The Sri Lankan Economic Crisis, a warning ignored.
As featured in Edition 41, available here.
By RYAN LEE (2nd year - Philosophy, Politics and Economics - Singapore)
Former president Gotabaya Rajapaksa’s escape from Sri Lanka sounds like the writings of an amateur fiction writer overzealously adding dramatic flair in his first political thriller. Rajapaksa missed four flights as he was afraid of reprisals from his own citizens were he to join the public immigration queue. He exhausted all means of escape including considering naval patrol crafts and private charterlights - stretching the use of his legal immunity to its maximum possible interpretation - all to escape the internal turmoil. Everywhere he went, Rajapaksa was met with widespread condemnation, from the Maldives to Singapore and now to Thailand. It seems like Rajapaksa is a universally reviled figure.
Staunch Rajapaksa supporters - albeit only a small number left - assert that the crisis was caused by economic issues, and not due to Rajapaksa’s poor governance. Whilst there is merit to this claim, this is not the entire story. As of 2021, tourism in Sri Lanka has grown to be a significant source of revenue, occupying one-tenth of its GDP. However, in 2019, following the COVID-19 pandemic, tourist pax drastically dipped and then tanked from 1.9 million tourists to 71,000 in March 2020.
It is easy to draw the conclusion that Sri Lanka was crippled by the haemorrhage of tourism income. However, this innocent narrative belies the true causal factors, being poor leadership and short-sighted economic policies.
The incumbent government was warned as early as 2014 – way before the 2019 Bombings or COVID-19 – when it first came into power by the Institute of Policy Studies (IPS) that they were heading into an economic crisis. IPS observed that Sri Lanka was facing a period of slowing growth and stagnant exports thereby leading to a trade deficit, with immediate action to be taken. While then Prime Minister Ranil Wickremesinghe did present a strong economic policy to attempt to address the situation, the coalition government could not unite to push the policy through.
The poor economic situation was further exacerbated by government officials recommending policies that either caused more confusion or further inflamed the situation. From the Finance Minister “playing with budget numbers” to show a more optimistic but unrealistic outlook, to the President, Prime Minister, and Finance Minister each implementing misaligned economic policies, these mistakes compounded and snowballed; eventually turning the 2014 economic prognosis by IPS into a scary reality.
With the resignation of Rajapaksa and the swearing-in of the new president Wickremesinghe, optimists cling onto the belief that there is a chance for Sri Lanka to recover. After all, it was Wickremesinghe who crafted the economic policy that was well-regarded by IPS back in 2014. However, there are many political obstacles that may impede his progress.
Firstly, he is essentially an independent in a parliament that has already shown itself to be disunited. Wickremesinghe’s party, UNP had a major split in early 2020, quickly followed by the worst defeat in the party’s history in the 2020 Parliamentary Elections; only receiving 2.15% of votes cast, winning only one seat in parliament. Without his own base of support within parliament, and with a messy multi-party government that has refused to unite even during crises, Wickremesinghe is likely to face an uphill battle for any policy he decides to enact.
Secondly, Wickremesinghe has close ties to the deeply unpopular Rajapaksa family, making him unlikable to the public. The Rajapaksa Family controls the ruling Sri Lanka Podujana Peramuna (SLPP) Party and has a similarly negative reputation to ex-president Gotabaya Rajapaksa. Many Sri Lankans accusing them of nepotism and for causing the economic crisis. This association with Wickremesinghe is toxic as his victory in the parliamentary election is largely portrayed as being due to his close ties to the Rajapaksas. Wickremesinghe seems like a puppet of the Rajapaksas, allowing them to consolidate power while seemingly stepping away from politics. This fact is not lost on the public, who often question Wickremesinghe’s mandate to govern.
The only hope at this point is to secure a bailout from the IMF. Wickremesinghe is currently in talks with the IMF to secure to bailout package to attempt to stabilise the Sri Lankan economy. Even if the bailout solves immediate economic issues at hand, Wickremesinghe cannot rest easy. It is likely that further long-term problems will rear their heads should he be unable to stabilise the government.
Image: Flickr/ EPJT Tours