Sri Lanka is yet to find a way out of the economic crisis and political uncertainty that hit the nation this year. The outpouring of public anger against the Sri Lanka Podujana Peramuna (SLPP) Government led by Gotabaya Rajapaksa resulted in change of leadership at the Centre in July this year. The present Government is headed by former Prime Minister and United National Party (UNP) leader Ranil Wickramasinghe, backed by the ruling party the SLPP in the Parliament. But the way out of crisis seems to be tough. Sri Lanka could not form a unity government involving all the political parties, which was considered as an important option to gain public legitimacy for the Government and to manage the economic and political turmoil. Nonetheless, the new leadership took various steps to manage the economic and political crisis. The brief, therefore, will look at the steps taken by the new leadership to address the economic and political issues, domestic and international response.
Revival of Economy: Foremost Concern
Sri Lanka defaulted on its debt, nearly $51 billion, for the first time in history in April 2022 and plunged into economic crisis. To revive the economy, Sri Lanka has been exploring various options at multilateral level. At the multilateral level Sri Lanka is hoping for a bailout from International Monetary Fund (IMF), access to World Bank and Asian Development Bank (ADB) bridge financing facilities and concessional financing from International Development Agency (IDA). These multilateral financial institutions have responded to Sri Lanka’s request. World Bank approved Sri Lanka’s request to concessional financing from IDA on 5 December 2022. According to World Bank this will enable the country to implement its government-led reform program to stabilize the economy, protect the livelihood of millions of people facing poverty and receive technical assistance’.[1] A Staff Level Agreement has been reached with IMF under the Extended Fund Facility (EFF) of about $2.9 billion in September 2022.[2] ADB had indicated its willingness to extend a loan of $500 million to Sri Lanka during the visit of the President of Sri Lanka to ADB headquarters in Manila in September 2022.The Paris Club, an informal group of 22 official creditor nations, has advised Sri Lanka to reach out to main bilateral donors to coordinate Sri Lanka’s debt restructuring process.[3] Meanwhile, the Club also proposed ten years of debt moratorium and fifteen years of debt restructuring as a formula to address the debt crisis.[4]
Sri Lanka is also hoping, to utilise the decision, as mentioned in the G20 Bali Declaration, for multilateral donor coordination to help the country to address its debt issue. The G20 Bali Declaration of 16 November 2022 though did not mention Sri Lanka, stated that it is ‘concerned about the deteriorating debt situation in some vulnerable middle-income countries, which could be addressed by multilateral coordination involving all official and private bilateral creditors’.[5] The IMF has also taken a similar line with reference to Sri Lanka’s debt crisis/economic crisis and proposed reaching out to Sri Lanka’s main donors India, Japan and China for debt restructuring and introducing required economic changes.[6] The International Financial Advisory Group Lazard and International Law Firm Clifford Chance, was roped in by the Government of Sri Lanka to help the island nation in debt restructuring process.[7]
Response of bilateral partners
At the bilateral level debt restructuring talks are underway with India, Japan and China. At the Sri Lanka Economic Summit 2022, held on 5th December 2022, President of Sri Lanka said that India-Sri Lanka held successful debt restructuring talks so far.[8] In response, India reiterated its ‘commitment to strengthening the bilateral economic partnership for mutual benefit’.[9] India stood as a reliable partner and delivered $4 billion to address the economic crisis, which was well appreciated within Sri Lanka. Various statements by officials from China suggest that it is ‘willing to cooperate with the international financial institutions to work out ways in helping Sri Lanka to overcome the current difficulties and ease its debt burden”.[10] Sri Lanka owes nearly $7.4 billion debt to China.[11] However, the slow response by China to economic crisis is being questioned. For example, the Tamil National Alliance (TNA) MP Shanakiya Rasamanickam has threatened to stage a ‘Go Home China’ protest.[12] Japan has also expressed its willingness to help Sri Lanka with debt treatment and recovery process.[13]
Meanwhile, to address the humanitarian emergency, the United States Agency for International Development (USAID) provided a total humanitarian assistance of nearly $92 million since June 2022.[14]The EU has provided nearly $1.5 million to Sri Lanka to address the humanitarian crisis. Japan, has contributed nearly $6.5 million emergency assistance in response to the current situation.[15]
Domestic Initiatives
Sri Lanka, a middle-income country, has lot of homework to do to overhaul its economy that is burdened with debt repayment and expectations from people for better livelihood conditions. In this context, the President in his budget speech in the Parliament on 14 November 2022 acknowledged economic woes faced by the country and promised to build ‘a social market economy’, which will focus on three main aspects– an export-oriented competitive economy, an environmentally friendly green and blue economy and a digital economy.[16] Other important proposals in the budget presented by President Ranil Wickramasinghe include setting up of a centralised agency for the promotion of foreign trade and investment and new economic zones in western, northern part of the country as well as in Trincomalee and Hambantota areas.[17]Expanding income generating sectors in the island nation has also been proposed which presently consists of garments, tourism, Jem and jewellery and agriculture.[18]
To revive the economy, the Government is also contemplating on liberalisation of service sector and planning to revive negotiations of Free Trade Agreements (FTA) with India, China and Thailand. Majority of Parliamentarians, representing the ruling SLPP, voted in favour of the budget. Opposition parties such as the The Samagi Jana Balawegaya (SJB), Janatha Vimukthi Peramuna (JVP) and the Sri Lanka Freedom Party (SLFP) voted against the budget. The Tamil minority party, the Tamil National Alliance (TNA), is expecting a political solution to the ethnic issue as promised by the President by early next year. Therefore, it has decided not to go against President’s proposals for the revival of the economy for the time being and therefore abstained during the vote.
Along with donor cooperation, getting domestic support is crucial for implementation of economic reforms. The Sri Lankan Government was able to contain the large-scale public protests held in Colombo. But, non-availability of essential items and lack of access to basic necessities is still a problem. According to the UN World Food Programme report 2022, 32 percent of households in Sri Lanka are food insecure and relying on various coping mechanisms such as skipping one meal a day, and at least 50,000 children are facing malnutrition.[19]The crisis has also led to economic migration. In an extreme case people are fleeing nearly 300 Sri Lankans were rescued in November 2022, who were in distress in the waters between the Philippines and Vietnam.[20]
Various sections of the society, such as trade unions and other professional groups are still protesting in different pockets of the country on issues such as privatisation of State Owned Enterprises (SCOs). The Ceylon Petroleum Corporation (CPC) trade unions have been opposing the Government’s move to privatise the CPC. But the Government firmly believes in the liberalisation of the energy sector to attract foreign retailers and distributors.[21] The Government has also proposed privatisation of several state enterprises including Sri Lanka Insurance and Sri Lanka Telecom. In this context, the opposition party the SJB demanded the proper management of SOEs including the CPC. Sri Lanka has nearly 300 SOEs and this public sector provides employment to large section of population. In fact, Sri Lanka has one public servant for 13 citizens.[22]
The present Government requires the support of the Opposition to steer through the economic and political instability and to build a new economy as promised by the President[23], but there seems to be no definite clarity among all political parties, regarding a workable alternative economic plan at present. This is going to be a hurdle in the full revival of the economy. However, the President of Sri Lanka is confident of stabilising the country by building a new economy and ensuring law and order with the help of security forces, if a movement like ‘Aragalaya’ (public struggle) is organised again.[24]The President has also made it clear that the current Parliament will not be dissolved as expected by the opposition, until the economic crisis is resolved.
Political Issues
The change of leadership may have subsided the public anger for now to some extent, but the real challenge remains in simultaneously addressing political expectations of various communities in Sri Lanka. Sri Lanka has many unresolved political issues which have garnered considerable international attention in the past as well as at present juncture, which are unresolved ethnic question, use of Prevention of Terrorism Act (PTA), and land and housing issues in the North and East of the country, and required constitutional changes. These issues continue to be a stumbling block in forging larger political consensus amidst the crisis. Therefore, President Ranil Wickramasinghe’s outreach to the Tamil community in November 2022, to find solutions to post armed conflict issues related to land, housing, health, irrigation and agriculture was a positive move. He promised to appoint eight Committees to resolve the land issue. The President has once again asked all the political parties to come together to find a permanent solution to the ethnic issue. As promised by the President, the All Party Conference (APC) on Reconciliation has started on 13 December 2022 and it is expected to end by 4 February2023, the 75th Independence Day of Sri Lanka. By this day, the President hopes to arrive at consensus on the Tamil issues. At the APC participants have agreed to draft a new Constitution with maximum devolution of powers to the Provinces.
The introduction of an inclusive new Constitution is important for Sri Lanka to gain the support of all sections for political stability. The 22nd Constitutional Amendment which was introduced in October 2022, under the new leadership amidst the crisis, curtailed the powers of Executive Presidency and had proposed introduction of Constitutional Council (CC) and establishment of Independent Commissions such as Human Rights Commission, Public Service Commission, National Police Commission and the Finance Commission. The proposed members of the CC consisted of the Prime Minister, the Speaker of Parliament, the Opposition leader, one Members of Parliament appointed by the President, two Members of Parliament appointed formally by both the PM and Leader of Opposition and three prominent civil society members appointed by the President. The CC will monitor the functioning of these Commissions. However, the Government is yet to set up the CC.
One of the important aspects of post-war reconciliation is accountability. In this regard, Sri Lanka tried to explore the South African truth-seeking mechanism and reconciliation in the past. South Africa once again reiterated its interest, during the visit of President of South Africa Cyril Ramaphosa to Sri Lanka on 16 November 2022, to help in reconciliation process.[25]But this has not moved forward. Progress on reconciliation is being watched by international actors and was the subject of discussion at various bilateral meetings that took place in the last few months. For instance, issues pertaining to reconciliation were discussed between the EU and Sri Lanka at the Sixth Working Group on Governance, Rule of Law and Human Rights, in Colombo on 28 October 2022.[26]The US since July 2022, has urged Sri Lanka to address economic and political issues and emphasized that economic reforms should be accompanied by political reforms.[27] The UN has been at the forefront in voicing concerns about human rights situation in Sri Lanka. Between 2015 and 2020, the United Nations Human Rights Commission (UNHRC) Resolutions, co-sponsored by Sri Lanka, are being implemented slowly, much to the dissatisfaction of international actors who expected Sri Lanka to show time bound progress on reconciliation. But Sri Lanka withdrew from the Resolution in 2020, pushing the UNHRC to ask the OHCHR (Office of the High Commissioner for Human Rights) to monitor human rights situation in Sri Lanka and report to the Council in its March 2022 resolution titled ‘Promoting reconciliation, accountability and human rights’. An OHCHR Sri Lanka accountability project was established based in Geneva.
Conclusion
To conclude, it can be said that the international community may be in a position to address some of Sri Lanka’s present needs and requirements, however, this may not be enough to address the structural issues of the economy and polity of Sri Lanka. Continuation of volatile political and economic situation may not augur well for the Government in the long run, given the history of protests and civil war the country witnessed in post-independence years. Sri Lanka meanwhile may have to look for bridge financing to run the economy and fulfil the political commitments made to restore the confidence of people.
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*Dr. Samatha Mallempati, Research Fellow, Indian Council of World Affairs, New Delhi.
Disclaimer: Views expressed are personal.
End Notes
[1] The World Bank, “World Bank Approves Sri Lanka’s Eligibility to Access Concessional Financing to Help Stabilize the Economy and Protect Livelihoods”, 5 December 2022, https://www.worldbank.org/en/news/press-release/2022/12/05/world-bank-approves-sri-lanka-s-eligibility-to-access-concessional-financing-to-help-stabilize-the-economy. Accessed on 17 December 2022.
[2] International Monitory Fund, “IMF staff reaches staff-level agreement on an extended fund facility arrangement with Sri Lanka”, 1 September 2022, https://www.imf.org/en/News/Articles/2022/09/01/pr22295-imf-reaches-staff-level-agreement-on-an-extended-fund-facility-arrangement-with-sri-lanka. Accessed November 1, 2022
[3] Colombo Page, “Paris Club assures fullest support to Sri Lanka to resolve debt crisis”, 17 October 2022, http://www.colombopage.com/archive_22B/Oct17_1665984468CH.php. Accessed November 23, 2022
[4] Economy Next, “Paris Club proposes 10-year moratorium in 15-year Sri Lanka debt re-structure: report”, 4 December 2022, https://economynext.com/paris-club-proposes-10-year-moratorium-in-15-year-sri-lanka-debt-re-structure-report-105076/.
[5] The White House, “G20 Bali Leaders’ Declaration”, 16 November 2022, https://www.whitehouse.gov/briefing-room/statements-releases/2022/11/16/g20-bali-leaders-declaration/. Accessed November 20, 2022
[6] Colombo Gazette, “Sri Lanka pushing to reach final deal with IMF in December”, 15 November 2022, https://colombogazette.com/2022/11/15/sri-lanka-pushing-to-reach-final-deal-with-imf-in-december/. Accessed November 20, 2022
[7] Uditha Jayasinghe, , “Lazard in talks with China, India, Japan on Sri Lanka debt”, Economic Times, 13 September 2022,
https://economictimes.indiatimes.com/news/international/world-news/lazard-in-talks-with-china-india-japan-on-sri-lanka-debt/articleshow/94184032.cms?utm_source=contentofinterest&utm_medium=text&utm_campaign=cppst.
[9] India in Sri Lanka, 8 December 2022, https://twitter.com/IndiainSL?ref_src=
[10] Ministry of Foreign Affairs of Republic of China, “Foreign ministry spokesperson Mao Ning’s regular press conference on December 5, 2022”, https://www.fmprc.gov.cn/mfa_eng/xwfw_665399/s2510_665401/2511_665403/202212/t20221205_10985396.html. Accessed December 5, 2022
[11] Umesh Moramudali and Thilina Panduwawala, “Evolution of Chinese lending to Sri Lanka since
the mid-2000s – separating myth from reality”, SAIS-CARI Briefing, Paper No. 8,November 2022, https://static1.squarespace.com/static/5652847de4b033f56d2bdc29/t/638689771d0e3c4beb14bf2f/1669761400150/Briefing+Paper+-+Sri+Lanka+Debt+-+V5.pdf. Accessed November 11, 2022
[12] Colombo Gazette, “TNA MP threatens to stage “Go Home China” protest”, 2 December 2022, https://colombogazette.com/2022/12/02/tna-mp-threatens-to-stage-go-home-china-protest/. Accessed December 3, 2022
[13] Colombo Page, “Japan assures to assist Sri Lanka on debt restructuring”, 15 December 2022, http://www.colombopage.com/archive_22B/Dec15_1671044412CH.php. Accessed on 17 December 2022.
[14] USAID, “Administrator Samatha Power Announces Additional $20 million in humanitarian assistance to Sri Lanka”, 11 September 2022, https://www.usaid.gov/news-information/press-releases/sep-11-2022-administrator-samantha-power-announces-additional-20-million-to-sri-lanka.Accessed November 23, 2022
[15] Embassy of Japan in Sri Lanka, “On September 16, the Government of Japan decided to extend additional Emergency Grant Aid of USD 3.5 million for Sri Lanka in response to the challenging economic and humanitarian situation”, https://www.lk.emb-japan.go.jp/itpr_en/11_000001_00047.html#:~:text=On%20September%2016%2C%20the%20Government,challenging%20economic%20and%20humanitarian%20situation..Accessed November 30, 2022
[16] Colombo Gazette, “President presents IMF friendly 2023 budget”, 14 November 2022, https://colombogazette.com/2022/11/14/president-presents-imf-friendly-2023-budget/. Accessed November 25, 2022
[17] Ibid
[18]Ibid
[19] World Food Programme report on, “Sri Lanka Food Security Monitoring”, September 2022, https://docs.wfp.org/api/documents/WFP-0000144142/download/?_ga=2.259685898.10136811.1669015888-604064042.1669015888. Accessed November 26, 2022
[20] Colombo gazette, “Probe finds 303 Sri Lankans were heading to Canada”, 10 November 2022, https://colombogazette.com/2022/11/10/probe-finds-303-sri-lankans-were-heading-to-canada/. Accessed November 25, 2022
[21] People’s Dispatch, “Sri Lanka passes 22nd constitutional amendment bill curbing presidential powers”, 27 October 2022, https://peoplesdispatch.org/2022/10/27/sri-lanka-passes-22nd-constitutional-amendment-bill-curbing-presidential-powers/. Accessed November 22, 2022
[22] Economy Next, “Sri Lanka’s JVP economic pillars questioned as forex shortages, default risks worsen”, 2 January 2022, https://economynext.com/sri-lankas-jvp-economic-pillars-questioned-as-forex-shortages-default-risks-worsen-89221/. Accessed November 10, 2022
[23] Kushan Pathiraja, “President says no plans for reforms; stresses need for new economic model”, 6 December 2022, https://www.dailymirror.lk/top_story/President-says-no-plans-for-reforms-stresses-need-for-new-economic-model/155-249905. Accessed on December 8, 2022.
[24] “President reveals how he will control the next ‘Aragalaya’”, 23 November 2022, https://www.newswire.lk/2022/11/23/president-reveals-how-he-will-control-the-next-aragalaya/.Accessed November 25, 2022
[25] Presidential Secretariat, Sri Lanka, “Sri Lanka – South Africa to strengthen bilateral relationship based on economic cooperation and investment”, 17 November 2022, https://www.presidentsoffice.gov.lk/index.php/2022/11/17/sri-lanka-south-africa-to-strengthen-bilateral-relationship-based-on-economic-cooperation-and-investment/.Accessed December 1, 2022
[26] European Union, “EU-Sri Lanka: Sixth Meeting of the Working Group on Governance, Rule of Law and Human Rights”, 2 November 2022, https://www.eeas.europa.eu/eeas/eu-sri-lanka-sixth-meeting-working-group-governance-rule-law-and-human-rights_en#.Accessed November 11, 2022
[27] “U.S. says Sri Lanka’s economic reforms must be accompanied by political reforms”, 2 December 2022, https://www.newscutter.lk/sri-lanka-news/usaid-sri-lanka-02122022-53808/. Accessed December 3, 2022.