The Sri Lankan Economic Crisis
Discontent with the Sri Lankan president has erupted in protests throughout 2022. (AntanO/Wikimedia Commons)
On July 9, hundreds of thousands of protesters stormed the presidential residence in Sri Lanka’s capital, breaking into the building to eat the president’s food, drink alcohol found in the cabinets, and swim in the pool. The city of Colombo was filled with shouts of anger, despair, and rebellion due to the current economic crisis currently gripping the nation. Food and fuel shortages have only worsened as people take to the streets to voice their resentment. The sitting president during the riots fled without a formal resignation, government officials’ homes were torched to the ground, and violent altercations between civilians and the police resulted in numerous injuries and hospital admissions in the second week of July. The worst economic crisis since the country’s independence has led to nothing but complete disaster and calamity for the people of Sri Lanka, as the future of the island appears more uncertain.
How did this happen?
The crisis began with a rift in Sri Lankan politics. Contrary to western countries, the politics of Sri Lanka center around power and influence from family. To get elected, one has to be part of a powerful and established clan such as the Rajapaksa family. Wielding power and wealth since independence from Great Britain, the family rose to prominence when they were elected as representatives of their district. The Rajapaksas never reached national politics, however, until Mahinda Rajapaksa was elected president in 2005. Running the country became, in effect, a family business; Mahinda put members of his family in high positions of power, and his brother Gotabaya became the defense secretary.
The country enjoyed years of prosperity and economic growth, and the Rajapaksas reached unprecedented levels of power. Many Sri Lankan citizens were satisfied with the ruling family. A civil war would come to an end during the Rajapaksas’ reign since the rebel Tamil Tigers were militarily defeated by the Sri Lankan armed forces, bringing peace to the island.
What went wrong?
As Sri Lanka borrowed from other nations around the globe, foreign debt plagued the country. The strategy worked for a period of time: economically, the country boomed. The gross domestic product (GDP) per capita skyrocketed, while poverty rates were low. But the country’s market borrowings also resulted in accumulating debt that caused later problems.
The outbreak of COVID-19 caused a global recession, including the decline of tourism. Sri Lanka depended heavily on tourism, relying on the flow of tourists to pay off their large foreign debt. Many of those tourists were from Ukraine and Russia. The already-struggling tourism industry took a major hit after Putin invaded Ukraine, with many Russians and Ukrainians prevented from flying to Sri Lanka. With foreign debt rising and less currency to pay it off, the Rajapaksas got desperate.
To increase soil health, the country banned fertilizer imports and chemical fertilizer in 2021, which was extremely risky since the whole nation had to switch to organic fertilizer overnight. Farmers struggled, which led to food shortages. These food shortages made the government resort to importing food abroad, and prices for necessities increased. The policy was reversed in November of that year, but it was too late. The Sri Lankan government’s move to become fully dependent on organic fertilizer was a failure.
Sri Lanka’s foreign reserves decreased over time, with imports and borrowing rising. The needle that broke the camel’s back was oil. Worldwide, oil became increasingly expensive, and Sri Lanka depended on shipments of oil since it was an island nation.
What happened after?
Inflation rose to 55 percent in June 2022, while non-government numbers were over 130 percent. The prices of food and cooking gas reached highs while food shortages continued. The Sri Lankan rupee reached a single day record for decline in more than forty years. Sri Lankans resorted to cooking over wood fires, and the sale of petroleum was banned. The government printed more money in response, making the rupee depreciate even more.
Protests broke out across the island. These protests originally began after the banning of chemical fertilizer in 2021, but have gotten worse with the deterioration of the country’s economy. Violent responses from police weren’t enough to silence the voices of the people, as some even defected. The Rajapaksa brothers, once revered as heroes of Sri Lanka, are now seen as failures. Protesters attempted to storm Mahinda Rajapaksa’s home, causing the former president to flee the country. People filled the streets, voicing their anger at the Rajapaksa family. On June 10, hundreds of thousands of protesters swarmed into then-sitting President Gotayaba Rajapaksa’s residence, storming the office of a leader who had already fled his own country.
The Rajapaksa dynasty has come to an end as their mismanagement of the government led to disaster and calamity for the nation.
What will Sri Lanka do now?
A new government is still being agreed upon. Ranil Wickremesinghe became the country’s acting president while the country continues to inch closer to bankruptcy. Many Sri Lankan citizens hope the International Monetary Fund (IMF) will save the country.
Protests are expected to continue until power is stripped away from Rajapaksas’ party.
A new administration is on the horizon, hoping to fix the problems that ravaged Sri Lanka for years.
Sources & Further Reading