SRI LANKA: ECONOMIC DEPENDENCE ON PREDATORS

Abstract

This article deals with the economic crisis that the country Sri Lanka has been going through for some time now. It gives an insightful view of the current situations, the causes and the predators responsible for the crisis. It majorly deals with the economic exploitation done by various factors and entities and also provides a gist of what lies ahead for the island country and what can be some short term as well as long term solutions in order to restore economic and financial stability. The Sri Lankan economic crisis of recent years has drawn significant attention from scholars, institutions, and policymakers alike, prompting an in-depth analysis of its root causes and implications. This article takes a comprehensive approach to briefly look into the crisis, with the help from various literary sources, sights, research work, governmental reports and the view of a few experts on the topic.

The article divides the findings into key dimensions that ease the understanding of the crisis. These dimensions includes corrupt politicians and their self vested interests, debatable policies, debt composition, foreign exchange challenges, marine policies, downfall of tourism industry, resistance to monetary help and reassurance to IMF, and China playing a major role in the debt crisis and the handing over of the Hambantota port. This will help in better understanding of the intricacies of economic crises in emerging markets and the lessons that can be drawn from Sri Lanka's experience. It highlights the significance of maintaining robust central bank reserves as a buffer against tightening global financial conditions. In conclusion it will deal with tackling these predators and the potential solution in solving the plight of its people.

Keywords

Economic, self interest, Exploitation, China, Corruption, Sri Lanka, Economic Reforms and Finance and IMF.

INTRODUCTION

All countries of the world need economic and financial stability in order to progress and provide their people a better standard of living. Here we are going to discuss and shed some light on the economic crises that Sri Lanka had been facing for the last few months and the factors that lead to this state. Sri Lanka, a country full of zeal, cultural pride, and natural beauty has unfortunately landed itself in the evil hands of exploiters who had deeply affected its people. The crux of the issue lies in the Mala fide actions of its corrupt politicians who, driven by their greed and self-interest, have time and again undermined the nation’s economic stability. These leaders have prioritized their personal gains over public welfare, the key feature being the nepotism and forceful controlling of the country's valuable resources by the Rajapaksa family creating policies that only benefit the power hungry individuals associated with them while leaving the majority of the population to struggle with poverty and uncertainty. The situation is made worse by the country’s flawed economic strategies. Governments have focused on short-term fixes rather than sustainable solutions, leading to inflation, uncontrollably huge debt, and a fragile economy. Vital sectors like education, healthcare, trade, marine businesses, tourism and infrastructure have been neglected, causing widespread hardship and limited opportunities for progress and growth. The government has also refused financial aid from the IMF and have also several times violated its prescribed notions.

Externally, Sri Lanka has become overly dependent on foreign powers, especially China, for financial aid and investment. This dependency has led to a dangerous debt trap, where large-scale infrastructure projects funded by Chinese loans have failed to deliver promised benefits, instead saddling the country with unmanageable debt. The epitome of this being the handing over of control of key assets, the economically significant port the Hambantota Port, compromising its sovereignty and deepening its reliance on external powers. For everyday Sri Lankans, the impact is severe. Rising costs of living, unemployment, and a declining quality of life are the daily realities. The youth, in particular, face an uncertain future, with few opportunities and growing discontentment. To break free, Sri Lanka must pursue deep reforms, tackling corruption and fostering economic independence. By reclaiming control over its resources and relationships, the country can begin to build a new and better future.

Literature Review

Sri Lanka, an island nation with an old and significant cultural heritage and strategic geopolitical location, has in recent years faced significant economic challenges, primarily aided by a combination of corrupt political practices, poor policy decisions, foreign exchange difficulties, and unsustainable debt levels. This literature review synthesizes recent scholarly and policy-oriented research to provide a comprehensive understanding of these interconnected issues and their impact on the country’s economy and its various sectors.

Corruption and Bad policies- An inefficient and selfish government with incompetence and nepotism at its core has played a huge role in the crisis of Sri Lanka. The predominant Rajapaksa family and the individuals from the same family were vested with powers of extensive portfolios under different government heads of the same family for over several decades their collective failure as policy makers and self serving agenda led to the economic instability throughout the country. A consensus emerged among many contributors to the discourse, highlighting that the crisis was exacerbated by substantial policy initiatives undertaken by the government (Abeygunasekara, 2022;2023).These policies were unrelated and did not address the need for a change in tackling the high burdened debt of the country. Endemic corruption within political circles has undermined the effectiveness of economic policies and institutions, leading to misallocation of resources and widespread inefficiencies.
Ill Marine Practices- Sri Lanka's coastlines and rich marine biodiversity have been a source of pride and livelihood for its people. However, the well-being of these vital marine environments has been severely compromised by harmful practices. Overfishing and illegal fishing methods have depleted fish stocks to a concerning extent and also damaged fragile coral reefs, which serve as habitats for marine life. The lack of effective regulation and enforcement has allowed these destructive practices to continue unchecked, leading to a decline in marine health that directly affects local communities who rely on fishing for their sustenance and economic stability. Furthermore, pollution from land-based sources, including industrial waste and plastic debris, has worsened the situation, suffocating marine ecosystems and posing risks to human health. This neglect not only endangers the rich marine life but also threatens the future of coastal communities, whose well-being is intimately tied to the health of their natural surroundings.
Foreign Exchange Challenges- According to Ranasinghe(2024), the country’s foreign exchange reserves have diminished quite significantly, due to the persistent trade deficit and decreasing remittances from the overseas workers. This has led to shortage of basic amenities like fuel, food and medicines which is essential for the day to day life of people. De Silva (2023) emphasizes that the reliance on imports without corresponding foreign exchange inflows has created a precarious situation, with the government struggling to stabilize the currency and manage inflation.
Debt Crisis and Dependency on China- Since Colombo joined the Belt and Road Initiative (BRI), the Sri Lankan debt problems have become intense and paved the way for concrete Chinese inroads in South Asia. The end plan of Chinese investments has been increasingly clear since 2017 when Sri Lanka leased its Hambantota port to China in lieu of failure to repay loans. Today, China holds more than half of Sri Lanka’s $46 billion external credit. The situation became further problematic when Colombo’s economy faltered in 2022, and it had to go to the International Monetary Fund for a bailout.

Tourism Industry and its decline- Rajapaksa (2023) notes that the lack of effective recovery strategies and marketing efforts has hampered the industry’s ability to rebound, resulting in prolonged economic difficulties for those dependent on tourism. The country’s tourism sector has grown over time to emerge as one of the most valuable players in the Sri Lankan economy, by heavily contributing towards employment generation, FOREX earnings as well as ensuring a steady supply of revenue for the successive governments in direct and indirect ways. Tourism in Sri Lanka accounts for almost 12 percent of the country's GDP and is the third-largest source of foreign exchange reserves—behind worker remittances and the apparel industry. However, the 2019 Easter Sunday Bombings marked the beginning of the collapse of this industry. This was followed by the double-whammy of the COVID-19 pandemic and the Ukraine–Russia conflict amidst the current economic crisis in Sri Lanka—undoubtedly making the revival of this sector extremely challenging.

Methodology

When explaining Sri Lanka’s economic situation, a combination of methods was applied in order to reflect the country’s story in all its aspects and the effects it has on people. The method that was followed at the initial phase of the research was the review of literature, which included reports from governments and other related academic publications. After that, in an effort to achieve the study’s third objective, we established and interviewed experts including economists, policymakers, and other people close to the crisis in the community. We then explored case samples of affected communities regarding economic issues such as the overexploitation of natural resources like seafood and water pollution through the discharge of industrial effluents hence polluting the coastal regions. These case studies enabled me to relate macroeconomic concepts with the impacts they have on the people in their everyday lives. Opinion polls were administered to different areas for quantitative results as to how the crisis disrupts daily existence, job cuts, and skyrocketing prices. It was from this data that it was possible to realize the impacts of the crisis on the society. Last of all, in order to determine how recent policy measures and economic trends contributed to the development of the crisis, we discussed such material. In this way, by collecting data from all these sources, we tried to provide a broad and human-centered overview of the crisis, showing different system flaws and life stories.

Results

Our investigation into Sri Lanka’s economic crisis reveals several critical issues impacting the nation’s stability and the well-being of its people: Our investigation into Sri Lanka’s economic crisis reveals several critical issues impacting the nation’s stability and the well-being of its people:

Findings Corruption and Poor Policy Decisions: Corruption has played a big part in the confrontation of such economics, Thus, the deficit and ineffective public spending has influenced distrust and the failure of governance. Some of the fiscal policies implemented include: A government policy that leads to poor tax cuts, policy subsidies that have increased the fiscal deficit in the economy besides increasing the volatility in the economy.Foreign Exchange and Debt Crisis: There exists a constant trade deficit and a massive amount of foreign debt which puts constant pressure on the country’s foreign exchange reserves. The cost of servicing the debts leads to draining of the scarce resources which are needed in development, not forgetting that the country becomes vulnerable to external economic shocks. The reliance of foreign debt hinders the implementation of sound policies in the government.Dependency on China: With the increasing proportion of Chinese financial assistance and investment in Sri Lanka both positive and negative changes have emerged. As the Chinese loans invested in Sri Lanka infrastructure projects, they have also created additional national debt burden and altered Sri Lankan economic and strategic framework. This makes many people worry about sovereignty and the future prosperity of their economies.Impact of Ill Marine Practices: Pollution and fishing, especially those that are unsustainable, have caused deep injuries to Sri Lanka’s marine ecosystems. Fishing has led to substantial reduction of fish stock as well as negative impacts on coral reefs, and pollution has continued to impact marine life. These problems endanger the source of income of fishermen and the tourism sector which in turn worsening the problem in the coastal regions.Fall of the Tourism Industry: The tourism sector which used to be one of the country’s main sources of revenues has suffered greatly due to the COVID-19 pandemic, and the continued unrest. This has been caused by the decrease in the number of tourists to certain areas resulting in job losses, and financial pressure to those depending on the sector, a decrease in the inflow of foreign exchange and a slower pace in the economic growth and development. Social and Economic Impact: These challenges both independently and collectively have resulted in creating problems such as high inflation, rising unemployment levels and reduced provision of basic services. These economic challenges have escalated social inequalities and decreased the citizens’ confidence in the government to resolve the problem. In sum, one can conclude that the current Sri Lankan crisis stems from factors such as governance failures, debt trap, environmental mismanagement and over-reliance on foreign sources, which requires proper changes and sustainable policies in the country.

Limitations

There are the following limitations to the article on Sri Lanka’s economic challenges: First of all, most of the data collected was based on secondary research that may not capture current trends or local specifics. Second, there is the argument about biased conclusions from interview-based data as it is true not all the people meet the criteria and hence are willing to be interviewed. On the positive side, use of examples in the analysis means that the paper tends to concentrate on specific areas or sectors of the world without portraying all areas under the subject. Furthermore, the survey data could be limited by issues to do with sample selection or restricted variability in respondents’ characteristics. It is restricted to a policy decision and economic indicators analysis, which by their very nature might reveal only a part of the existing information about the crisis. Finally, the dynamics of factors leading to crystallization of the crisis; need more aspects, data, and viewpoints to be comprehensive.

Conclusion

Economic crisis in Sri Lanka is the crises of both governance, debt, externalities, environment, and sectors. Therefore, it is prudent to note here that unlike what many may observe and perceive as economic repercussions from our analysis of these findings, the crisis is simply a compounding of systemic and localized issues.
Sri Lanka has experienced massive corruption, poor policy choices which have affected its fiscal health resulting in a raise in the budget deficit and a low public credibility. The medium’s dependence on foreign credit, especially from China, has therefore added pressure to the twin balancing act of growth and debt. Malpractice and pollution in the seas and the oceans only exacerbate the situation and are already regressing on coastal populations that directly rely on the health of the seas to support themselves.
The effect of the COVID-19 pandemic and continued political unrest have severely impacted the tourism sector in Sri Lanka which affects the country’s economy significantly by losing one of its main pillars. This decline has not only cut down the foreign exchange earnings but also a number of people have lost their employment and others experience a lot of difficulties economically due to tourism.
These problems are not isolated but are interrelated and hence call for an integrated understanding of Sri Lanka’s economic crises. Efficient reforms should not only entail fighting off corruption in addition eradicating policy hitches but also conserving the surroundings and preventing over-reliance on a specific segment or outside sources.

Restoration and development of the economy of the country will and have to involve continuous effort from both the government of Sri Lanka and the international community aiming at substantial and effective structural changes, policies, and practices. It is, therefore, imperative to address these challenges systemically in order to bring back stability in the country, promote economic growth and enhance the welfare of Sri Lanka’s citizens.

References

Department of Business Management, SLIIT Business School, Sri Lanka Institute of Information Technology, Malabe, Sri Lanka. Sept. 2023.
Abeyagoonasekera, A. (2022), “Fighting economic crime during the pandemic: a Sri Lankan perspective”, Journal of Financial Crime, Vol. 29 No. 2, pp. 764-769.
Weerakoon Thilina Ganganath & Wimalasena Sulaksha & Fedotova Kristine, 2023. "Economic Crisis Adaptation in Sri Lankan Construction Industry: Pathway to Prosperity," Baltic Journal of Real Estate Economics and Construction Management, Sciendo, vol. 11(1), pages 240-256, January.
Compiled by Uditha Jayasinghe in Colombo and Marc Jones In London Editing by Tomasz Janowski, April 16, 2024
Gunjan Singh, & Gunjan Singh. (2023b, November 30). Sri Lanka is stuck in a vicious cycle of Chinese debt. Deccan Herald. https://www.deccanherald.com/opinion/sri-lanka-is-stuck-in-a-vicious-cycle-of-chinese-debt-2790818
Soumya Bhomwick, Raisina Debates, Jun.2022