Introduction:
A country’s economic and financial stability plays a major role in almost every key aspect of the Nation’s development and power in world politics. Several factors might disrupt a country’s economy, most of which might seem unrelated to the outcome, but they tend to play a huge role in the resulting chaos.
Sri Lanka, our closest neighbour in the South, has been the newest victim of one such economic scandal which has placed it in a really bad monetary condition since its freedom in 1948. This economic instability started on the 21st of April, 2019 and is yet to be resolved, causing the citizens to be distressed and eventually leading to the Sri Lankan protests in 2022.
The citizens are the ones who were hit the hardest by the Sri Lankan Government. 7-15 hour long power cuts during the early months of summer, limited fuel distribution, and education was temporarily halted due to the inability of exam boards to conduct examinations because of paper shortage. Even the healthcare system has been immensely affected with the medical council of Sri Lanka predicting a future death toll greater than the combined death rate of COVID-19, the 2004 Tsunami and the Civil War in the island nation due to a shortage of life-saving drugs. The citizens have requested their NRI counterparts for help in any form as inflation has caused the prices to go up.
(Sri Lankan people storm the PM office while protesting.)
Digging Into The Root Cause Of The Crisis (Collection Of Debt- Sovereign Debt):
The major cause of the economic crisis was economic mismanagement which was accelerated by deep tax cuts promised by Prime Minister Mahinda Rajapaksa. Due to the resulting crisis, Sri Lanka has been locked out of various international markets. The Reserve Bank updated the financial state of the country saying that the country is left with a balance of $2.31 billion in the Reserve Bank. The country's debt as announced was found to be $7 billion in the year 2022.
The Rajapaksa Government introduced the ban on chemical fertilizers causing the rate of import of chemical fertilizers to drop to zero. This resulted in a decrease in crop production. This enraged the country's farmers and nationalists against the Government. Due to the shortage in the foreign currency exchange, the import rate eventually decreased, leading to 13 hours-long power cuts in the country and a shortage of fuel, medicine and other necessities. The depletion in fuel affected the transport, as goods cannot be transported resulting in a public dispute.
The Role Of IMF And Other Organisations:
The International Monetary Fund (IMF) is a global organisation whose main motives are to maintain and promote international monetary cooperation and aid in international trade that ensures economic booms. The IMF's primary role in the crisis was to offer loans, technical assistance, and surveillance of economic policies to Sri Lankan executives. After being informed of Sri Lanka’s crisis, a group of IMF executives visited the country in December of 2021, but the Governor of the Central Bank of Sri Lanka (CBSL) refused the help of the IMF in January 2022 as he was positive that the crises could be handled by the country. The organization still gave its input on how the effects can be minimized. However, when the Sri Lankan rupee rate fell down to Rs.230/- from Rs.204/- against the dollar in March, the President decided to take help from the IMF which was ready to support the nation. The World Bank decided to loan around $1 billion to the Sri Lankan government, further an IMF delegation visited Sri Lanka in June for talks in connection with rescue funds and economic reforms. Along with the IMF and World Bank, Sri Lanka has also approached India, China, Japan and Asian Development Bank for further assistance in the matter.
The IMF planned to restore macroeconomic stability and debt sustainability, while simultaneously protecting the poor and most vulnerable citizens, preserving financial stability, accelerating structural reforms and removing corruption risks to unleash Sri Lanka's growth potential in the shortest amount of time possible. But when the protests erupted on the 9th of July leading to the resignation of the President, the IMF decided to put its plans on hold as it couldn’t offer a suitable program until the political turmoil subsided. However, it promised a resumption of talks as soon as the chaos died down.
(Sri Lankan citizens struggling to get basic necessities during the country's economic crisis.)
The Efforts Made By The Government To Overcome The Crisis
(Including The List Of Policies):
The Prime Minister of Sri Lanka addressed the public saying that the government was working hard to overcome the difficulties and asked the protestors to be patient till the Government unravels the problem. The Sri Lanka Freedom Party's General Secretary Dayasiri Jayasekara also stated that the country needs a stable government to have a proper talk with the IMF which is crucial to repair the frugality. To overcome these situations, former President Maithripala Sirisena suggested forming an all-party government to overcome the crisis.
The Collapse Of The Rajapaksa Government:
Sri Lanka has a long history of being ruled by parties solely intended to benefit specific families from elite backgrounds. The most recent family to hold power in the country was the Rajapaksha family, under whose governance the economic crises spread like a wildfire. The main reason why many experts and Sri Lankan citizens blame the family is because almost all the top positions in the country including the Presidential, Prime Ministerial and many Chief Ministerial positions were held by the members of the family even though they had no credentials and rose ranks due to family ties, leading to many poor decisions being made by the Ministers in power. At its peak, it was believed at least 40 Rajapakshas were controlling the Government and the economy which resulted in the economic crises.
(People protesting against the Rajapaksha Government.)
The brothers Mahinda Rajapaksha and Gotabaya Rajapaksha were popular amongst the Buddhist-Sinhalese population of the country as they ended the civil war in 2009 by crushing the Liberation Tigers of Tamil Eelam (LTTE) under the presidency of Mahinda Rajapaksha. This made the brothers almost invincible as they were backed up by the majority of the country which ensured Mahinda Rajapaksha a second Presidential win in 2010. It was all good until Mahinda Rajapaksha lost the election in 2015 to Mathripala Sirisena. However, he was made the Prime Minister in 2018 after the then PM Ranil Wickremesinghe was sacked. Things started looking better when Gotabaya Rajapaksha became the President in 2019.
However, the brothers made mistakes by taking huge loans from China on behalf of Sri Lanka. Gotabaya also passed the country’s largest tax cut which put a huge dent in the Government's finances. Soon the COVID pandemic followed and laws passed by the Rajapaksha family ministers affected sectors like agriculture, which enraged the farmers. Furthermore, the family supported China to build ports in their hometown using China's loan money. All the spending with no proper net return took a toll on the country’s economy. By then, the citizens started anti-government rallies with slogans like “Gota go home” and “Give our stolen money back”, urging the president to resign from his post. The protests caused Mahinda Rajapaksha to resign but Gotabaya Rajapaksha fled to the Maldives after the protests on 9th July 2022. He officially resigned from his presidential role on the 14th of July 2022.
Current Economic Conditions of The Country and Help Offered by Other Nations to Overcome The Crisis:
The Srilankan government suggested a discussion with the International Monetary Fund (IMF) about various loan plans offered. China and India offered to help Sri Lanka by supplying food and grain. India provided diesel shipments under $500 million. India also offered $2.5 billion as a soft loan and also under a currency swap arrangement. China proposed to refinance the debts with Sri Lanka. India and Japan also exported two LNG power plants to Sri Lanka. Japan further initiated projects worth $3 billion in Sri Lanka.
After months of political instability, Sri Lanka's President Maithripala left the country. He had announced his intention to resign, but protesters then gathered at the Presidential palace to demand his removal. The country was in the midst of a financial crisis, and the Prime Minister said he would resign after a new government was formed. The country's economic situation became worse.
The country has been relying on aid from various countries, such as China and India. In July, the then Prime Minister Ranil Wickremesinghe took the Presidential office, and said that the country's economy was on the verge of "rock bottom." In response to the country's financial crisis, Sri Lankans have been going without meals as they struggle to find fuel and cooking gas. This is a harsh reality for a country that had been growing at a rapid rate.
Ranil Wickermansinghe, is trying to bring the economy back to normal as the acting President while the protesters demand an end to the Rajapaksa dynasty. The UN made a public appeal to Sri Lanka's assistance and barely reached the mark of 6 billion USD. The Prime Minister considers buying oil from Russia at a steep discount and he also stated that he has entrusted his final hopes on the IMF to bail out with the replacement of his position with a new government.
Credits:
Writers:- M. S. Nigar Samdani, Mohamed Adnan
Editors:- Cassandra Rifflin, Mohamed Adnan
Reference links :