Behind the crisis in Sri Lanka: How political and economic mismanagement combined to plunge nation into turmoil

The man who replaced him, Prime Minister and now interim President Ranil Wickremesinghe, is likewise facing calls to go amid political and economic turmoil.

Although the drama escalated over a matter of days – during which the presidential palace and the prime minister’s residence were both occupied by demonstrators – the crisis is years in the making, argues Neil DeVotta, professor of politics and international affairs at Wake Forest University.

The Conversation U.S. asked DeVotta, who grew up in Sri Lanka and specializes in South Asian politics, to explain what brought about the crisis and where the nation of 22 million goes from here.

What happened in Sri Lanka was really quite revolutionary. For the first time in the country’s history, you had a president resign – and in the most humiliating manner.

Gotabaya Rajapaksa had earlier announced his intention to step down but did not do so immediately, because once he did that he would lose his presidential immunity from prosecution. Instead he fled the country, first going to the Maldives and then to Singapore. Some claim he may now be looking to get to Saudi Arabia – all of which is somewhat ironic given that Dubai, the Maldives and Saudi Arabia are Muslim states, and during his tenure in power Rajapaksa stood accused of encouraging Islamophobia to bolster his lock on power.

The catalyst behind all this was a protest movement. Demonstrators have since left the president’s and the prime minister’s official residence, but the protest movement has only partly succeeded. They wanted Rajapaksa and his brothers gone. But many also wanted the ouster of Prime Minister Wickremesinghe.

Instead, Wickremesinghe, who was not elected to Parliament and got a seat only through a national list that tops up the legislature, has now been sworn in as interim president. So a man with no mandate – his party got only a small fraction of the 11.5 million valid votes cast in the 2020 election – is now acting president and may end up with the job full time once the Sri Lankan Parliament holds a secret ballot on July 20, 2022.

The spark was really set off in April 2021 when Rajapaksa announced a ban on fertilizer, herbicides and pesticides.

Successive Sri Lankan governments have long been living beyond their means and employing a debt rollover strategy to keep the country afloat – in short, the country was relying on new loans, alongside revenue from tourism and international remittance, to pay down its debt.

But then came COVID-19, which severely affected tourism and contributed to what economists call a “balance of payments crisis.” In other words, the country was unable to pay for essential imports or service its debt. This pushed the government to abruptly announce a ban on herbicides and fertilizers – something they hoped would save the country US$400 million dollars on imports annually. The president had previously indicated that the move to organic agriculture would take place over 10 years. Instead, it was implemented abruptly despite warnings over the impact it would have on agriculture yields.

That led to farmers’ protesting. They were soon joined by sympathetic unions. The balance of payments crisis went far beyond farming. It got to the point when the government couldn’t pay for almost anything it was hoping to import, leading to shortages in medicines and milk powder. And that led to people from other sectors also protesting.

On top of this, the government was printing money to pay for goods. This inevitably led to inflation – which is running above 50%.

The tipping point came when people found that they could no longer pay for cooking gas and fuel. A few weeks ago, the government announced that it would provide fuel for essential services only, shuttering schools and ordering workers to stay at home.

Not quite. While the spark was a balance of payments crisis, I believe that underpinning the mess is a deep-rooted ethnonationalism that has allowed and encouraged corruption, nepotism and short-termism.

Since at least the 1950s, Sri Lanka has been in the grips of Sinhalese Buddhist nationalism. The Sinhalese make up around 75% of the population, with Tamils at around 15% and Muslims at 10%.

Sinhalese Sri Lankans have long been favored when it comes to access to universities and government positions. This has been to the detriment of not only the country’s minorities but also its governance. It has led to a decay in how the state functions. Sri Lanka has ended up with a system that disregards merit and is instead rooted in enthnocracy – rule by one dominant group. And that has helped spread nepotism and corruption.

The fact that the Rajapaksa brothers helped brutally suppressed and defeated a three-decade Tamil insurgency bolstered their credentials among Sinhalese Buddhist nationalists and consolidated their grip on power.

That civil war, which ended in 2009, also contributed to the current crisis. Through the conflict, the Sri Lankan government ran national deficits to finance the counterinsurgency.

After the war, the Rajapaksas looked to develop the country by building up its infrastructure. What the country instead got was “blingfrastructure” – vanity projects, often financed by China, that were dogged by corruption and graft. One such project is an airport that sees very few planes land or take off. I visited the Mattala Rajapaksa International Airport in 2015, and the only other people there were a coachload of students from a school on a field trip. Nothing has changed since then.

Other such wasteful projects include a conference center and cricket ground – called the Mahinda Rajapaksa International Cricket Stadium – not far from the Mattala airport that hosts next to nothing. And then there is the Lotus Tower, the tallest communications tower in South Asia, which was supposed to contain other facilities and was ceremonially opened in 2019 but remains out of operation.

The construction of such projects has been dogged by suggestions of corruption. Such projects largely involved Chinese construction firms, often using Chinese laborers – including Chinese prisoners, in the case of the Hambantota Port, now leased to China for 99 years because Sri Lanka could not pay its debts. Sri Lankans themselves have benefited only little.

On paper it looked like the country was developing and GDP was rising. But the growth was from external money rather than goods and services generated in Sri Lanka.

Chinese loans with short terms and high interest played no small role in quickening Sri Lanka’s debt problem. As a result, the country currently owes between $5 billion and $10 billion to China, and its overall debt stands at $51 billion dollars.

The most important thing that Sri Lanka needs going forward is political stability. Without that, you will not get the help required from the international community.

And Sri Lanka is not going to get out of its economic mess without help from international actors, such as the International Monetary Fund, the Asian Development Bank and the World Bank. It also needs help from partners like India, Japan, China and the U.S.

As it is, Wickremesinghe, the interim president, has said the country will suffer shortages in goods until the end of 2023.

Sri Lanka needs large-scale, long-term economic restructuring. And for that to happen, the government will have to restructure its bilateral debt – the IMF will not give Sri Lanka money simply so that it can pay off its debt to China or any other entity.

But China knows that cutting any debt deal with Sri Lanka will mean that other countries that hold large Chinese debt – like Pakistan and some African countries – will expect the same. And Beijing doesn’t want to set that precedent. On the other hand, China will most likely have to work with Sri Lanka and other bilateral donors, especially now that the Rajapaksas are out of power. It needs to cultivate goodwill to maintain influence in the island and will not want to be seen as exacerbating Sri Lanka’s woes.

The IMF will also likely expect painful measures to tamp down costs if it is to come to Sri Lanka’s aid. It will most likely insist that Sri Lanka free float its currency rather than peg it to the dollar, since right now Sri Lankans abroad are using unofficial channels – and not the banking system – to remit foreign currency. So it will likely have to devalue its currency beyond what it already has. The IMF will also likely expect that the government cut back on the number of state employees – which currently stands at around 1.5 million people.