CRITICALLY low foreign exchange reserves; a plummeting currency and a tanking economy; lengthy power cuts and long, painful negotiations with the IMF for a bailout. These grim details of the existentialist crisis Sri Lanka is undergoing sound eerily familiar to Pakistan and many other developing states that are battling similar predicaments. To make matters worse, the Sri Lankan prime minister told parliament on Tuesday that the country was bankrupt and that the economic crisis would last till next year. For the people of the island nation, the pain is acute. Lines for fuel — whatever little is available — are serpentine while people have to wait in queues for days. There have also been riots near fuel stations, and troops have had to step in. Moreover, the UN says 80pc of the population is skipping meals due to food shortages and high prices, with inflation going through the roof.
How did Sri Lanka get here? There are no simple answers, but a combination of factors seems to be responsible for the island’s catastrophic situation. Low tourist inflows due to the Covid-19 pandemic, failed harvests due to a fertiliser ban, one-family rule, corruption and a mountain of debt have all contributed to bringing the Sri Lankan state to its knees. However, the island cannot be left to its fate, and the international community needs to show solidarity and help the people of Sri Lanka rebuild their country. The focus, especially for rich states and multilateral lenders, should be on providing enough funds to Colombo to allow routine life to function, rather than harbouring predatory concerns about how they will get their money back. The fact is that many states in the Global South face a crippling debt crisis, and there is an urgent need to reform, what the UN secretary general has described as the “morally bankrupt global financial system”. While domestic reform is important, developing states should be granted debt relief to help them face the intense headwinds that are currently battering the global economy.
Published in Dawn, July 7th, 2022