An end to the crisis in Sri Lanka does not seem near. The island nation has been grappling with economic crisis with rising prices and scarcity of essential items, such as food, medicine, fuel etc.. This has led to countrywide protests with the participation of all sections of society and the protests have reached the doorsteps of the President’s office. In response to the protests, the government imposed a State of Emergency on 1st April 22 which was eventually lifted on 5th April 22, due to public anger and after the resignation of all the Cabinet Ministers on 4th April 22. Sri Lankan government also announced on 12 April 22 that it would default on all external debt, pending a bailout from the International Monitory Fund (IMF).Various economic and political factors have contributed to the present economic and political crisis in Sri Lanka.
Fragile Economy: Largely ignored
Sri Lanka’s economy had been on the verge of collapse after the pandemic and the warnings were largely ignored by the government. The main sources of revenue for the government, dried up during the pandemic. The revenue from tourism, exports and external remittances depleted significantly, forcing the government to depend on external borrowing and large scale imports to tackle the economic situation. For instance, 28 percent increase in imports expenditure i.e, from US $ 16,055 million in 2020 to US $20,637 million in 2021[1] and decrease in worker’s remittances from US$ 7,104 million in 2020 to 5,491 million in 2021 led to the depletion of reserves to just US $ 2.4 billion in January 2022.[2]
After the war in 2009, Sri Lanka, borrowed heavily from external sources to maintain the foreign reserves and reduce fiscal deficit of the post war economy.[3] The government also had to spend considerably on social sector to provide relief and had to expand social safety net for the people affected by the war. After the war, the International Monitory Fund (IMF) approved $2.6 billion Stand-By arrangement in July 2009 to support the country’s economic programme.[4]The end of war also attracted substantial Foreign Direct Investment (FDI). For instance, the FDI inflow increased from just 0.48 billion in 2010 to $ 2.8 billion in 2018.[5] The FDI was concentrated in real estate, mixed development projects, ports, and telecommunications sectors.[6] But, the FDI inflow decreased since 2020, due to the pandemic and Sri Lanka received just $500 million FDI in 2020.[7] The external debt has increased considerably since 2009 from $ 19 billion to US $ 35.1 billion by April 2021 due to substantial borrowings from open market sources[8], from lenders like the Asian Development Bank (ADB), World Bank and from bilateral sources such as China.[9] Sri Lanka borrowed heavily from China for various infrastructure projects such as Colombo Port City ($1300 million) and Hambantota Port ($ 1333.7 million), which has added to the burden on the economy. According to a report by the Chatum House, “the cumulative value of Chinese infrastructure investment to Sri Lanka amounted to $12.1 billion between 2006 and July 2019’.[10] These are mostly loans with 2-6% of interests’ rates, which have increased the debt Sri Lanka owed to China from $2.2 billion to $5 billion between 2012 and 2018.[11] The repayment of debt to China has been an issue. In 2019, the National Unity Government of Sri Lanka had to hand over the Hambantota Port to China on 99 years lease, to raise $ 1.1 billion, to pay the part of debt it owed to China.[12] This has raised concerns both domestically and at international level. The United States in the past has accused China of ‘debt trap diplomacy ‘citing Sri Lanka as an example.[13]
Despite the external borrowing to manage the post war economy the domestic economy could not show sustainable growth. The growth rate fell from 5 percent in 2015 to 2.5 percent in 2019.[14] Heavy borrowing from external sources could not help in maintaining required foreign reserves. The April 2019 Easter Sunday bombings also had a significant impact on the tourism sector. Tourist arrivals registered a decline of 18 percent in 2019 (1,913, 702 arrivals) when compared to the year 2018. The revenue from tourism has fallen from US $ 3606 million in 2019 to US $ 506 million in 2021.[15]
Meanwhile, the decision taken by the government to shift to organic farming in April 2021, when the country was yet to recover from the loss of revenue from tourism and exports, during the pandemic, led to another shock. The decision to completely ban chemical fertilizers without much support on the ground to shift to organic farming led to food crisis. The government had to roll back the decision on complete ban on chemical fertilizers in August 2021 after public protests, due to a shortage of essential food items. In the last six months the island nation has been under severe economic strain as the government of Sri Lanka could not control the rising prices and address the issue of shortage of essential items eventually leading to the present crisis.
Divided polity: A hurdle to address the crisis
The government for the first time has found itself in a vulnerable political position after the major victory in the August 2020 Parliamentary elections. The Sri Lanka People’s Freedom Alliance (SLPFA) led by Mahinda Rajapaksa won 145 seats, out of 225 in Parliament. Due to the present crisis, the government lost two-thirds majority in Parliament after its coalition partners the Sri Lanka Freedom Party (SLFP), the Ceylon Workers Congress (CWC) and others withdrew support to the government along with 41Parliamentarians.To manage the crisis, the President of Sri Lanka was forced to give a call for the formation of unity government/all party government and asked the opposition Parliamentarians to join the government to find amicable solution to the crisis.[16] But the response from the opposition has been lukewarm so far. The main opposition party the Samagi Jana Balawegaya (SJB) and the Janatha Vimukthi Peramuna (JVP) has been demanding the resignation of the Prime Minister and the President of Sri Lanka and immediate change of government through a snap election.[17]The SJB is also trying to abolish the 20thamendment to the Constitution of Sri Lanka by Private Member Bill in the Parliament.[18] The controversial amendment removed checks and balances on the Executive and provided absolute power to the President. Despite the pressure from the opposition and the public for a change of government, Chief Government Whip Johnston Fernando made a statement at the Parliament on 6th April 2022 that the President would not resign as ‘he was elected following the mandate given by the 6.9 million people of Sri Lanka’.[19] It seems that government will try to maintain the seats required, around 113 seats (out of total 225 seats) in Parliament to run the government, despite the mounting domestic pressure demanding the resignation of the President.
The economic crisis has deepened the existing political fault lines that were dormant for the last two years. The two-third majority that the Rajapaksa led SLPP got in Parliament was utilised to centralise the power around the executive presidency. The 20th Amendment to the Constitution also removed check and balances on the executive. The government’s agenda mentioned in the document “Vistas of Prosperity and Splendour” gave priority to the security aspect of governance followed by non-aligned foreign policy, people centric economic development, new constitution and administration free of corruption.[20] However, the lack of transparency and dialogue in the implementation of the agenda mentioned in the document has been criticised by the civil society, as well as the opposition parties of Sri Lanka. Few examples in this regard are the decision taken to shift to organic farming in April-May 2021 and lack of public consultations in drafting a new Constitution. After much delay and only after the public protests have intensified against the government, the President called for the All Party Conference (APC), on 23rd March 2022. The APC was boycotted by SJB as well as the JVP. At the APC, the President urged all political parties to “unite to find solution to the current economic crisis by embarking on long and short term strategies”[21]. The opposition parties of Sri Lanka such as the United National Party (UNP), Sri Lanka Freedom Party (SLFP), the Tamil National Alliance (TNA), Sri Lanka Muslim Congress (SLMC) and others attended the Conference.
An important development emerging from the crisis was a meeting between the TNA leadership and the President, after a long wait by the TNA. Issues such as release of land, amendment to the constitution, North-East Development fund were discussed at the meeting.[22] But this outreach by the government did not help, as the opposition en bloc did not respond to the call for a unity government by the President. The SJB has also decided to submit a no-confidence motion against the government. It remains to be seen if the SJB will manage to collect required signatures from the Parliamentarians to topple the government. At present the SJB has 54 seats in Parliament. On 1 April 22, Prime Minister Mahinda Rajapaksa, addressed the nation wherein he said “every second the protesters spend on the road would deprive the chances of this country receiving tourism dollars and called on people to be patient in this critical situation”.[23]He also stressed that the economy has suffered because of the pandemic and its effects and called on all parties to join hands with the government to save the nation”.[24]
Is there a way out?
It is early to say how Sri Lanka will cope with the economic situation and political instability at the same time. India has responded to the crisis in Sri Lanka and has provided US $ 2.5 billion in the last two to three months, in order to help mitigate the economic situation which includes credit facilities for fuel and food.[25] India has already sent 16,000 MT rice out of 40,000 MT promised to Sri Lanka to address food shortage.[26] Another option, which the Sri Lankan government is exploring, is the IMF bailout. The President has appointed a Presidential Advisory Group on Multilateral Engagement and Debt Sustainability.[27] The advisory group comprising former Governor of Central Bank of Sri LankaIndrajit Coomaraswamy[28], Shanta Devarajan[29]and Dr Sharmini Coorey[30] will engage with the IMF and other Sri Lankan institutions to address the present crisis.[31]According to the newly appointed (on 5th April 2022) Finance Minister, Ali Sabry, Sri Lanka needs US $ 3 billion in the next six months to restore the supply of essential items and aiming to get more bilateral financial assistance and moratorium on government payments’.[32] China is also yet to respond to the request by Sri Lanka for $ 2.5 billion assistance to tide over the economic crisis and to purchase goods such as textiles worth $1.5 billion, needed to support the apparel export industry.[33]
However political stability remains an important factor to receive any financial assistance required to manage the economic crisis. But the present political situation in the country is far from stable. Opposition parties as well as alliance parties of the SLPP have dismissed the idea of interim government.[34]The President is also trying to get back the support of the SLFP, coalition partner to form an interim government but the talks have not been successful so far.[35]The oposition has been demanding the resignation of the President or removal or peaceful handover of the power to the leader chosen by the Parliamentarians of all parties. But it is not an easy process under present circumstances unless the President chooses to resign or opposition Parliamentarians along with few SLPP Parliamentarians come together to support a resolution asking for the removal of the President.
According to Article 38 of the Constitution of Sri Lanka, there are few possibilities to remove the President from office under the present crisis scenario. Which are as follows; the President can be removed, if a Member of Parliament submits a letter to the Speaker giving notice of a resolution alleging that the President is mentally or physically unfit and is permanently incapable of discharging functions of his office; the President can also be removed from his office if a Member of Parliament issues a letter giving notice of a resolution alleging that the President has been guilty of intentional violation of the Constitution, treason, bribery, misconduct or corruption involving the abuse of powers of his office or any offense under any law including moral turpitude”.[36]Another possibility is the resignation of the President by writing to the Speaker of Parliament. However any such resolution is unlikely to pass in Parliament. Even calling for a snap election may not be possible at this juncture because the government is yet to complete two and half years. According to the constitution of Sri Lanka, President can dissolve the Parliament after the lapse of two and half years and if a resolution is passed with two thirds majority agreeing for the dissolution of Parliament.[37]The Election Commission of Sri Lanka will also have to call for an election, the expenses of which the country can hardly bear at this moment. The Supreme Court of Sri Lanka will also have to provide the consent for the same. Whether the government and the opposition will use any of these possibilities to quell public anger remains to be seen. The President has appointed 17 new Cabinet Ministers on 18 April 22, to bring political stability to the government and avoided reappointing Rajapaksa family members to important ministerial positions. The President also called on the newly appointed Ministers to “bring about the system change that people were asking for and work towards an honest, efficient and clean administration”[38]. The SJB rejected the appointment of the new cabinet and instead “called for an immediate repealing of the 20th Amendment to the constitution and for the appointment of a committee of party leaders to scrap the Executive Presidency”[39].
Under the present scenario, the way out of Sri Lanka’s political and economic crisis seems complex and it will not be easy for the present government and for a new interim government, if formed, to navigate the present crisis amidst the mounting public protests.
*****
*Dr. Samatha Mallempati is a Research Fellow at Indian Council of World Affairs, New Delhi
Disclaimer: Views expressed are personal.
End Notes
[1] Central Bank of Sri Lanka, External Sector performance January 2022, https://www.cbsl.gov.lk/sites/default/files/20220401_External_Sector_Performance_Jan_2022_e.pdf. Accessed on April 1, 2022.
[2]Central Bank of Sri Lanka, External Sector performance January 2022, p.1, https://www.cbsl.gov.lk/sites/default/files/20220401_External_Sector_Performance_Jan_2022_e.pdf. Accessed on April 1, 2022.
[3] International Monitory Fund, “IMF Survey: Sri Lanka to Use IMF Loan to Reform Economy After Conflict”, 29 July 2009, https://www.imf.org/en/News/Articles/2015/09/28/04/53/soint073009a.
[4] International Monitory Fund, “Press Release: IMF Executive Board Approves US$2.6 Billion Stand-By Arrangement for Sri Lanka”, 24 July 2009, https://www.imf.org/en/News/Articles/2015/09/28/04/53/soint073009a.
[5] The US Department of State, “2021 Investment Climate Statements: Sri Lanka”, https://www.state.gov/reports/2021-investment-climate-statements/sri-lanka/
[6] International Trade Administration, “Sri Lanka – Country Commercial Guide”, 28 September 2021, https://www.trade.gov/country-commercial-guides/sri-lanka-market-overview
[7] The US Department of State, “2021 Investment Climate Statements: Sri Lanka”, https://www.state.gov/reports/2021-investment-climate-statements/sri-lanka/
[8]Department of External Resources, Government of Sri Lanka, Foreign Debt Summary, http://www.erd.gov.lk/index.php?option=com_content&view=article&id=102&Itemid=308&lang=en Accessed on April3, 2022.
[9] Ibid
[10] Ganeshan Wignaraja, Dinusha Panditaratne, Pabasara Kannangara and Divya Hundlani, “Chinese Investment and the BRI in Sri Lanka”, Research Paper, Asia-Pacific Programme, March 2020, p.12.
[11] Ibid.p.3
[12] Anusha Ondaatjie & Asantha Sirimanne , “Sri Lanka leased Hambantota port to China for 99 yrs. Now it wants it back’, 30 November 2019, https://www.business-standard.com/article/international/sri-lanka-leased-hambantota-port-to-china-for-99-yrs-now-it-wants-it-back-119112900206_1.html.
[13] Asanga Abeyagoonasekera, Conundrum of an Island: Sri Lanka’s Geopolitical Challenges, World Scientific, London, 2021, p.57.
[14]R. Ramkumar, “Roots of Crisis”, Frontline, April 23, 2022, Page 14.
[15]Central bank of Sri Lanka, External Sector Statistics, https://www.cbsl.gov.lk/en/statistics/statistical-tables/external-sector. Accessed on April 6, 2022.
[16]Presidential Secretariat, “All parties should unite to find solutions to the current economic issue”, 23 march 2022, https://www.presidentsoffice.gov.lk/index.php/2022/03/23/all-parties-should-unite-to-find-solutions-to-the-current-economic-issue/. Accessed on April 8, 2022.
[17]Colombo Gazette, “Sajith refuses to agree to interim Government”, 4 April 2022, https://colombogazette.com/2022/04/04/sajith-refuses-to-agree-to-interim-government/. Accessed on April 5, 2022.
[18]Daily Mirror, “President to hold crucial meeting with 41 MPs who quit govt”, 10 April 2022, https://www.dailymirror.lk/top_story/President-to-hold-crucial-meeting-with-41-MPs-who-quit-govt/155-234897. Accessed on April 11, 2022
[19]President will not resign under any circumstances – Johnston,Daily Mirror, 6 April 2022, https://www.dailymirror.lk/breaking_news/President-will-not-resign-under-any-circumstances-Johnston/108- Accessed on April 7, 2022.
[20]National Policy Framework Vistas of Prosperity and Splendour, https://lki.lk/wp-content/uploads/2019/12/National-Policy-Framework-Vistas-of-Prosperity-and-Splendour-Summary.pdf. Accessed on April 1, 2022.
[21]Presidential Secretariat, “All parties should unite to find solutions to the current economic issue”, 23 march 2022, https://www.presidentsoffice.gov.lk/index.php/2022/03/23/all-parties-should-unite-to-find-solutions-to-the-current-economic-issue/. Accessed on April 8, 2022.
[22]Presidential Secretariat, “Discussion held between President & TNA under five main points”, 25 March 2022, https://www.presidentsoffice.gov.lk/index.php/2022/03/25/discussion-held-between-president-tna-under-five-main-points/. Accessed on April 6 2022.
[23] The Island, “PM urges protesting youth to think rationally”, 12 April 22, The Island, https://island.lk/pm-urges-protesting-youth-to-think-rationally/
[24] Ibid
[25] Ministry of External Affairs, “Government of India, Transcript of Weekly Media Briefing by the Official Spokesperson (April 07, 2022)”, https://www.mea.gov.in/media-briefings.htm?dtl/35174/Transcript_of_Weekly_Media_Briefing_by_the_Official_Spokesperson_April_07_2022
[26] Indian High Commission, Colombo, “Supply of 11,000 MT of rice to Sri Lanka”, 12 April 2022, https://hcicolombo.gov.in/press?id=
[27]President’s Office, The Government of Sri Lanka, 6 April 2022, https://www.presidentsoffice.gov.lk/index.php/2022/04/06/press-release-3/. Accessed on April 9, 2022.
[28]Former Governor, Central Bank of Sri Lanka and Former Director, Economic Affairs Division of the Commonwealth Secretariat.
[29]Professor of the Practice of Development, Georgetown University and Former Chief Economist, World Bank
[30]Former Director, Institute of Capacity Development of the IMF Institute, and Former Deputy Director, Africa Department, IMF.
[31]President’s Office, The Government of Sri Lanka, 6 April 2022, https://www.presidentsoffice.gov.lk/index.php/2022/04/06/press-release-3/. Accessed on April 8, 2022.
[32]Colombo Gazette, “Sri Lanka to seek $3 billion in 6 months to stave off crisis”, 9 April 2022, https://colombogazette.com/2022/04/09/sri-lanka-to-seek-3-billion-in-6-months-to-stave-off-crisis/.
[33] Colombo Gazette , “Sri Lanka confident China will provide $2.5 billion in financial support”, 12 April 2022, https://colombogazette.com/2022/04/12/sri-lanka-confident-china-will-provide-2-5-billion-in-financial-support/.
[34] Daily Mirror, “11 alliance members refuse to meet President today for interim govt.”, 13 April 2022, https://www.dailymirror.lk/breaking_news/11-alliance-members-refuse-to-meet-President-today-for-interim-govt/108-235039.
[35]Daily Mirror, “Political stalemate continues”, 11 April 2022, https://www.dailymirror.lk/breaking_news/Political-stalemate-continues/108-234913. Accessed on April 11 2022.
[36] Daily Mirror, “Can people’s opposition unseat president ?”, 8 April 2022, Daily Mirror, https://www.dailymirror.lk/news-features/Can-peoples-opposition-unseat-president/131-234752.
[37] The Constitution of the Democratic Socialist Republic of Sri Lanka, p.53, https://www.Parliament.lk/files/pdf/constitution.pdf.
[38] The Island, “Prez tells new ministers to bring about system change people expect”, 19 April 22, https://island.lk/prez-tells-new-ministers-to-bring-about-system-change-people-expect/.
[39] Daily Mirror, “SJB rejects new cabinet”, 19 April 2022, https://www.dailymirror.lk/breaking_news/SJB-rejects-new-cabinet/108-235250.