Trouble in Serendip – hard times ahead for embattled Sri Lanka

Trouble in Serendip – hard times ahead for embattled Sri Lanka
Sri Lankan security forces use teargas and water cannon to disperse protesting university students calling for the resignation of the president over the alleged failure to address the economic crisis, near the president's house in Colombo on 19 May 2022. (Photo: EPA-EFE / Chamila Karunarathne)

Sri Lanka, or its more fanciful name, ‘Serendip’ – from a British play that used a variant of the Arabic name for that magical island – is now in deep, deep trouble. Worse, there is little hope they can find a way clear soon. Sri Lanka’s travails, while more severe than many nations, point to problems many other countries may have to confront in our chaotic age.

Years ago, when we lived in Mbabane, Eswatini, we became friends with a Sri Lankan couple. They were both professional people – she did consulting on women’s entrepreneurial projects, and he was a senior legal adviser to the Swazi government. Although they were a long way from home, their presence in Africa was not all that surprising, given that many expatriate professionals worked around the world, especially in former British colonies where there were connections to be employed for hard-to-fill professional positions. 

What was different – and more than a little sad – was this couple could not live safely in their home nation because she was Sinhalese and he was Tamil by background. They represented the two main ethnicities on the island – but two groups that had been engaged in civil strife for what must have seemed like forever. 

Now, if anything, the situation may become even worse.

Throughout Sri Lanka’s long history, influences from India have been strong, including religion – Hinduism and Buddhism – as well as in the island’s art, architecture, literature, music, medicine and astronomy. 

Despite its many obvious affinities with India, Sri Lanka developed a unique identity setting it apart from its near neighbour. As the Encyclopaedia Britannica explains: “Cultural traits brought from India necessarily underwent independent growth and change in Sri Lanka, owing in part to the island’s physical separation from the subcontinent. Buddhism, for instance, virtually disappeared from India, but it continued to flourish in Sri Lanka, particularly among the Sinhalese. Moreover, the Sinhalese language, which grew out of Indo-Aryan dialects from the mainland, eventually became indigenous solely to Sri Lanka and developed its own literary tradition.

“Also important to Sri Lanka’s cultural development has been its position as the nexus of important maritime trade routes between Europe, the Middle East and Asia. Long before the European discovery of an oceanic route to India in the 15th century, Sri Lanka was known to Greek, Roman, Persian, Armenian, Arab, Malay and Chinese sailors.” 

From the early years of Western exploration, trade (especially for the valuable spices of cinnamon and pepper) and conquest, Sri Lanka’s colonial history featured the Portuguese, the Dutch and then the British (displacing the Dutch during the French revolutionary wars), with the British staying until the island’s independence in 1948. 

Security forces in Colombo, Sri Lanka use teargas and water cannon to disperse university students protesting on 19 May 2022 over the president’s alleged failure to address the economic crisis. (Photo: EPA-EFE / Chamila Karunarathne)

Thereafter, the country fell into a long run of low-grade, then increasingly violent civil conflict, featuring the Liberation Tigers of Tamil Eelam (LTTE), more popularly known as the Tamil Tigers, with uniformed fighters and irregular forces, fighting against the prevailing Sinhalese-led government. This negatively affected the island’s economic circumstances and a growing concentration of economic control in state hands helped make things worse.

By 2009, the LTTE had been defeated and its leaders killed, but civil war-related deaths are estimated to have been about 80,000 people, with tens of thousands more displaced. After that civil conflict ended, more recently there have been bombs in hotels and churches, such as the ones during Easter 2019 that killed nearly 300 people (including foreigners), adding new handicaps on efforts to resurrect tourism. Out of fears of a new cycle of violence, and then the Covid-19 pandemic, tourism declined by about 90%, giving a serious negative impact to the country’s fragile economic circumstances. 

In recent years, the challenge for Sri Lanka has been to build a sense of economic stability and growth, but given the nation’s ballooning debt burden and its now equally alarming forex crisis, this has been hard. By the 2019 presidential election, most Sri Lankans were aware of the government’s inability to address its growing national debt crisis, the prevailing political instability and then the renewed terror threat as well. 

Many Sinhalese felt politicians Mahinda Rajapaksa and his brother Gotabaya offered at least the hope of progress, stability and security and so Gotabaya was elected president on ethno-religious lines with support from the Sinhalese community, although Tamil and Muslim voters were afraid of giving power to a family well-known for brutal policies and actions during the civil war. Gotabaya appointed his brother, Mahinda, as prime minister.

The new government announced tax cuts to encourage investment, but that came just as the Covid pandemic began. The government’s initial response to the pandemic had been relatively effective, and parliamentary elections then gave the Rajapaksa brothers a mandate to expand presidential powers. But then, the Delta variant of the virus led to massive rises in infections. 

Additional policies such as banning the import of chemical fertilisers and pesticides, announced with no heads-up to farmers, led to sharp declines in crop outputs and panic runs on supplies. This put further strains on an economy already heavily burdened by debt. 

Reviewing that history, the Encyclopaedia Britannica noted that “the country was now in far worse straits than a mere debt crisis. Apart from food shortages and rapid inflation, the deficit had ballooned, owing to the 2019 tax cuts. As fuel prices skyrocketed after Russia’s invasion of Ukraine in February 2022, the government implemented daily power outages. Protests broke out in March and continued to escalate in the following weeks. In early April the Rajapaksas attempted to reshuffle the cabinet: family members relinquished their ministerial positions, and the opposition was invited to join…” At this point, the country was seized by the realisation that stocks of petroleum products were about to run out and importers would be unable to pay for more. 

Reporting on the newest developments, the BBC said: “Sri Lanka’s foreign currency reserves have virtually run dry, and as it heavily reliant on imports, it can no longer afford to pay for staple foods and fuel. The government blames the Covid pandemic, which affected Sri Lanka’s tourist trade – one of its biggest foreign currency earners. It also says tourists were frightened off by a series of deadly bomb attacks on churches in 2019.

“However, many experts say economic mismanagement is to blame.

Much of the popular anger has been directed at the Rajapaksa family, who have held key government positions for several decades…

“The government also racked up huge debts with countries including China, to fund what critics have called unnecessary infrastructure projects.

“At the end of 2019, Sri Lanka had $7.6-billion (£5.8-billion) in foreign currency reserves. However, by March 2020 its reserves had dwindled to only $1.93-billion (£1.5-billion), and recently the government said there was just $50-million (£40.5-million) at the country’s disposal.”

The extent of those Chinese loans (which seem unlikely to be serviced by the debtor nation per the schedule) has given rise to a growing sense of alarm among several other nations, including India and the US (both part of the Quad that includes Japan and Australia). For some, the size of those Chinese loans in a fragile Sri Lankan economy could be interpreted as a quiet effort to gain significant leverage over the strategic position of Sri Lanka, located as it is between the Middle East and then on to the shipping sea lanes through the Malacca Straits and to the enormous markets of China, South-East Asia, South Korea and Japan. While China’s investment in a Sri Lankan port is not a military facility, per se, some observers see the growth of such a large Chinese presence as potentially ominous – especially if Sri Lanka cannot meet its debt obligations. In that case, Chinese control over the port could be asserted, and then, the theory goes, the port could become a de facto Chinese naval capability.

University students clash with security forces during a demonstration against the economic crisis near the president’s house in Colombo, Sri Lanka on 19 May 2022. The nation is facing its worst economic crisis in decades owing to a lack of foreign reserves, resulting in severe shortages of food, fuel, medicine and imported goods. (Photo: EPA-EFE / Chamila Karunarathne)

Fleshing out the dimensions of the damage, the BBC added: “Sri Lanka’s government has racked up $51-billion (£39-billion) in foreign debt. This year, it will be required to pay $7-billion (£5.4-billion) to service these debts, with similar amounts for years to come. In April, the Sri Lankan government failed to make repayments totalling $78-million. It was the first time Sri Lanka had defaulted on its foreign debts since independence. Sri Lanka is seeking emergency loans of $3-billion to pay for essential imports such as fuel. The World Bank has agreed to lend it $600-million. India has committed $1.9-billion and may lend an additional $1.5-billion for imports. It has also sent 65,000 tonnes of fertiliser and 400,000 tonnes of fuel, with more fuel shipments expected later in May.” The Sri Lankans are now talking with the International Monetary Fund (IMF) about bridging loans, but that body is insisting on hikes in interest rates and taxes, and, in any case, the Chinese are not pleased about an effort to borrow from the IMF in order to pay China.

Meanwhile, an earlier Chatham House (a major British think tank study centre) research report had noted: “China’s expansive Belt and Road Initiative (BRI) has led to greater Chinese outbound investment in Asia, including in Sri Lanka. This investment has recently come under scrutiny, due to intensifying geopolitical rivalries in the Indian Ocean as well as Sri Lanka’s prime location and ports in the region.

“There are claims that by accepting Chinese outbound investment, Sri Lanka risks being stuck in a ‘debt trap’ and the displacement of its local workers by both legal and illegal Chinese labour. There are also concerns that Chinese investment has led to environmental damage and increased security risks for Sri Lanka and the neighbourhood. Furthermore, there is criticism that institutional weaknesses in Sri Lanka, including a lack of policy planning and transparency, are resulting in nonperforming infrastructure projects funded by Chinese investment…

“Concerns that China will use ports and other projects for military purposes are, in part, driven by geopolitical anxieties. In response, Sri Lanka has strengthened its naval presence at the Hambantota port. Continual oversight by technical experts is required to guard against security-related concerns and ensure public trust in the projects. Such trust will also grow by improving transparency and by pursuing a long-term, national infrastructure development plan.”

Meanwhile, amid the crisis, Al Jazeera TV had explained: “President Gotabaya Rajapaksa replaced Mahinda, his elder brother, with [Ranil] Wickremesinghe, an opposition parliamentarian who has held the post five times previously, in a desperate bid to placate protesters.

“… But protesters have rejected the appointment of Wickremesinghe as prime minister and continue to demand the resignation of Gotabaya Rajapaksa. The protesters and experts have accused the Rajapaksas of economic mismanagement leading to the crisis.

“Despite acknowledging the harsh time ahead, the new leader urged people to ‘patiently bear the next couple of months’ and vowed he could overcome the crisis. He said the government had also run out of cash to pay 1.4 million civil servants their salaries in May, and he will turn to money printing as a last resort. ‘Against my own wishes, I am compelled to permit printing money in order to pay state-sector employees and to pay for essential goods and services,’ he said.”

Authorities have announced countrywide power cuts extending up to nearly four hours a day because they can’t supply enough fuel to power generating stations. Meanwhile, it cannot pay for the imports needed – especially with rising prices stemming from market chaos arising from Russia’s Ukraine invasion. There is little sentiment that the government, even with veteran opposition politicians in senior positions, has a hand on the controls. A very difficult time lies ahead for the embattled island. Crucially, Sri Lanka’s troubles may also be a grim predictor of what other nations will soon face as well. DM


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