Economic failures topple Sri Lanka’s government after months of protests
Civil outrage in Sri Lanka has been simmering since 2021 over the effects of commodity shortages, inflation and economic policy failures that erupted into widespread protests from March.
Thousands of protesters in the Sri Lankan capital of Colombo stormed the President’s official residence and burned down the Prime Minister’s house on July 9, after which Speaker of the House Mahinda Yapa Abeywardena released a video statement indicating that President Gotabaya Rajapaksa would step down on July 13.
Prime Minister Ranil Wickremesinghe also agreed to step down the same day.
Protest leaders say they will continue to occupy the official residences of the president and prime minister until they step down.
“The president must resign, the prime minister must resign and the government must go,” local playwright and protest leader Ruwanthie de Chickera told a news conference.
The civilian coup follows the resignation of Rajapaksa’s 26-member cabinet on April 3.
As political leaders around the world have turned against the drastic turn of events, some pundits hinted at the possibility of this outcome months ago.
The island nation of nearly 22 million people, located off India’s southern coast, has plunged into a sea of economic missteps made worse by the COVID-19 pandemic. The country is also suffering from commodity inflation and critical shortages of items such as food and fuel, which are exacerbated by the Russian conflict in Ukraine.
Another element was a ban on synthetic fertilizers enacted in April 2021 that backfired on Rajapaksa’s administration. As a result, Sri Lanka is going through its darkest economic days since its independence from the United Kingdom in 1948.
Economic snowball effect
“The COVID-19 pandemic has served to highlight structural challenges that predated the pandemic,” Sri Lanka’s Institute of Policy Studies said in an annual report.
Tax weaknesses, an “uninspired” export portfolio and the rise of informal labor markets top the list of weak links in the country’s economic chain.
The pandemic has aggravated existing food insecurities, leaving the country in a delicate position before being hit by inflation.
The institute noted that COVID-19 was a wake-up call and has “profoundly altered perceptions about appropriate parameters for economic policy.”
Consumer goods prices have climbed 54.6% since last year in June. Transport costs soared 128% and food 80% from May amid severe shortages of staple crops and oil imports.
Debt repayment issues are not new to the country, and the failure to provide consistent, long-term solutions led to a downgrade in the country’s credit rating in 2021. A shortage of foreign exchange resulting from the shutdowns of the industry during the pandemic followed by the printing of more money has complicated the existing problems.
Rajapaksa’s administration has consistently responded by securing external funds from international sovereign bonds and loans from China’s notorious “debt trap” of developing countries. Sri Lanka currently has $51 billion in outstanding external debt, including $6.5 billion with China.
Then the country was hit with supply chain disruptions, shortages and high inflation.
For some economists, retrospective investment in key industries could have made the difference.
“There is a need [in developing countries] invest in sustainable activities with medium to long-term impact, such as agriculture and tourism,” economist Eduardo Hoffmann told The Epoch Times.
Hoffmann’s expertise is in developing country economics; he is a former World Bank translator.
He says that underdeveloped countries need a large amount of jobs for unskilled workers because inequalities in access to education prevail in the majority of these countries.
“Developing countries need industries that employ people in droves,” Hoffman said.
And foreign bank bailouts don’t provide that.
Agriculture and tourism are ideal candidates for unskilled labor demands.
Tourism in Sri Lanka has a dual purpose. It not only generated revenue but also brought in a significant amount of foreign currency before the pandemic shutdowns. It accounted for more than 5% of the country’s gross domestic product (GDP) before COVID-19.
At the other extreme, agriculture accounts for more than 7% of national GDP. The agricultural sector employs 30% of Sri Lanka’s workforce.
Fuel, Major players in agriculture
In April 2021, Rajapaksa announced a total ban on synthetic fertilizers in a bid to push organic farming initiatives.
The government on Aug. 5 approved 99,000 metric tons of organic fertilizer from China’s Qingdao Seawin Biotech Group, with a hefty price tag of $63.3 million.
However, the imported shipment tested positive – twice – for harmful bacteria, leading to a critical shortage of fertilizer.
This quickly turned into Sri Lankan farmers stranded without the ability to plant their fields, leading to massive crop shortages.
The Rajapaksa administration partially lifted the ban on synthetic fertilizers in November 2021, but it turned out to be too little too late.
At the same time, due to a lack of means to pay for imports, the authorities hastened to import fuel into the country. Dwindling supply became critical in January, pushing inflated prices even higher and leaving the government no choice but to ration what was left.
Hoffmann argues that the agriculture and energy sectors are critical when it comes to a country’s economic stability.
“Make no mistake, the food chain and the energy chain are directly linked,” he said.
High-level talks with the International Monetary Fund in June – a last resort for the outgoing administration – also failed to yield concrete results.
At the moment, the nation is holding its breath as the president and prime minister prepare to leave office and a handover of leadership is expected.
“The decision to step down on July 13 was taken to ensure a peaceful transfer of power,” Abeywardena said in the July 9 statement. “So I ask the public to obey the law and keep the peace.”
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Autumn is a South American-based reporter who primarily covers Latin American issues for The Epoch Times.