July 19, 2022
NEW DELHI – Sri Lanka’s economic disaster can be explained by two causal factors. One is country specific, where causes are generated within the state. The other is external where global catastrophic events during the last couple of years have severely hit this tiny island nation. Both external and internal factors have reinforced each other to ruin this nation. Sri Lanka was richer than India, more educated and Sri Lankans live more years on earth than the average Indians do. The report card on human development, HDI, which focuses on income per head, educational attainment and average life expectancy, is published by UNDP each year. In 2020, Sri Lanka was placed at 72 in the global ranking, China was at 85 and India was far lower at 131. Sri Lanka is far ahead of all its south Asian neighbours and stands closer to developed countries in the human development score. Its achievement in the field of education have been highlighted in the global report.
Now its education system is in disarray. Sri Lanka has reached such a pathetic stage that it fails to provide papers and pens to students. They could not write their annual school examinations this year. Schools are now open for physical classes everywhere, but Sri Lankan young learners stay in their homes, not because of Covid, but for lack of transportation. The fuel crisis has stopped the movement of vehicles. Many children, instead of attending school, are standing in queue for hours at petrol pumps. Their parents or elders have moved out to look for jobs, in a rapidly shrinking market. Many Sri Lankans have lost their lives while standing in the sweltering heat for long hours at the fuel stations. The poor are starving as they cannot afford to buy food at exorbitant prices.
Food inflation had gone up by 57 per cent some days ago and now it is almost shooting up to 100 per cent. Hungry and angry people are setting buses and public buildings on fire. They have burnt residential houses of MPs and killed one of them. But how did the situation come to such a pass? Let us start from the beginning, from Sri Lanka’s birth as an independent nation in 1948. It was born as a democratic socialist republic. From its very inception, it began to spend bountifully on social welfare, particularly on health and education. The outcome is remarkable. But how long can a state sustain this expenditure without generating resources on its own? A civil war that ran for thirty years damaged its economy. The gap between expenditure and income began to widen year after year. Sri Lanka did not go the South Korean way. It did not learn from the examples of other Asian tigers who rapidly transformed their economies from aid-dependent agricultural ones to industrial giants.
They established rule of law, security, peace and stability to attract investment to build their economies. They exported their manufactured products to the world. They promoted competition, efficiency and reward for pursuing global standards in manufacturing and export. They ran trade surpluses because they exported more than what they imported, and maintained hefty foreign exchange reserves. But the Sri Lankan state consumes more than it produces. So, the government turns to Multilateral Funding agencies like IMF and World Bank as well as bilateral negotiations for funding from Japan, India and China. It defaulted on all foreign loans and is now on the verge of bankruptcy. It has suspended payments on foreign loans that stand now at almost $60 billion. Now, Sri Lanka is unable to spend for one day’s imports of food and fuel. Symptoms of the impending disaster showed up years before the final collapse, but the government did not pay heed. This is unpardonable government failure and one family is squarely responsible. It was the Rajapaksa family and Gotabaya Rajapaksa, the president, who personally led to this downfall. Gotabaya’s landslide victory in the 2019 election was misread by him as a people’s mandate to do whatever he liked.
He transformed himself into a constitutional dictator, twisted the Constitution, erased the democratic spirit, and amended the Constitution to confer immense powers to the president. As a result, the opposition voice was muted, accountability was excised. Democracy was virtually shown the door. Transparency, checks and balances and institutions of countervailing power were trampled by the one-man and onedynasty rule. The urge for populism, disregarding the health of the economy, led him to announce massive tax cuts to please the rich and the middle class. Gotabaya did not talk to the opposition, nor sought advice from experts before taking such a suicidal decision for the already ailing economy. Revenue collection dropped at a time when the country was facing unprecedented fund crisis. In one stroke, the number of taxpayers dropped from 1.5 million to just half that figure.
Nobody dared to question him. He gave key ministerial posts to his brothers and nephew and filled the other key posts with his relatives. So, his dining table at home became the place for cabinet meetings. Sri Lanka became a unique country where a family became the government helmed by Gotabaya. Fairness gave way to nepotism, and this was followed by massive corruption in high offices, bribery, swindling of foreign funds and kickbacks. In the middle of this crisis, he banned chemical fertilizers for agriculture. He projected himself to the world as a crusader for green agriculture to stem global warming. There is a reason, however, behind his sudden incarnation as a messiah for organic farming. In early 2019, Gotabaya was alarmed by the dwindling dollars in his treasury. So, he imposed organic farming on the farmers to save dollars form going out of country. The result was disastrous. Agricultural production fell by 40 per cent. Average Sri Lankans found their meals shrink day after day.
The switch to organic farming transformed Sri Lanka from a food-surplus nation to a food-deficient one. Now, external factors came in. The pandemic dealt a blow to this country by stopping the inflow of dollars. Ten per cent of its GDP would come from international tourism. The fear of Covid was preceded by fears for safety and security of foreign visitors. Terrorist bombings in churches and in hotels in early 2019 that killed around three hundred instilled that fear among dollarspending foreign tourists. The next blow to Sri Lanka came from sudden disruption of global supply chain of food and fertilizer. The world was gradually returning to normalcy after a two-year, pandemic-led global economic disruption and distress. But then came a catastrophic global event, the RussiaUkraine war. The world’s food basket was bombed, ports were seized, and the shipping and transportation of food and fuel was in disarray.
Thousands of miles away from the theatre of war, Sri Lanka felt the heat. Food, fuel, fertilizers and everything else needed for decent living are getting too expensive for the common man. Sri Lanka has now slipped to the bottom. It is time now for the world to lift it up. The world’s great powers, along with the IMF and the World Bank, must make a combined effort to do this. A package of longer-term debt and aid is needed immediately to stop the nation from sliding into anarchy, and to prevent the onset of starvation and famine. Like the causes of disaster – generated internally as well as externally – the remedies also call for action from both sides. Global effort must be coupled with an internal struggle for restoration of democracy. It was the death of democracy in Sri Lanka that triggered the disaster.