Sri Lankan crisis. Real roots and unsustainable recovery. Let us listen to experts. Still not late.

 

Article's purpose

This article provides a summary of the interview I happened to watch on 8 March 2025 in the social media conducted by Ada Derana Hydepark with Professor Asoka Bandarage largely based on her book "Crisis in Sri Lanka and the World" released in 2023. (Watch Interview here) (Book Link)

I was interested in reading the book to search materials that I may have missed in my book on the crisis published in 2023 (2022 ශ්‍රී ලංකා ආර්ථික අර්බුදය, ආර්ථික විද්‍යා ඇසකින්. අර්බුදය වැලැක්වීමටත්, නිරාකරණයටත්, අප අසමත් වූයේ ඇයි? අර්බුදයේ දෙවන වටයට සූදානම් වෙමු ද?)(Book Link). Books on any crisis differ as the approach and information covered in each book or article are different, given the fact that the exact nature and causes of crises are not known black and white.

Some perceptions of the books are as follows.

• The book analyses colonial and neoliberal origins as structural roots of the crisis and explores its emergence in Sri Lanka in 2022 in the context of the accelerating geopolitical conflict between China and the USA in the Indian Ocean. 

• It also casts doubts whether the debt crisis, economic collapse and political destabilization in Sri Lanka were intentionally precipitated to the advantage of the conflicting global powers. 

• According to the Author, the default was unnecessarily motivated to approach the IMF while the terms of the IMF programme were not discussed to be beneficial to the country and, therefore, were accepted as given. Therefore, the IMF programme does not provide a solution to foreign debt service problem and International Sovereign Bonds which were much of the crisis.

Accordingly, the interview appears to shed lights on important geopolitical and economic aspects that governments should consider in designing their future policy direction to recover the economy on a sustainable path and avoid repetition of such crises in the future.

The views of the Autor are commendable especially as all national leaders, leading professionals and economists including Economics Professors praise the IMF conditions and reforms as only option while periodically assessing the compliance with the IMF and seemingly recovery of the country from the crisis. However, nobody seems to recognize that the country got into the crisis in just less than a year after completing 16th IMF programme of similar nature.

Selected highlights of the interview

• Sri Lankan economy is collapsing.  Although goods are available, essentials are in shortage, inflation is high and a lot of people are leaving the country and an exodus of young professionals. Therefore, the crisis continues.

• Evidence is there that bilateral loans were available and Sri Lanka did not necessarily have to declare default. Chinese bilateral loans of 2.9 bn were there. Instead of taking that, there was a pressure for Sri Lanka to move towards an IMF deal because of external influences on economic decision to move Sri Lanka to Western control through IMF away from Chinese influence.

• 2.9 bn IMF loan was taken as the only alternative and its terms were not discussed much as it was accepted as given.

• In IMF deal did not look at how could debt service payment out of government revenue which is very high is brought down because in next 10 years almost 26% of government revenue goes to external debt service.

• We are not ready with a plan to recover the revenue that we loose and replace the revenue. Somethings were not considered very seriously. For example, 2017 Foreign Exchange Act deregulated financial outflows. Organizations such as global financial integrity have shown that a lot of foreign exchange revenue is hoarded in banks abroad through mis-invoicing and the amount for Sri Lanka is US$ 53 bn. If some of that is brought back to Sri Lanka, it can be used to repay debt and get Sri Lanka on a stronger economic footing.

• Whole global financial architecture needs to be questioned. In restructuring of loans, there should be an international mechanism so that countries like Sri Lanka do not have to go their own to make negotiations. There are 54-70 debt-ridden countries in the world and Sri Lankan situation is not unique.

• Economy's recovery is not to getting back to international sovereign bonds which IMF projects starting from 2027 Sri Lanka would go back to getting sovereign bonds. Those have very shorter maturity periods and very high interest rates. So, it would be in order to have a moratorium on sovereign bonds which have caused so much havoc to Sri Lankan economy because it was much of debt owed to sovereign bond holders.

• The current crisis have roots to export-import economy weakening of self-sufficiency and local production, which made the country dependent for imports even for basic essentials. Therefore, Sri Lanka and other countries became subservient to international markets. When problems occur outside the country, these countries confront difficulties such foreign exchange, prices and shortages and this has happened in cycles from colonial time to 2022.

• Global issue of ordinary people loosing control over resources and global forces grabbing those resources and making decision for them is common for such crises and it is really a call for justice and distribution of resources.

• The Covid 19 and Ukraine crisis and all these came together to create supply chain problems which precipitated the crisis in many countries but it was the underlying structural factors that had laid the framework for such crises to emerge which is the root of dependency on imports and exports for survival. The solution is more a balance between localized production and globalized interdependence. The food sovereignty issue is more critical. There are many groups talking about a balanced approach to development and justice.

• In economic policy direction, while a combination of manufacturing, exports and agriculture is followed, the priority should be given to local food self-sufficiency and agriculture. In the world, land is taken away from small farmers and sold off to transnational corporations and private interest for agri-businesses. They do not necessarily meet local food requirements as a lot of agri-businesses provide for export agriculture. Therefore, a careful approach is necessary to land commoditization because 80% of land in Sri Lanka is held by the government.

• Sri Lanka has become subservient to three foreign masters and needs a balance policy.

• Whole economic model or capitalist or neoliberal model has been built on export production over local production. That has to be questioned in the world at large. It is necessary to prioritize local production and sustainability and then to look at export production.

• It is sad to see so many people, especially young and professionals, leaving the country when the country is with so much resources and so much to offer.

• 31% of Sri Lankan population is below the poverty line compared to 4% in 2016. When there is poverty and despair, it is easier to manipulate people and take them away from the common economic issue.

• Identity politics has been weaponized in the world over and divisions are manipulated and created and that takes attention away from economic issue of small elite controlling resources and livelihood of the majority and people are pitted against each other in many lines and that has become a part of controlling population. Therefore, people have to wake up and realize the commonality of their issues.

• It is necessary to question what type of technology is needed for human to survive.

• We need to question whole capitalistic development model that puts the planet and people before profit and have a balanced approach to living as to what is needed and what is adequate rather than greed.

Concluding remarks

• By going through the interview, it is sad to see the successive governments do not pay any attention to such professional facts in the long-term interests of the country and people getting out of the economic crisis sustainably.

• In contrast, they attempt to tinker the economy and living standards within the old, failed IMF-dollar debt trickle down model to make people happy for the daily life in pursuit of votes without any attempt to fix the root causes of the crisis including geopolitics behind it.

• Therefore, it is highly likely that the crisis has only gone under the ashes for the time being and will flash out again soon in the near future as the IMF geopolitics-based recovery model pursued at present is highly temporary and vulnerable.

(This article is released in the interest of participating in the professional dialogue to find out solutions to present economic crisis confronted by the general public consequent to the global Corona pandemic, subsequent economic disruptions and shocks both local and global and policy failures. All are personal views of the author based on his research in the subject of Economics which have no intension to personally or maliciously discredit characters of any individuals.)

P Samarasiri

Former Deputy Governor, Central Bank of Sri Lanka

(Former Director of Bank Supervision, Assistant Governor, Secretary to the Monetary Board and Compliance Officer of the Central Bank, Former Chairman of the Sri Lanka Accounting and Auditing Standards Board and Credit Information Bureau, Former Chairman and Vice Chairman of the Institute of Bankers of Sri Lanka, Former Member of the Securities and Exchange Commission and Insurance Regulatory Commission and the Author of 13 Economics and Banking Books and a large number of articles published.)