Looking at the pages of various newspapers recently, one can see the news on the front line: “Deploying troops at petrol pumps, killing two people standing in line to buy oil, 10/12 hours of daily load shedding, students could not take exams due to lack of papers, Lankans have not seen so much misery in 75 years” being the previous few weeks. Sri Lanka is rich in the famous ‘Jewel of the Crown’ kingdom. But now, there is no beauty in this country!!
Naturally, the question arises: what is the reason behind the ongoing crisis in Sri Lanka? Needless to say, Sri Lanka is widely blamed for the horrors of familial politics.
It is difficult to understand whether
The country has been in a state of crisis since before the 2019 presidential election. But the last few weeks have taken a terrible turn. Sri Lanka’s growth has been steadily declining since 2001, and the coronavirus epidemic has been raging for the past two years. As a result, the stagnation of the tourism sector, which accounts for 12% of the domestic economy, appears to be a significant blow. Tax cuts at the wrong time, reduction of organic farming in agriculture, huge piles of foreign loans, periodic lockdowns, inflation (which was 4.3 percent in 2019 but 16.5 percent in 2022, the fuel oil crisis, insufficient foreign exchange reserves, and rising prices of essential commodities are considered to be the causes of the crisis. By the way, one of the reasons behind the economic crisis caused by Sri Lanka is the country’s use of foreign loans for the construction of various unnecessary mega projects in the tourism sector of the country. As a result, the sector has suffered the brunt of the COVID effect in the hope of not achieving the expected economic returns.
One of the geopolitical advantages of Gotabaya Rajapaksa in resolving the crisis is that both China and India are keen to stand by Lanka. In this case, both China and India will want to enjoy the rights by adopting tactics, whether openly or not. In this race, China is far ahead. The port of Hambantota, which has been leased by China for 99 years, is no doubt part of China’s BRI plan. But the victim is Sri Lanka.
Sri Lanka has also been unable to import essentials, including oil and electricity, due to rising inflation and the impact of the ongoing Ukraine crisis. Sri Lanka’s economy seems to be in a vicious cycle of crisis as the dollar appreciates against the rupee. Sri Lanka’s largest lender is China. However, Sri Lanka has borrowed from various international currency markets, the Asian Development Bank and Japan. Debt-ridden Sri Lanka has been plagued by problems for the past 15 years.
Despite the issuance of sovereign bonds since 2006, the credit rating has been declining and efforts are being made to overcome the crisis. Many are speculating that this may soon lead to bankruptcy.
So what are the chances of its impact in Bangladesh? By the way, Sri Lanka was liberated from British colonial rule in 1947 and in 1971 the territory called Bangladesh came into being. Furthermore, in terms of socio-economic development, Sri Lanka was at the top of the list in South Asia at the time. The current economic crisis since the outbreak of the Civil War (1983) seems to be slowly setting the rising sun. Since it is located in the same area, it is easy to predict the impact of the crisis. In this case, it is important to prepare in advance. By comparison, the economic zones of the two countries are generally weak: low taxes, dependence on a single product for export, and a small amount of foreign direct investment.
According to statistics, in 2019, the tax-to-GDP ratio of Sri Lanka was 12.2 percent, while that of Bangladesh was 10 percent. While Bangladesh has left billions in foreign investment, Sri Lanka is stuck with millions. However, it is important to learn the following lessons from the crisis in Sri Lanka:
First of all, economic issues need to be looked at from the perspective of political economy. Overall economic interests as well as public welfare-oriented economic development work should be taken into consideration. If the country’s economy revolves around a familial structure and if personal interests are hidden within it, then the situation will gradually become similar to that of Greece and Sri Lanka. It is advisable to keep an eye on that.
Secondly, it is important to note that Sri Lanka has moved from an upper-middle-income country to a lower-middle-income country in 2019, meaning that Sri Lanka has not been able to sustain the progress it has made. From the aquatic example, it is easy to imagine that economic development will automatically lead to growth. If the domestic economy shifts to a kinship economy, then there is a great possibility of a crisis, which is our lesson.
Thirdly, there is a need for infrastructure development and various mega projects in the country, but it is important to know how economically viable they are.
If we look at Sri Lanka, then Hambantota, Lotus Square, Port City, etc. are implementing mega projects but are not getting the expected economic return. As a result, unnecessary mega projects are being identified as one of the causes of the economic crisis. Understandably, when large projects are carried out over a long period of time, both debt and interest increase. We have to consider this aspect. However, the hope is that the economic returns of our mega projects like Padma Bridge, Karnafuli Tunnel, and Ural Bridge will be good for economy.
Fourthly, China and India are the two major powers in the geopolitics of the South Asian region. Geographically, it is our closest and friendliest neighbor. The two countries have good economic and trade relations. It would not be appropriate to ignore any country alone. According to our foreign policy, it is very important to maintain friendship and balance with the two countries. Because Sri Lanka sometimes leans more towards China than India. In addition, it is important to note that due to Debt Trap diplomacy, China is building a geopolitically strong position with huge profits by providing small loans to developing countries in South Asia. In this case, India is not far behind. At the moment, we should keep the balance.
At the same time, once Bangladesh leaves the Least Developed Countries (LDC), it will no longer receive low-interest loans and will not get special priority in any business. You have to take a high-interest loan. This will also increase the payment. In this case, you have to be careful about the debt liability from now on. As a result, economists estimate that it may take another fourteen to fifteen years to repay the foreign debt. In that case, we need to be aware of it from now on.
After all, the problems that Sri Lanka is currently facing were not created overnight. So, how is the crisis being created in Sri Lanka? Bangladesh should observe this closely and learn from it. Otherwise, Post-Covid will face another man-made catastrophe as soon as the rising tide of commodity prices rises—it is not unrealistic.
The author of this article is a student of the Department of Political Science, University of Chittagong.