That Sri Lanka is going through an acute economic crisis borne out of multiple factors ranging from debt servicing, foreign exchange, food and energy reports is well known.
Here we look at how this is impacting political security in the Island Nation-
Ruth Pollard writing for Bloomberg has indicated that Sri Lanka is, “is facing its worst economic upheaval in a decade. From an ill-fated fertiliser ban that led to a dramatic fall in yields of crops such as rice and tea, to its failure to deal with a foreign-currency crisis that’s now a humanitarian emergency, the government of President Gotabaya Rajapaksa is fast running out of solutions”.
The Ukraine war is affecting tourism as well as the high energy prices globally will adversely impact the import bill.
Sri Lanka has about $2 billion of foreign-currency reserves against total debt repayment of $7 billion for 2022, including a $1 billion dollar bond maturing in July. It has three months, maybe less, before a default as per the Bloomberg Report.
The roots of the debt crisis is seen in the government’s “capital market borrowing back in 2007 which accounts for 38 percent of the country’s foreign debt, while loans from China accounted for 10 percent”.
However genesis of the food crisis and inflation is bad policy decisions on fertilizers and poor management of foreign exchange.
The International Monetary Fund intends to begin discussions with Sri Lanka on a program to support the country, said Gerry Rice, Director, Communications Department of IMF as per Colombo Page.
As per the Page, speaking at a media briefing Thursday (March 17), Mr. Rice said the IMF has concluded the board meeting on Article IV consultation with Sri Lanka late last month and highlighted the urgent need to implement a credible and coherent strategy to restore macro-economic stability and debt sustainability protecting vulnerable groups through strengthened well-targeted social safety-nets.
Indian Backing Economic Bail Out
On the Indian assistance to Sri Lanka, Shri Arindam Bagchi, Official Spokesperson of the Ministry of External Affairs stated, “There was a 400 million currency swap under the SAARC format. RBI deferred, I think it was called Asian Clearing Union facility, there was a $515.2 million settlement facility that has been deferred till May. We have also earlier extended $500 million line of credit for procurement of fuel from India. In addition, I think we supply 40,000 metric tons of diesel etc”.
The Sri Lanka Ministry of Trade has called for applications to register importers of essential commodities from India under the Indian loan scheme for the year 2022. Following the agreement reached between the Government of India and the Government of Sri Lanka, applications are invited to register with the Ministry of Trade for the import of the following essential commodities from India for the year 2022. Importers are required to register for the importation of essential food items, essential medicines, cement, textiles, animal feed, raw materials used in industries and specialized fertilizers.
Impact on Political Security
Opposition Samagi Jana Balawegaya (SJB) organized huge protests the government in the capital Colombo on March 15 which drew massive crowds. The rally led by the Leader of the Opposition Sajith Premadasa was held opposite the Presidential Secretariat under the theme "The country ruined - enough tolerating,’ protesting rise in “cost of living, the shortage of fertilizers in the country, the fuel and gas crisis and the pressures faced by the people including power cuts,” the SJB leaders said.
Colombo page reports that a protest march organized by the Socialist Youth Union (SYU), the youth wing of the Janatha Vimukthi Peramuna (JVP) in Colombo on Friday (18) morning against the Sri Lankan Government drew a massive crowd to the capital city.
The protesters wore black bands saying "Gota Go Home." Opposition Leader Sajith Premadasa, Party Chairman Field Marshal Sarath Fonseka, General Secretary Ranjith Madduma Bandara and other parliamentarians also joined the protests
Sri Lankan President addressing the nation on March 16th requested the people to have faith in his actions to find solutions to the inconveniences that the people are experiencing and alleviate many sufferings due to the shortages of essential items and increase in prices as per the Colombo Page. “I am also very sensitive to the many sufferings the people must experience over the past two months. I know that this situation will continue for reasons beyond our control though we make maximum possible efforts about these situations,” he said.
He stated that he intended to take tough decisions. “Therefore, first of all I request you to have faith in the actions I will take on behalf of the people,” the President said and promised to fix the foreign exchange crisis. He outlined measures being taken to alleviate the same including fixing the “trade deficit and increase foreign exchange reserves,” including discussions with, “international financial institutions as well as with friendly countries regarding repayment of the loan installments and following yesterday’s discussions with the International Monetary Fund (IMF), he has decided to work with them after examining the advantages and disadvantages”.
Will the Rajapaksa Regime Collapse?
If things get worse calls for “Go Gotabaya Go” may increase. But as per Ruth Pollard of Bloomberg, “with a two-thirds majority in Parliament and elections not due until 2024 and 2025, the opposition protests are unlikely to loosen the [Rajapaksa] family’s grip on power”.
More over the opposition remains divided which was also the cause of the fall of the government led by the UNP and SLFP combine in the past apart from an impact of the Easter Sunday terrorist attack.
With political instability will come the indulgence of external players – China, U.S. and India in the internal polity of the Island nation which will obviously create a flux in the coming days which needs to be watched out for?