More Than Good Wishes

Sri Lanka is one of the most affected countries by the Coronavirus outbreak. The meltdown faced by the Sri Lankan government, led by the strongman president Gotabaya Rajapaksa, is caused by the immediate impact of the Covid-19 crisis and the loss of tourism, but is compounded by high government spending and tax cuts eroding state revenues, vast debt repayments to China and foreign exchange reserves at their lowest levels in a decade. Inflation has meanwhile been spurred by the government printing money to pay off domestic loans and foreign bonds. The World Bank estimates 500,000 people have fallen below the poverty line since the beginning of the pandemic, the equivalent of five years’ progress in fighting poverty,” write Minoli de Soysa and Hannah Ellis-Petersen in their article published in The Guardian on January 2, 2022.

There are different reasons behind the prevailing financial crisis in Sri Lanka ratcheting up into state bankruptcy and insolvency, however, the main ones are the foreign debt burden and a severe blow to the tourism industry due to the pandemic.

Sri Lanka has been taking heavy loans from different countries, mainly China, and has also entered into a barter trade agreement with Iran to pay off its earlier debts against oil purchases. For this reason, it is now more than a Herculean task for the island nation to timely repay the loan in installments. “One of the most pressing problems for Sri Lanka is its huge foreign debt burden, in particular to China. It owes China more than $5bn in debt and last year took an additional $1bn loan from Beijing to help with its acute financial crisis, which is being paid in instalments,” according to Minoli de Soysa and Hannah Ellis-Petersen.

To make matters worse, the tourism industry which has been a major contributor to the GDP of Sri Lanka, is now at its lowest ebb, due to the prolonged lockdown conditions. According to the World Travel and Tourism Council, over 200,000 people in Sri Lanka have lost their jobs in the travel and tourism sectors.

Unfortunately, the neighbouring countries and a dysfunctional South Asian Association for Regional Cooperation (SAARC) are not capable of rescuing Sri Lanka from the ongoing crisis, since almost all South Asian countries, including Pakistan, are also confronting similar crises. Therefore, the Sri Lankan government has now decided to grapple with the crisis another way. For instance, the Plantation Minister Ramesh Pathirana believes he is hopeful of settling the country’s past oil debts with Iran by paying them with tea, sending them $5m worth of tea every month in order to save “much-needed currency.”
In a similar vein, the Sri Lankan President has requested Sri Lankan expatriates to remit foreign exchange to the country to boost its ailing economy.