As irate protesters gathered near the house of President Gotabaya Rajapaksa in a desperate bid to highlight their suffering, the worsening economic crisis in Sri Lanka has possibly reached its crescendo. The Rajapaksas, who have dominated the political and electoral scene, face an unprecedented decline in their popularity, as the people struggle for want of adequate money, fuel and food. The roots of the crisis may not lie wholly in the policies of Mr. Gotabaya, who was swept to power in 2019 as President on a platform of strong leadership and decisive action, while his party, the Sri Lanka Podujana Peramuna, won a landslide in parliamentary elections a year later. The Rajapaksas did inherit some economic problems, while the pandemic cast a greater burden. However, the current administration is indeed responsible for some ill-advised populist measures such as a huge raise in the threshold for income taxes and VAT registration, leading to revenue loss. And there was a questionable order to move to fertilizer-free farming overnight, which led to loss of yield and drew sharp criticism. The chemical fertilizer ban has been rolled back, but its impact on food security remains. Yet, more than anything, what appears to infuriate the people is the perception of governmental apathy towards their plight, of denial of the existence of a crisis and the absence of a road map for economic recovery.
It may be simplistic to summarise the causative factors behind the crisis as excessive borrowings at high interest rates and a putative ‘Chinese debt trap’. However, there is behind it a tale of economic mismanagement, profligate use of public resources, and possible mishandling of monetary policy. Sri Lanka, an island nation heavily dependent on imports, gains its foreign exchange through tourism, the export of garments and tea, besides external remittances. If the Easter Sunday blasts of 2019 set back its tourism sector, the novel coronavirus pandemic almost finished it off. The heavy-handed lockdown, overseen by a military-led task force, had severe economic consequences too, as livelihoods were lost, while earnings suffered. The country needs measures to shore up its foreign exchange reserves and the balance of payment position. India has extended assistance amounting to $2.40 billion, and China is also looking at further loans. The country’s past resistance to borrowing from the IMF may not last, and it may have to accept significant conditionalities for a bailout package. However, advocating that the people tighten their belts and suffer a little more may not work. The President should acknowledge both the depth of the crisis and the rising public disenchantment. What his country needs is empathetic leadership and decisive measures to halt the downward spiral.
