International Seminar on “Sri Lanka’s Economic and Political Crisis: Uncertain Future & its Regional Impact”

International Seminar on “Sri Lanka’s Economic and Political Crisis: Uncertain Future & its Regional Impact” jointly organised by The Peninsula Foundation & Saveetha School of Law on 6 June 2022.

With the country engulfed in the worst economic crisis since its independent history, since April this year, Sri Lankans have hit the streets to protest against the Rajapaksa government for failing to fulfil even the basic needs of the people like food, fuel, and medicine. Perhaps, for the first time in Sri Lanka’s modern history, the nation of nearly 22 million people, that until a decade ago was in the midst of a brutal and bloody civil war, has united in an unprecedented fashion - in terms of ethnicity, demography, magnitude, and proportion - demanding accountability from the Gotabaya government. Prime Minister Mahinda Rajapaksa and several politicians of the ruling coalition have resigned under public pressure. With no credible leadership to steer the country clear of the political and economic crises and with the protests turning violent in recent days, the situation in Sri Lanka is rapidly evolving with no clear end or positive outcomes in sight. The newly appointed prime minister, Ranil Wikramasinghe faces enormous challenges and has even said that Sri lanka is economically insolvent.

Experts have placed the onus of the crisis on poor policy and governance decisions of successive governments. Frequent constitutional amendments and the slashing of taxes as a campaign move by Gotabaya Rajapaksa impacted the country’s revenue stream while the pandemic hit the tourism sector and remittances. The country’s tourism sector, which accounts for 10% of its GDP, has diminished significantly since the Easter bombings and the pandemic. Excessive borrowings and increased reliance on imports have led to a 70% depletion of its foreign reserves. While the growth rate of the country’s economy fell from 5% in 2015 to 2.9% in 2019, for the same period, the investment rate dropped from 31.2% to 26.8%, and gross debt rose from 78.5% to 86.8%. Sri Lanka has announced that it would default on its external debt amounting to $51 billion. The IMF's downgrading of Sri Lanka’s credit rating, given the prevailing situation, exacerbated the crisis as the country was unable to borrow from international markets. The overnment’s decision to ban imports of chemical fertilizers and adopt “organic-only” farming overnight to ease pressure on its dwindling foreign reserves has triggered a food crisis. The government has reached out to the IMF for a bailout and an action plan to address the economic crisis. Countries like India, Bangladesh, China, and the US have extended lines of credits and currency swap facilities.

The exacerbation of the crisis is also attributed to the authoritarian style of governance since the Rajapaksa brothers came to power. This, along with a weak opposition, has contributed to the weakening of the public institutions in the country, particularly the judiciary; the benches have repeatedly been stacked by Presidential nominees and unfavourable judges impeached. In 2020, the Constitution was amended for the twentieth time, repealing the previous amendment limiting the powers and term of the President. Critics had warned that this would drastically weaken the office of the Prime Minister and make Parliament irrelevant. The current mass protests cutting across different ethnicities, generations, and party lines are also a protest against shrinking civic space and democratic backsliding in the country.

The emerging situation in Sri Lanka has enormous long-term geopolitical and geostrategic implications for South Asia and the Indo-Pacific, given the power dynamics in the region, especially between India and China, and their interest in the future outcomes in Sri Lanka. Against this background, The Peninsula Foundation and Saveetha School of Law seek to unpack key questions relating to current developments in Sri Lanka through a panel discussion having Sri Lankan and Indian speakers.

1. What are the possible future outcomes of the current crisis in Sri Lanka? What are its implications for Sri Lanka’s political and economic future? Is it likely to create a refugee influx into India?

2. What are the key challenges before Sri Lanka in addressing the crisis? What hard choices does the country face regarding economic strategies, political recalibrations, and foreign policies?

3. What is the significance of the current protests? What does it mean for democracy and dissent in the country? Can it translate into strengthening the democratic institutions in the country?

4. How will future outcomes impact the immediate neighbourhood and the extended region? What are policy options available for the region to respond to and alleviate the humanitarian fallout from the crisis? What are India’s policy options and the impact on its neighbourhood strategy?