Towards a Fragile State: Economic Crisis in Sri Lanka

Over the last 74 years, Sri Lanka, formerly known as the Pearl of the Indian Ocean, has governed through the principle of democracy while promoting non-alignment as the gravity of its foreign policy. During the President Mahinda Rajapaksa (2005-2015) era, Sri Lanka ended 30 years of long internal war. Nevertheless, the root causes of conflict were left untouched by the country's political administration. Meanwhile, Sri Lanka demonstrated a more enigmatic foreign policy than its previous practices - non-alignment and initiating strong ties with China while endangering the stability of the Indian Ocean Region.


The people of Sri Lanka are typically considered a friendly and peaceful community who belong to a multi-cultural, multi-ethnic and multi-religious group Yet, two weeks ago, the people of Sri Lanka reached their threshold of patience.


Why did this sudden change happen, and what caused it? This article will help to explore the pressing issues behind increasing public demands for the immediate resignation of President Gotabaya Rajapaksa (known as Gota) and his close family members from the current political administration.


In the recent past, Sri Lanka encountered a host of multifaceted issues due to a lack of efficient political decisions on the part of President Gotabaya Rajapaksae since his inauguration in 2019.

Due to the Covid-19 pandemic, Sri Lanka lost its primary foreign revenue from labour service exports, tourism, and commodity exports. Thousands of migrant workers returned to Sri Lanka with shattered dreams and an uncertain future. To face the forex challenge, Sri Lanka imposed served import restrictions, which directly led to the shortage of essential commodities in the market.


While incurring the loss of foreign revenue, Gota has granted tax haven to his top political cohorts, letting them gain massive income from day-to-day commodities while consumer inflation raised from 5.7% in September 2021 to 17.5% in March 2022. Additionally, his policy on organic fertilisers has worsened the country's food insecurity.


On the other hand, Sri Lanka has already taken massive loans without considering repayment abilities or sustainable applications. While a portion of the loans were spent on unsolicited projects across the island, the remaining was used for day-to-day consumption. In late August 2021, the Gota regime reached the point where there was no option but to seek foreign loans to manage the resettlement of existing debt and day-to-day activities. Not only that, Sri Lanka's foreign reserves have reached its lowest, nearly 1 billion USD in March 2022, where its debt liability is USD 7 billion for 2022. In short, Gota has left the country with the question of whether the government should prioritise debt repayments or essential commodities for the people.


During the troubled period, President Gota reached out to the trio - the US, China and India – to overcome the financial turmoil. China came forward immediately, granting some debt restructuring opportunities and credit-lines, yet Sri Lanka’s strategic action called Hedging,* where resources were given to India and the US as well has angered China. India and US came forward later to offer the opportunity where India has granted the USD 1-2 billion for essential items, including rice and medicine, and a USD 500 million credit-line to import the fuel, urgent needs of the public. However, India’s aid and resources come with a cost for future Sri Lanka, where overnight drafted agreements were signed to hand over strategic resources, including Sampur Power Plant and the port of Trinco, a naturally sheltered harbour in the Indian Ocean Region.


In March 2022, the public encountered hour-long power cuts that prolonged into 13-hours, day-long fuel, food, medicine, milk and gas queues where the survival of the public was threatened. Instead of resolving the public needs, President Gota has worsened the economic situation by neglecting his duties to the people by ignoring the early signs of the crisis and supporting corruption, nepotism and printing money. Using political and religious extremism to defend his action, Gota - a former military man, has pushed the general public beyond their threshold of tolerance.


Peaceful public protests started with the famous slogan called #GoHomeGota quickly reached the hearts of millions of Sri Lankans. The non-partisan protestors demanded the immediate resignation of President Gota, which later extended to the resignation of his brother Prime Minister Mahinda Rajapaksa and close family members of Rajapaksa's in political power.


The government has taken extreme measures to crush the public spirit of the protest by imposing a curfew, social media ban and emergency laws, yet all of those decisions were reversed (as Gota is famous for reversing his decisions). Supporting the great cause, the overseas Sri Lankan diaspora held peaceful protests in New Zealand, Australia, Canada, the US, UK and France.


Due to the domestic and international pressure on President Gota, except himself and his brother, all other cabinet members and top Rajapaksa supporters in government, including the Central Bank Governor, resigned. This reaction to public protests has energised the public, expanded protest slogans, and demanded a change in the political system in Sri Lanka. Even though President Gota’s regime was shattered, the main opposition in the Parliament failed to seize the political opportunity and bring a sustainable political solution through the Parliamentary democracy.


Youth have taken the political revolution into their hands, deciding to camp outside the President's Secretariate, continuing to hold the protests, day and night, and renaming their campsite‘GoGotaGama’ (GoGotaVillage) to inspire the public revolution. Even though local and international specialists have proposed numerous ways to overcome the financial difficulties in Sri Lanka, the government is not ready to make political stability by resigning.


Sri Lanka, a country without a Cabinet, has declared its inability to pay all external debt, including the USD 1 billion International Sovereign Bond repayment in July, a few days ago, which has further raised the uncertainty of the future of 22 million Sri Lankans.


*When it comes to state foreign policy strategies, here is a term called hedging where states show a mix of cooperative and confrontational elements towards other states. This is a mixture of balancing and bandwagoning policies.

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