Ahilan Kadirgamar.
Sri Lanka has historically signalled what other countries can expect to face amidst global economic and political shifts. For better or worse, it is often the first country for many feats in South Asia: universal suffrage in 1931, liberalisation in 1978 and, most recently, the first country to default on its external debt in 2022. These political and economic changes have had enormous social repercussions and prefigured changes in the region. The massive protests in Sri Lanka that chased away discredited authoritarian President Gotabaya Rajapaksa in July 2022 resonated in the similarly formidable protests that led to Prime Minister Sheikh Hasina fleeing Bangladesh in August 2024.
An unprecedented economic crisis – the worst in Sri Lanka since Independence – has led to unprecedented political changes. Indeed, Sri Lanka elected a president in September 2024 from a party that was not one of the two major parties or their offshoots, which have ruled Sri Lanka since Independence. Furthermore, in the parliamentary elections of November 2024, a landslide victory with two-thirds majority in parliament, was never before been reached under the proportional representation system. How will President Anura Kumara Dissanayake and his National People’s Power (NPP) government with an overwhelming mandate realise the structural transformation of the country and meet the great expectations of the citizenry?
Debt crisis
At the heart of the crisis and Sri Lanka’s efforts to move forward is the debt crisis and the country’s efforts towards debt resolution (Samarakoon, Citation2024). In April 2022, Sri Lanka for the first time in its history defaulted on its external debt, which cut off future borrowing from bilateral and commercial creditors. The resolution of the debt crisis has required an agreement with the International Monetary Fund (IMF), which serves as the arbiter for debt restructuring along with setting the parameters for future debt sustainability of the country. The IMF agreement, approved by its Executive Board in March 2023, demands severe austerity measures. Indeed, while the country was reeling under the unravelling of a severe economic crisis long in the making, the austerity imposed after the country turned to the IMF has created another social crisis.
On 19 September 2024, just two days before the presidential elections, former President Ranil Wickremesinghe announced that a deal with Sri Lanka’s bondholders had been achieved. Within ten days of the inauguration of President Dissanayake, and amidst the visit of IMF officials and the Indian External Affairs Minister, the new government announced that it had accepted the bond deal, which provided little debt relief. The so-called debt resolution with bilateral donors and commercial creditors is framed by the IMF’s Debt Sustainability Analysis (DSA). However, many analysts have critiqued the DSA as flawed. Sri Lanka, following the IMF programme that ends in 2027, will begin servicing its external debt amounting to 4.5% of GDP, which will be equivalent to 30% of the country’s revenue and needs to be repaid in foreign currency equivalent to 30% of its export income. The total debt of Sri Lanka after 2027, particularly with the little debt relief that has been achieved, will be in the order of 95% of GDP. In other words, a world that looks to be full of shocks – from climate change to disruption of trade following the return of President Trump – may quickly push Sri Lanka into another default and another economic crisis.
Obstacles for governing
It is this precarious political economy that the new government has inherited, and it faces tremendous challenges in governing the country, which it had first attempted to capture through two brutal and failed insurrections in the early 1970s and the late 1980s. It now comes to power through a major electoral victory. Labelled as ‘Marxists’ and ‘without experience to govern’, the NPP – in reality a Centre-Left party – is now confronted by three powerful forces.
First, the bureaucracy, long aligned to the elite, with perks that have distanced them from working people and immersed in the market-oriented open economy policies, are likely to resist any radical policy change. Indeed, understanding the workings of the state machinery, even more steering it to achieve progressive goals, may take a considerable time for the government, even though it quickly needs to provide relief to the people affected by a gruelling crisis.
Second, the traditional elite of the country, including the business constituencies, will not accept the rule of a party seen to be coming historically from a rural base. They are possibly waiting for the first opportunity to dislodge the new regime as they have deep-seated fears about the redistribution of wealth by a government controlled by a party with a radical past.
Third, the powerful external actors, including the United States, India and China, may work to bring the regime down, if they believe another regime would better serve their geopolitical interests. It is not just geopolitical tensions that will pose many constraints for the new government, but also the powerful financial interests of creditors including bondholders, who are represented by the IMF. Indeed, the bond deal that was sealed in the days after the election of the new president was reflective of the tremendous international pressure and threats of isolation that ensured an agreement detrimental to the long-term sustainable recovery of Sri Lanka.
Sri Lanka’s recent powerful revolt, which culminated in the flight of a president, was followed by the old guard, backed by the business constituency in Colombo, carrying out a counter-revolution with severe repression of the protest movement. The expeditious support of the Western establishment and the repressive state apparatuses to the appointment of an illegitimate president illustrated how the people’s mammoth efforts for system change can be swiftly disrupted. The NPP government’s wooing of the elite and the middle classes, plus its subservience to powerful external actors, including the IMF since coming to power, exposes their challenges in handling state power.
Space for change
The vast majority of Sri Lankans from all parts of the country and historically fraught ethnic divides coming together to elect a government was a political shift unimaginable in the island nation’s history. The success or failure of the great social and political change underway in Sri Lanka is also likely to signal the possibility of similar changes in other parts of South Asia.
In a time when the world order – much like during the 1930s and the 1970s – is going through upheaval, Sri Lanka’s own history is reflective of how global changes have shaped major shifts in the direction of the country. Following the Great Depression, when a malaria crisis in the country took a greater toll than the recent COVID-19 pandemic, leading to mortality of 2% of the population, Sri Lanka transformed itself into a social welfare state with free education, free healthcare and universal food subsidies. Those policies led to Sri Lanka becoming a model development state in the 1970s, whereby a country with low per capita GDP had achieved high Human Development Indicators. However, the long global downturn in the 1970s led to Sri Lanka taking a turn towards neoliberal policies, which has now culminated in a deep debt crisis and possibly a lost decade.
The current conjuncture in Sri Lanka and the recent political changes signal similar possibilities of a major shift in the political economy of the country akin to the previous historical shifts. The path that Sri Lanka can take ahead may again be decided not just by the Sri Lankan citizenry but by powerful actors beyond its waters. The people of Sri Lanka, having gone through tremendous hardship with not just the economic crisis, but also the ravages of a civil war, deserve the democratic space without external interference to chart their own path out of the crisis.
Original Caption: Democratic space amidst Sri Lanka’s current conjuncture
(Courtesy: -The Commonwealth Journal of International Affairs and Policy Studies)