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Resolving Sri Lanka’s Economic Crisis

Sri Lanka’s Economic Crisis
World Bank data reveals that almost 300,000 Sri Lankans fell under the poverty line in 2020, meaning that 12.7% of the population lived on less than $3.65 a day. The COVID-19 pandemic had a lethal effect on the tourism, manufacturing and construction sectors that locals are financially reliant on.

In an interview with The Borgen Project, Saman Kumara, a guest house owner in the city of Haputale in Sri Lanka, shares that the local population has resorted to selling their personal property to secure money for food and medicine. According to 2022 data from the World Food Programme (WFP), close to 30% of Sri Lanka’s households (more than 6 million people) experience food insecurity. Adding insult to injury, citizens are experiencing power cuts of up to 13 hours and massive shortages of medicine and fuel. These consequences stem from government mismanagement and failure to act on time, resulting in Sri Lanka’s deepest economic crisis yet.

Coping with the Crisis

To alleviate the impacts of Sri Lanka’s economic crisis, in 2020, the United Nations Children’s Fund (UNICEF) examined Sri Lanka’s social protection response, concentrating on cash transfer initiatives. The Sri Lankan government swiftly established a cash transfer initiative in response to the crisis, “providing millions of monthly payments of LKR5,000 (roughly $14) to households in April and May.” Although the initiative lasted just two months, the government managed to reach most of the country’s citizens with this financial sustenance.

Kumara says that, during the pandemic, “the rich became richer” by buying off the properties that poverty-stricken people were forced to sell due to financial difficulties. “We had to sell our properties, vehicles and land to earn some money because every other income was blocked. [Wealthy] people bought those properties and vehicles at a very low price and that made the situation even worse.”

Government Mismanagement

Official records from Sri Lanka’s Department of External Resources show that by the end of April 2022, the government’s external debt amounted to $34.8 billion. The BBC reported in May 2022 that “Sri Lanka has defaulted on its debt for the first time in its history.” The economic turmoil, rolling blackouts, shortages of essential resources and staggering inflation have caused countrywide protests.

According to protestors, “a series of missteps” that the president and his administration have made have led the once vibrant and thriving economy of Sri Lanka to a fatal crash. In July 2022, after angry protesters stormed his family residence, President Rajapaksa chose to step down from his position and fled the country.

Some of the decisions that triggered Sri Lanka’s economic crisis include the ban on chemical fertilizers, a decision that the government later reversed, but detrimentally affected Sri Lanka’s tea industry and increased food insecurity. Tax cuts in order to garner political support worsened the economic situation while Sri Lanka’s external debt continued to grow. Overall, citizens blame Sri Lanka’s economic collapse on poor governance and severe mismanagement of the economy.

A New Administration

In June 2022, Sri Lankan members of parliament appointed Prime Minister Ranil Wickremesinghe as Sri Lanka’s new president, but according to Kumara, the new government has not helped the situation. “Yes, the government has changed but prices keep increasing. Before the pandemic, 1kg of rice cost 80 rupees (equivalent to $0.22), but now it costs more than 240 rupees (equivalent to $0.66). Petrol, gas and electricity have increased by about 800%,” Kumara says.

“Many of us [have no choice but] to leave the country as we cannot recover from the pandemic. Lots of restaurants are closed, most hotels have remained closed and people skip meals to save food and money.” Kumara also shared that the crisis has led to an increase in criminal activity and mental difficulties. “Every day we see on the news more robberies, suicides, people struggling with income.”

“We were lucky because our business received help from abroad. Previous guests [who] have been staying at our guest house sent us some money to lend a hand. However, it’s been almost impossible to recover from Sri Lanka’s economic crisis,” Kumara notes.

A September 2022 report by the U.N. says, in Sri  Lanka, “Fundamental changes will be required to address the current challenges and to avoid repetition of the human rights violations of the past.”

A Helping Hand

Help from abroad comes as UNICEF and Rotary International announce their new scheme to “deliver critical lifesaving supplies to families impacted by the crisis in Sri Lanka,” the UNICEF website says. The partnership, announced on 22 August 2022, aims to tackle the deepening economic crisis impacting the Sri Lankan community. Among other essentials, the partners will provide clean water, medicines, educational resources and medical equipment.

Projections by the World Bank suggest that poverty will continue to stand above 25% in the years to come. Aid from international organizations helps struggling Sri Lankans meet their basic needs, but for lasting change to occur, the new government needs to step up with reforms and solutions to reverse the damage that the previous administration caused.

– Ralitsa Pashkuleva
Photo: Flickr

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Economy and Political Unrest in Sri Lanka

Where is Sri Lanka
Sri Lanka is a teardrop-shaped island off the southern coast of India. It is home to more than 21 million people, despite consisting of only 25,332 square miles. Its largest city, Colombo, has a millennia-long history as a prominent trading port and is currently a popular tourist destination.

The Democratic Socialist Republic of Sri Lanka was previously a British colony called Ceylon and kept that name until 1972. It is governed by an elected president and unicameral parliament with a prime minister, as well as a judicial branch. The most popular languages are Sinhala, Tamil and English with several other indigenous dialects. The country is overwhelmingly Buddhist with significant Hindu and Muslim minorities and a small number of Christians (primarily Roman Catholic). Religion plays a significant role in the lives of Sri Lankans.

Sri Lankan Civil War

Similar to British rule in Rwanda, the British colonial government favored the Tamil people, an ethnic minority concentrated in the northern and eastern regions. The British gave the Tamil people a position in the colonial government and Sinhalese land. After Sri Lanka gained independence in 1948, the government deported many Tamil people and greatly reduced its power in favor of the Sinhalese majority. Ethnic tensions rose in the following years, exacerbated by differences in religion, income and development. This tension gave birth to the Liberation Tigers of Tamil Eelam or the Tamil Tigers which advocated for an independent Tamil state. In 1983, the Tamil Tigers attacked Sri Lanka government troops, starting a 26-year civil war.

It is estimated that 100,000 people died in the conflict, with atrocities and human rights abuses committed on both sides. The Tamil Tigers are notorious for its use of child soldiers and suicide bombers, forcibly recruiting Sri Lankan civilians or using them as human shields. Accusations have pointed to the Sri Lanka government shelling their own designated safe zones, food distribution lines and hospitals. People have also accused the government of mass rape and ethnic cleansing. Attempts to bring perpetrators to justice have been slow-moving.

A New Economy

Since the end of the war in 2009, Sri Lanka’s economy has grown by 5.8 percent every year. The economy is transitioning from a rural base to an urban manufacturing base, especially in the garment industry. This increasing wealth has expanded the middle class and reduced the poverty rate from 15.3 percent in 2006 to 4.1 percent in 2016. There have also been significant improvements in public health which have paved the way to some of the highest life expectancies in Asia; 72 for men and 78 for women. In less than a decade of peace, Sri Lanka became a development success story.

Political Unrest

Despite the unprecedented economic success, Sri Lanka is not immune to political extremism and unrest. In 2018, president Maithripala Sirisensa fired the prime minister, Ranil Wickremesinghe. The country installed Mahinda Rajapaksa, a former president accused of serious human rights abuses, in his place. Wickremesinghe refused to accept his replacement, effectively giving Sri Lanka two competing prime ministers for several months before being re-appointed. With such recent political unrest in Sri Lanka, it is unlikely that it will reach nonviolent political stability in the near future.

– Jackie Mead
Photo: Flickr