2023: More tumultuous times ahead for Sri Lanka?
2023: More tumultuous times ahead for Sri Lanka?
2 February 2023
2022 was a tumultuous year for Sri Lanka’s domestic political and economic affairs. It featured an exacerbated economic crisis, nationwide anti-government protests, and a range of political transitions — most notable of which was Gotabaya Rajapaksa’s removal from the presidential office in July.
Here, 9DASHLINE asks several experts how they assess the prospects for political and economic recovery in 2023 after the turbulence of last year.
THE NEW NORMAL
DR RAJNI GAMAGE — POSTDOCTORAL FELLOW, NATIONAL UNIVERSITY OF SINGAPORE
In 2022, Sri Lanka experienced crises on multiple fronts. Unsustainable debt and balance of payment challenges disrupted essential food, medical, and fuel imports. By April, the government declared itself bankrupt and unable to service foreign debt obligations. Mass protests erupted, resulting in the resignation of the president, prime minister, and cabinet. As the new year begins, the prospects for economic recovery remain bleak despite reports of some semblance of ‘stability’ after extreme chaos last year. The country’s economy shrank at an annual 11.8 per cent in the July-September quarter and a World Bank report estimates the poverty rate in Sri Lanka to have doubled in 2022.
Securing an IMF extended fund facility lending arrangement would restore some of the country’s credibility among its creditors and help secure bridging finance. However, the economic and political reforms required to secure this funding face several challenges. While the current government has committed to tax reforms and state-owned enterprise reforms, it is unlikely that estimated revenue targets will be met. The gap in financing would likely be offloaded to the more vulnerable groups of society. Geopolitically, the government has to play a difficult balancing game between India, Japan and the Western powers, and China, as they are all crucial for any foreign debt restructuring efforts.
While the mass protests in early 2022 demonstrated the power of the people and democratic politics, the current government has been rapidly recapturing political power and centralising it within the old political guard. Mass popular dissent is being subverted through a combination of police surveillance and arrests, a degree of support for the government by sections of the people, and the lack of strong political opposition. The president has threatened to use emergency laws and the military if another mass uprising were to take place. Early national elections, before the end of the presidential term in November 2024, have also been ruled out. A shrinking democratic space and declining rule of law are becoming the new normal, consolidating status quo politics in the name of crisis recovery.
TRANSFER POWER TO THE PEOPLE
ASANGA ABEYAGOONASEKARA — INTERNATIONAL SECURITY AND GEOPOLITICS ANALYST
The autocratic family rule of the Rajapaksas, backed by external forces, destroyed Sri Lanka’s foundational structures by amending the constitution and throwing away the nation’s democratic practices. The country’s politics and society have been a powder keg ever since the people’s uprising in 2022. The new president, Ranil Wickremasinghe — backed by the Rajapaksa’s political majority in parliament — has ended the people's uprising with an iron fist, using the military and arresting protestors under the draconian Prevention of Terrorism Act (PTA). Sri Lanka has one of the highest inflation rates in the world, with rising commodity prices impacting most people who are not in the upper-middle-class bracket. With the rise in poverty levels and economic hardship, there is a considerable increase in crime, impacting law and order.
Adding to this are the external geopolitical factors from the Ukraine war, increased oil prices, and the Chinese delay in debt restructuring. India and Japan have already negotiated with Colombo on debt restructuring to obtain IMF financial assistance. 2023 will be a challenging year for Sri Lanka’s efforts to stabilise the political-economic crisis caused by significant internal and external geopolitical shocks. As an initial step for the ruling party to build confidence with the general public and the international community, Sri Lanka requires a democratically-elected government — not continuing with an appointed leader, which only ensures the continuance of the Rajapaksa's rule from the shadows. A transfer of power to the people through a democratic election will bring the necessary foundation to stabilise the nation in 2023.
ACCOUNTABILITY AND ATTITUDINAL CHANGE
DR BHAGYA SENARATNE — POSTDOCTORAL FELLOW, NYU SHANGHAI, AND SENIOR LECTURER, SIR JOHN KOTELAWALA DEFENCE UNIVERSITY
Early 2022 was historic for Sri Lanka because of its currency default and a subsequent volatile political environment that resulted in the country not having electricity, fuel, and household gas. Sri Lanka witnessed youth-driven protests that led to the appointment of a new president and prime minister. Even though there is some stability now, new elections must be held to appoint a legitimate president with a popular mandate to achieve political stability. Economic stability will rely on having a government that has the people’s support and depends on the government’s negotiation of the restructuring of bilateral and multilateral loans. The IMF is expected to disburse USD 2.9 billion to Sri Lanka via the Extended Fund Facility (EFF). However, this is conditional on how bilateral creditors agree to restructure loans with the country. Therefore, there were some concerns over whether Sri Lanka would receive the EFF as planned — as of January 2023, Sri Lanka has yet to receive the loan.
While the president considers whether to hold a presidential election to establish a legitimate government, the economic situation going into 2023 is precarious. Sri Lanka requires essential items such as foodstuff, fuel, gas, and medicine for its people to survive. This is against the backdrop of national inflation and food inflation increasing to 70.6 per cent and 80.9 per cent respectively in October 2022. These are the highest rates the island has ever recorded.
The current national budget calls for more individual and corporate tax. As a result, some businesses ceased operations, leading to a serious brain drain in Sri Lanka. The export sector has also voiced its concerns about the newly imposed taxes. However, this leaves the banking and financial sector in a vulnerable position in 2023, as people may not be able to repay their loans, which could collapse the financial sector.
Currently, Sri Lanka requires political and economic stability for recovery. It needs more transparent policymaking and less corruption. There is little hope for long-term recovery unless there is accountability and an attitudinal change in the country.
DISCLAIMER: All views expressed are those of the writer and do not necessarily represent that of the 9DASHLINE.com platform. Image credit: Flickr/Nazly Ahmed.