely accorded “religious rights.”
The current president has a deep history of discrimination and militarisation against the Tamils of Sri Lanka, causing him to be deeply despised by citizens. From the United National Party, he oversaw various attacks and ethnic tensions, which including orchestrating the colonisation of the North and forcibly evicting Tamils from their homes. All major Sri Lankan parties have denied the human rights atrocities committed against Tamils, with marginalisation taking force since 1956, when Sinhalese was made the official language of the region, forcing Tamils out of employment sectors. Successive governments have therefore been highly unpopular with the people, which has also fuelled their protests. The Sri Lankan government is “blocking investigations into some emblematic cases of serious violations”, according to Human Rights Watch.
The crisis that Sri Lanka faces today is a dual one – its ethnic conflict, the wounds from which have not been addressed, and continued economic decline. Protestors are not only dissenting against economic mismanagement, but are also seeking a vision of the country that is inclusive, multi-ethnic and religiously equal. In particular, disenfranchised youth are speaking out against the Sinhalese-Buddhist majority’s monopoly over the economy and governance, and how this directly contributes to social exclusion, marginalisation, and economic inequality. There is a pressing need to address the past and the impact of this human rights crisis on the current situation in Sri Lanka which has sparked protests not only within its borders, but worldwide. The struggles of minorities against state exclusion and violence are important to highlight since it still informs various government tactics and places emphasis on holding accountability for war crimes.
Hence, the economic crisis, because of the government’s ideology and tactics, have especially impacted the minorities, particularly Muslims and Tamils. Individuals of these communities have been pushed to the brink of survival and poverty. With the energy crisis, inflation, shortage of foreign reserves, fuel shortages, and halting of agricultural industries, it is the most deprived communities who have the most to sacrifice, not only due to the Sri Lankan government’s economic mismanagement, but also their deliberate policies of shunning and discriminating against these communities. “Mullaitivu is Sri Lanka’s second-poorest district, with 58% of households living in poverty, a Save the Children survey showed in June, and it has the largest number of those saying they lost all their income due to the crisis, about a quarter.” Mullaitivu Tamils are also faced with the issue of taking their land back from the military, thereby threatening their livelihood. For Tamils here, protesting is something they cannot afford due to the fear of being killed, besides the fact that dire economic circumstances are nothing new, because of the emphasis on development and investment in the South and the sheer indifference and state assisted violence in the North. “Sri Lankan Tamils living in these regions cannot protest,” said Nilanthan. ”Apart from isolated incidents of altercations between protestors and police officials, the protestors [in other regions] have largely remained unharmed… If Singhalese [largest ethnic group in Sri Lanka] agitate, they deal with the police. But here, we would have to deal with the military, ” Nilanthan added.
WHAT IT MEANS FOR THEIR NEIGHBOURING ALLIES
In Pakistan, a similar yet distinct politico-economic crisis has been brewing, with fear that the nation may go down the same path as Sri-Lanka, or worse. Journalist Zahid Hussain warned that whilst they may not be in Colombo’s shoes, they are not far from it, with the bailout package from the IMF arriving by the end of August. Pakistan, just as Sri Lanka, is indebted to heavy loans and investments from China under the Chinese-Pakistan Economic Corridor and wider Belt and Road projects.
Due to the lack of leadership, projects have been further leased to Chinese, plunging them in greater debt. There is also a political divide in Pakistan, with the ousting of Imran Khan and the new government which is developing a reputation for not being able to control inflation. The Sharif government has also introduced unpopular measures, which include raising the prices of fuel, slashing subsidies, and imposing a 10% supertax on large-scale industries. These policies are likelt to result in the absence of economic activity, thereby putting foreign aid to a halt.
The similarities between the Sri Lankan and Pakistani situation are undoubtable, both caught in over-dependence on China and mishandling of economic affairs, exacerbated by the climate crisis. Analysts also warn of the imposition of harsher political and economic terms for both nations, especially due to the USA’s preoccupation with the Russo-Ukrainian conflict, as well as their conflict with China. Perhaps the biggest mistake Pakistan has made is to have underested how much it could afford to borrow, along with the failing of its key industry’s productions- cotton and agriculture. This too is attributed to climate change, which must be analysed since Pakistan’s latest floods have predicted that the climate crisis will heavily impact global South countries before the West, even though it is the latter with a larger carbon footprint. Hence, a parallel can be drawn between Sri Lanka and Pakistan, two countries facing massive economic/social crises amid rising intolerance, especially raised by political families and parties driving the countries toward turmoil.
An independent think tank, while holding accountable the lack of transparency and corruption in the country, also states that Sri Lanka is a victim of the Chinese ‘debt-trap.’ How this works is that Chinese authorities approach authoritarian rulers and highly indebted nations with projects that showcase economic growth- ports, airports, highways etc. The lending is conditioned with short term maturities and high interest rates for balance sheet support to increase their foreign currency reserves.
The Chinese have helped fund projects in Rajapaksa’s southern voter base of Hambantota, which have been unproductive- an example being the development of the most underutilised airport in the world, or the port facility, the Colombo Port Facility, which Sri Lanka had to hand over to China for 99 years due to its inability to pay off loans. With the economic crisis that Colombo faces, China is their leading bilateral debtor, holding 10% of the country’s outstanding debt. Sri Lanka has not taken steps to restructure its debts in dialogue with the IMF, or push austerity measures with the Paris Club, and hence walked into the Chinese debt trap. Many have cited that it is the defaults of China’s infrastructure-loans being the biggest factor for Sri Lanka’s economic crisis. “Instead of making use of the limited reserves we had and restructuring the debt in advance, we continued to make debt payments until we ran out of all of our reserves,” said Ali Sabry, Sri Lanka’s caretaker finance minister from April to May, to the Wall Street Journal. “If you had been realistic, we should have gone [to the IMF] at least 12 months before we did.” China has not been willing to forgive any debts during this crisis out of the fear that this will set precedent for other debt-ridden countries thereby putting the Belt and Road Project at risk. This provides a warning for other South Asian nations like Pakistan to realise that it is hard for China to be one’s “all-weather” friend, as Maria Siow states.
The country has not aided Colombo with its debt-restructuring. Opposition legislator from the Tamil National Alliance Shanakiyan Rasamanickam, has stated “That is not China being Sri Lanka’s friend, that is China being Mahinda Rajapaksa’s friend.” This comes to show that Sri Lanka, in its turn, has also taken Chinese aid for granted, only to realise that they would not be able to protect their investments in Sri Lanka, especially due to the presence of India and its navy, which they have no intention of challenging.
Ukraine is a top-5 trade partner in terms of import value of Sri Lanka, indicating their strong dependence of Ukrainian food imports. Concurrently, the Russian invasion of Ukraine has served to deepen the economic crisis and food shortage in Sri Lanka. As the war goes on with sanctions and the like, global growth is projected to slow from an estimated 6.1% in 2021 to 3.6% in 2022 and 2023. Despite this, they look forward to capitalising on the traditionally friendly relations with Russia amidst the crisis. Putin has said that with both nations having a traditionally friendly relationship, help could be available in the form of credit support for fuel imports.
Ukrainian President Zelensky blames Russia for the ongoing Sri Lankan crisis due to the blockage of food products as a result of the invasion of Ukraine. The Group of 7 (G7) leaders discussed the impact of Russia’s war on food and energy supplies and called upon them to enable free passage of agricultural shipping from Ukrainian ports into the Black Sea, whilst also cease, without conditions, all attacks on agricultural and transport infrastructure. The relationship has also begun to sour due to the inability of Russian oil companies to import oil to Sri Lanka, citing the latter’s debt default on foreign debt as well as financial transactions issues caused by international embargoes on Russian trade.
One can say that Putin is exploiting countries in crisis, like Sri Lanka, to put pressure on the international community to abide by their demands by using their oil and other exports, whilst at the same time blocking that of Ukraine. A clear outcome of this is how Sri Lanka has refrained from imposing sanctions because it imports nearly 70% of its military equipment from Moscow. There appears no solution in sight until the Ukrainian invasion is resolved.
New Delhi has showcased concern about the political situation in Colombo, but has decided not to interfere in domestic issues. However, India has played an important role in providing support to the nation, with the handing over of a 40,000-tonne consignment of chemical fertilisers to help the country’s food crisis, as well as the recommenced distribution of the Lanka-IOC, the joint sector petroleum-product outlet in Sri Lanka, in collaboration with the Indian Oil Cooperation. Moreover, they have also pledged a comprehensive plan to increase economic and infrastructural ties in order to counter the growing Chinese influence. As Colombo’s closest neighbour amongst other South Asian nations, India has declared that they will not be dispatching troops to curb the crisis in the country, indicating that they are closely watching all developments, but not directly intervening. However, India must also be aware of other neighbours such as Pakistan and Myanmar who are also spiralling in economic crises, which may develop politically and socially.
Suggested books for in-depth reading on this topic:
- The Sri Lanka Reader: History, Culture, Politics (John Clifford Holt (ed))
- Sri Lanka in the Modern Age: A History (Nira Wickramasinghe)
- Belt and Road: A Chinese World Order (Bruno Macaes)
Additional geopolitical reading suggestions can be found on our 2023 reading list
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Rhea Sethia is a geopolitical analyst, specialising in South Asian affairs.
Photo: “Anti-government protest in Sri Lanka 2022” Wikimedia User AntanO
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