A desperate Sri Lanka knocks at every door: Global geopolitics compounds a nation’s woes

Barring India, no other supposed ally has so far come forward to help assist Colombo in a big way. New Delhi, with its obvious strategic stakes and interests in keeping the country afloat, has so far extended assistance worth around $4 billion -- something China has also acknowledged, writes Shraddha Nand Bhatnagar for South Asia Monitor

Shraddha Nand Bhatnagar Jul 08, 2022
Sri Lanka (File)

Earlier this year, when Sri Lanka started descending into an economic meltdown, experts rightly blamed Colombo's decade-long policy of living beyond its means and habit of treating debts as income. However, the prevailing geopolitical conditions have also left the island country of 22 million people struggling for basic survival.

Beyond the sheer economic mismanagement and reckless policy decisions by the Rajapaksa's government, the pandemic in 2020, big power politics and the war in Ukraine -- factors beyond Colombo's control -- have cumulatively made it worse for Colombo and exacerbated the people's pain.

The United States and European countries, otherwise considered generous donors, are preoccupied with the Ukrainian refugee crisis and security challenges.

Indifferent world

Rumbling in their domestic politics, caused by the high food inflation and skyrocketing fuel prices, have only made their governments look more inwards, thus denying fair optics to the suffering of the Sri Lankan people. Their response to the Sri Lankan economic crisis could be a little different had the world not plunged so badly into big-power politics.

Today, basic necessities like fuel and medicines are in short supply; 6.5 million Sri Lankans need direct emergency food and nutrition; and, the economy has completely collapsed. The country has defaulted on all its external debts, totalling around $51 billion.

In June, inflation reached around 54 percent and may even touch 70 percent in the coming month, according to Central Bank Governor P Nandalal Weerasinghe.

The pandemic first ruined its $4 billion tourism industry in 2020. Later, when the prospect of tourism revival was just beginning early this year, the country's economic meltdown and skyrocketing fuel and global commodity prices, in the aftermath of Russia's invasion of Ukraine, delivered another blow.

Tourism hit

Tourism earnings in the last three months have come down. Tourist inflow from both, Russia and Ukraine, earlier among the top source markets, also suffered.

Last month, the industry further suffered a jolt when Russia's Aeroflot airlines suspended its operations in Sri Lanka, following the seizure of one of its aircraft there, prompting a rare diplomatic spat between Sri Lanka and Russia. The seizure came after an Irish company, which had leased out the aircraft to Aeroflot, currently under Western sanctions, sought an injection in Sri Lanka.

Colombo's growing proximity with China, which emerged as its top foreign investor, in the last decade damaged its trusted and friendly relations with Western capitals and important developmental partners like Japan and India.

Ironically, Sri Lanka, which currently struggles to pay even for a fuel shipment costing $35-$50 million, had refused $480 million in grant assistance by the US government three years back in 2019 under the Millenium Challenge Corporation (MCC).

All the accumulated tensions and strains of past years are now playing out in the open when the country is in dire straits and desperately in need of international assistance.   

Unprecedented crisis

Today, the country has run out of fuel. Global oil firms and fuel suppliers no longer accept lines of credit issued by Sri Lankan banks, which has worsened the fuel crisis, prompting the government to introduce fuel rationing through a token system.

Barring India, no other supposed ally has so far come forward to help assist Colombo in a big way. New Delhi, with its obvious strategic stakes and interests in keeping the country afloat, has so far extended assistance worth around $4 billion -- something China has also acknowledged.

Beijing seems unwilling to extend any significant material help before Sri Lanka concludes its debt restructuring talks, conditions of which will be laid down by the International Monetary Fund (IMF). Of the total $51 billion in debts Sri Lanka defaulted, China accounts for only $5 billion, roughly 10 per cent.

Debt restructuring talks, which will be complex and tough for bankrupt Sri Lanka, are expected to be completed by August, according to Prime Minister Ranil Wickremesinghe. And it will then unlock the IMF's package deal. Till then, Sri Lankans will have to endure unimaginable pain.  

Such is the desperation in the country that on one hand the government is negotiating with the IMF and sending its ministers to Gulf capitals, while on the other it is seeking assistance from Russia for the supply of fuel on credit.

Two officials of a Russian oil firm were in Colombo on Thursday for talks, a day after President Gotabaya Rajapaksa dialled Russian President Vladimir Putin, seeking his help. 

(The author is Research Associate, Society for Policy Studies, New Delhi. Views are personal)

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