Tuesday, June 6, 2023

Emerald turn red

Sri Lanka, also known as the emerald island and rightly so because it was a paradise of tourism till a few weeks back was plunged into its worst ever crisis as hyper inflation turned it into an uninhabitable place. Every one likes a scapegoat rightly or wrongly and in this, mobs across Sri Lanka who appear to have taken over the island nation are blaming the Rajpakasa brothers for all the ills.It is true that Gotbaya Rajpaksas and his family members who were dominating political power in Sri Lanka have been largely responsible for the economic hardships faced by the island nation today. The problem with the island nation is that the civil war against the LTTE which had paralysed the nation, had cost the nation very dear in terms of scarce resources. The Rajpakas- Gortbaya and Mahinda- have dominated politics in Sri Lanka since 2005. Sri Lanka, with an economy valued at 80 billion, is holding a total external debt of 51 billion, of which it has to repay 7 billion every fiscal year for the next four years. It has already defaulted on 78 million external debt. With a meagre 50 million foreign currency reserve holding, it is unlikely to be able to meet its debt servicing obligations to foreign creditors.95% of government revenue will go towards only debt servicing. The problem is likely to be further aggravated as its import bill exceeds its exports by 3 billion annually, popular annual tax cuts have reduced revenue collection by 1.4 billion, tourism industry accounting for 1/10th of GDP is now down to under 1% of GDP, there’s 50% drop in food grain production, and earnings from tea and rubber exports are heavily reduced. Sri Lanka is one example of Chinese largesse that has only multiplied the problems. Even as Mahindda drove Sri Lanka towards triumph in the Eelam War, he initiated a giant programme to extricate his country from the economic morass engendered by years of conflict. The country’s traditional multilateral lenders had tightened norms since 1997, when Sri Lanka was deemed to have become a lower-middle income nation. Few private-sector investors were willing to risk their cash betting on a war-torn nation, either. Long before the new tide of Chinese investment washed over Sri Lanka under Mahinda, it was clear the projects he was promoting had weak foundations. To help its debt repayments, Sri Lanka found itself compelled to grant a 99-year lease on the port to China Merchants Port in 2017, in return for an $1.1 billion. Sri Lanka had borrowed over $3 billion from China but mismanagement and corruption and crony capitalism only added to the rising debt woes. The government used that money, until its recent bankruptcy, to service debts to China, and other lenders. With the island nation no longer able to repay loans and having exhausted its foreign exchange reserves there was foreign currency to buy fuel of import food items and as a result, prices shot up almost ten times. This only sparked mobocracy where the rioters are calling the shots. Since early part of June, people in Sri Lanka were left with no option but to take desperate measures even if they were futile. The mob violence directed against the Rajpaksas will not save Sri Lanka even if they resigned.


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