Sri Lanka’s Economic, Political & Human Crisis

By Lionel Bopage –JUNE 6, 2022

Dr. Lionel Bopage

Ayubowan, Vanakkam, As-salamu alaykum, Greetings to all! Fellow panellists and friends.

I acknowledge the Traditional Owners of this land, the Wurundjeri People of the Kulin nation and pay my respects to their Elders, past and present. Sri Lankans are battling their worst economic crisis since independence. The lack of foreign exchange to procure vital imports has triggered island wide anti-government protests. The crisis has devastated people’s lives. A broad-based, but dispersed and inclusive popular movement with no central leadership has taken the central stage. This protest against autocratic rule is a welcome change in a land where the people had been traditionally fractured along caste, ethnic, linguistic and religious lines. The situation is volatile in all fronts. Like in the past, authorities could use this turmoil to justify violent repression that could lead to a fourth massive bloodbath in the country.

The initial economic shock for the current crisis was generated by the 2019 Easter bomb attacks. Those attacks led to a sharp decline in tourism and strained foreign exchange reserves. The Rajapaksa regime made the crisis worse through cuts to taxes collected from a small base. This alone costed hundreds of billions of Rupees to the government coffers. Revenue was severely curtailed, while the mounting debt remained. The next trigger for the crisis was the COVID pandemic and the war in Ukraine. The foreign exchange derived from tourism, exports and remittances came to a shuddering halt. Foreign direct investment also stopped.

The President unilaterally imposed a ban on all fertiliser imports, and ordered farmers to switch overnight to total organic farming. This was due to a lack of foreign exchange for importing fertiliser. Productivity of tea and rubber fell and the export income also dropped. Total agricultural production declined to alarming levels. It triggered more imports. Sri Lanka has to pay US$ 6 billion every year primarily for the international sovereign bonds, and also for the other loans taken since 2007 from the Chinese, the Japanese and the World Bank, the Asian Development Bank and so on. The global crisis is growing and the global interest rates are going up. With the US dollar strengthening, the debt burden will grow even worse. However, the country does not have any means to pay. Experts warned about this growing crisis several years ago. No one in power paid any attention.

Sri Lanka is heavily dependent on imports. The lack of foreign exchange generated a catastrophic shortage of food, fuel, medicine, cooking gas and other essentials. The country is also facing a major rupee shortage. The government is unable to pay its employees and to run its day to day operations. The government’s response has been to print more money, and that has led to accelerating inflation. Now the inflation rate has reached almost 50 percent.

The economic burden was first felt by teachers and peasants who started protests island wide. Thus, the economic crisis turned into a political crisis. When the urban affluent middle classes felt the lack of essential items and the effects of long power cuts, they came out onto streets. They expressed their growing frustration and anger through ad hoc protests and nightly vigils in middle-class neighbourhoods. The fist slogan #GotaGoHome came from them. Later they mobilised and formed Gota Go Gama at Galle Face Green. When more and more people became aware of the financial and economic mismanagement, the protest movement gained momentum island wide.

With hundreds of thousands of people from different political, racial, religious, and social backgrounds participating, the large-scale inclusive social mobilisation continued. Workers in cities and Malaiyaha workers in the plantations also went on strike. Tamil speaking people in the north and east also took part, but not in a major way, mostly due to understandable reasons. The Rajapaksa regime labelled the protesters extremists. The police shot at peaceful protestors, killed one and wounded many more.

Popular anger grew as the President refused to accept any responsibility for the growing crisis. Next the regime planned attacks on centres of peaceful protests, particularly in Colombo and Kandy. However, the ordinary people came forward and defended the protest movement. This situation led to several spontaneous counter attacks as well as some hitherto unidentified organised violence in certain areas that led to arson and caused several deaths. Hundreds of lawyers have voluntarily mobilised for representing the interests of protesters.

I like to emphasise two matters. Firstly, the protest movement had been peaceful and still remains so. This has to be acknowledged and appreciated. Secondly, when the regime understood that state terror could not break down the protest movement, the Rajapaksas resorted to using more violence. The main demand of the protestors has been the resignation of the President, the Prime Minister, and the government. The Prime Minister, the cabinet and some top-level bureaucrats resigned as a result.

However, the President and the government have survived. Currently, nothing appears to be on the table to addressing the key demands of the protest movement such as the President’s departure, repealing the 20A, abolition of executive presidency and so on. Instead, the President has acquired further 42 institutions for the Ministry of Defence.

The overwhelming responsibility of the crisis lies with the ruling elite and their acolytes and senior bureaucrats who enabled the political elite to usurp the wealth and resources of the country. The president appointed Mr Ranil Wickremesinghe as the new Prime Minister. Mr Wickremesinghe had been the Prime Minister five times before and ineffective! Meanwhile the political crisis continues. Irrespective of who is in power and their political colours, the financial markets will demand their pound of flesh.

Sri Lanka is in the process of acquiring the 17th loan from the International Monetary Fund (IMF). The IMF has outlined a series of austerity measures as a pre-condition for providing their assistance package. The government has already embarked on the process of adopting some of those measures. Yet there is no guarantee that it would lead to a long term economic recovery. What are the advantages Sri Lanka has gained from the previous 16 IMF assistance packages and from many other assistance programs provided by several international agencies? The ultimate outcome is visible right now in front of our eyes: an accelerated debt build up. So, can we expect the 17th IMF assistance package to solve the current crisis?

The regime as well as the international creditors appear to be conveniently blind with regard to the illegal siphoning of funds by those in power and wastage of resources in the state sector. They are silent on the government spending almost half of its salary bill on the military (excluding the Police)! Direct allocations to the three armed forces covering both recurrent and capital expenditure are LKR 308 billion with 12.3 percent of the Finance Appropriation Bill for the year 2022 allocated to the Ministry of Defence. This represents a 1.74 percent increase in direct military expenditure for the year. In fact, the government increased defence spending after the Covid pandemic while the health budget was cut! Tens of thousands of able bodied people in the public service are not employed productively. If financial mismanagement and corruption cannot be curtailed, large scale foreign investment cannot be expected to occur.

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