Efforts to restore Sri Lanka’s shattered economy and instill some confidence in government are proving just as difficult as many predicted in mid-2022, when thousands of protesters stormed the presidential palace and ousted President Gotabaya Rajapaksa.
On the streets, people are rightfully fed up as fuel imports have stalled. It was nearly impossible to obtain essential items, including rice and medical supplies. Consumers were limited to one container of butter per day, and the price of imported pears was about $10.
The country defaulted on its $51 billion in foreign debt, headline inflation was at 70 percent, lending rates were above 15 percent, and economic growth for the second quarter of the calendar year was a staggering negative 8.4 percent.
Sri Lankan economist and senior researcher at ODI Global in London, Ganeshan Wignaraja, says life in Sri Lanka has improved since images of protesters taking a dip in the president’s pool surfaced around the world.
“Today, there are some normalities on the economic and political front,” he said, adding that President Ranil Wickremesinghe deserves respect for negotiating a $2.9 billion bailout with the International Monetary Fund (IMF) and guarantees from major lenders China, Japan and India. .
In a bid to rebuild the balance sheet, Sri Lanka will cut its military by a third to 135,000 personnel by next year and to 100,000 by 2030. Every ministry has been told to cut spending by five percent, and India has loaned the island nation about $4 billion in food and financial aid.
This included $1.5 billion in imports and $3.8 billion in currency swaps and lines of credit. SriLankan Telecom and SriLankan Airlines are expected to be privatized.
Paris Club countries such as Japan agreed early on. India just agreed and there are rumors that China will give its assurances soon. Once all confirmations are received, IMF board approval could take place within months.”
He said that the real hard work then begins with restructuring the country’s external debt and implementing the International Monetary Fund program.
Revenue-based fiscal consolidation will increase taxes, reduce spending, privatize state-owned enterprises, and make the central bank more independent. Economic reforms are also needed to reduce bureaucratic regulations and make the economy more outward oriented.
But it will take some time for the recovery to take hold due to the cost of living crisis facing the population, political discontent and the lack of foreign exchange for imports. The economy could stabilize in 2024.”
Sri Lanka owes China more than $6 billion, or about 10 percent of its foreign debt, after huge investments in Hambantota Port and Colombo City Port among other infrastructure projects, and accused Beijing of being slow in resolving the debt crisis.
However, China – and for that matter India, Japan and the IMF – is unlikely to heed the calls of the 182 economists who, on January 23, urged Sri Lanka’s debt cancellation.
It’s a moot point for the Rajapaksa clan, who emerged by ending Sri Lanka’s 26-year civil war, winning political power, and engaging China everywhere, much to the annoyance of India and Japan. Their problems escalate.
Sri Lankan courts have ruled that Gotabaya and his brothers Mahinda, the former president, and Basil, the former finance minister, can be tried for economic crimes, and their fall from grace has encouraged separate efforts to hold them responsible for war crimes.
On January 10, Canada imposed sanctions on Gotabaya and Mahinda for “gross and systematic human rights abuses” near the end of the conflict in 2009 when at least 40,000 Tamil civilians were killed, according to the United Nations. Two others were also punished.
The army bombed hospitals and declared “no-fire zones,” killing and wounding thousands of Tamil civilians. Human Rights Watch said last week that many captured combatants and civilians had been forcibly disappeared and remain missing.
In addition, the Committee to Protect Journalists also noted that 13 journalists were killed between 2005 and 2015 when Mahinda was chairing, “due to a systematic assault on the press.”
These issues are gaining as much momentum as the economic crisis and will be of great interest over the coming months and years if Sri Lanka is to regain its lost pride.