Road Map to realize the potential and prospects for a rejuvenated Sri Lanka
By Ramesh Khan
At the beginning of the year 2022, none in Sri Lanka would have thought that the end of the pandemic would not signal the end of misery. Instead, it signaled the advent of misery in forms that had been unknown to the Sri Lankans until now. A country filled with tourist spots, tea gardens, heritage monuments and cultural symbols has also boasted of a high literacy rate and generally high human development indicators overall. However, despite these advantages and things going for the nation, it was hit by a massive economic crisis that led to humanitarian crisis – the first and most impactful since its independence in 1948 – earlier this year.
Series of incidents hit the spine of blooming Sri Lanka that beginning with the Easter Sunday bombings. As the country is yet to recover from it, the pandemic gave devastating blow, destroying tourism. Though these are the reasons that any common man cites for drastic collapse of the economy, fundamentally manager of the country failed to put right direction for development path. Fertilizer crisis, Ukraine war, and many more, all added to the already messed up economic mismanagement. Wrong priorities, policies wrong decisions to be blamed.
Economic potentials are still intact
The island nation has had immense potential in 1970s. Leading institutions and experts were expecting Sri Lanka would follow the path of Singapore & Japan and would become another commercial powerhouse of Asia. It had almost all the fundamentals and natural endowments – a key and strategic geographic location, natural harbor, well-educated population, cash-crop based agriculture, tourism, umpteen employment opportunities and a robust export sector. One can imagine a Sri Lanka becoming a more broad-based economy based on innovation and entrepreneurship along with self-sufficiency in food production as well. Where Sri Lankan start-ups can create the next generation economy that takes traditional mainstays of tourism and agriculture.
There is still tremendous potential in diverse sectors of Sri Lankan economy that need to be rejuvenated and encouraged to develop further. Obtaining self-sufficiency in sectors would go a long way in helping attain an accountable and transparent process to further entice foreign investment on terms that are favourable or at least fair to the Sri Lankan government as well. While the threat of debt would still loom large on the Sri Lankan economy, it is not as if all hope is lost. It has served as an important reminder to Sri Lankans that there are few bona fide partners in the region that work in the spirit of brotherhood and not with vested interests always.
What went wrong?
Sri Lanka, instead of continuing with Japan international Cooperation Agency funds for its long term developmental projects, relied upon short term market borrowings and China, that too with high rate of interest. It is strange to grasp that one of the most prosperous South Asian nations suddenly ended up in a predicament like the one it is stuck with. It was way back in the year 2017 that Sri Lanka announced its inability to repay the construction costs of the Hambantota port and was forced to hand over the lease to operate the port to a Chinese-Sri Lankan joint venture company for the next century. As the island country borrowed loan from China for infrastructural development on short term commercial basis at very high interest rate whereas multilateral development agencies usually offer loans at a meager interest that too for long extended term of 20 – 30 years.
Chinese funding conditions are comparable with short term loans and not suitable for development projects. Chinese project can never generate job opportunities or income for local populace in any part of the world as most of the manpower, material and equipment besides technology are brought from China. Projects are completed but without generating enough either income or employment for nationals. It is a disadvantage as no other donor compels the host in this manner. At times, the generated assets became liability, like the locals has to pay tolls for using roads constructed by China. Though experts around the globe had warned Sri Lanka of the Chinese debt trap diplomacy as well as the ballooning debt owed to China, it was not taken seriously until the debt showed its ugly head five years back. Gradually, this resulted in a loop of depleting foreign currency reserves along with heavy import dependency which in turn meant that the nation was unable to bring in essential products like fuel, stalling the functioning of the country entirely.
The case of Norochcholai power plant is a clear example how Chinese projects were unsustainable. China had built the first ever coal-fired power plant at Norochcholai in the year 2011. The breakdowns are so frequent of the plant that it has acquired the name “always breakdown” since its very inception. Right from the project design, material, labour, coal and even the servicing of the plant, all imported. The design is so specific that no other country can service the plant also. Chinese engineers perpetually running the operations! It would further burden already depleted forex reserves.
Further, the plant emits poisonous greenhouse gases and other pollutant that causes serious health hazards, economic, and environmental impacts also. The coal-fired power plant operations are contrary to Sri Lanka’s international obligations toward emission reduction and environmental protection as stipulated in the Kyoto Protocol to the United Nations Framework Convention on Climate Change, the UN Framework Convention on Climate Change (UNFCC), the Paris Agreement on Climate Change and others.
Leaders of Colombo could have well planned for meeting energy demands using solar energy, instead of relying on coal-fired Chinese power plant. Well planned strategist could have gone for renewable energy. It could have even thought of solar energy which is very common now-a-days as more number of countries are shifting away from fossil energy sources.
It is important to understand that between 1971 and 2022, China has provided millions in aid and loans, of which only 2% was grants. As a result, the external debt repayment obligations rose to $4 billion by the end of 2021. Another $9 billion is owed to multilateral banks, $5.6 billion to non-China bilateral creditors, $5 billion to China alone and $3.5 billion to Japan. While it is true that the pandemic, the Easter Sunday terror attacks and Russian invasion of Ukraine has had its impact on the Sri Lankan economy, the external repayment obligations with the Chinese debt trap are majorly responsible. Reports suggest that as much as $118 billion in Chinese overseas loans have under renegotiation since the year 2001, with China becoming the world’s largest bilateral lender. In addition, it is clear that any prospective financing by the International Monetary Fund (IMF) is largely contingent on the fair and expeditious renegotiation process with the Sri Lankan creditors to restore debt sustainability.
The dynamic potentials
The world becomes more connected through trade and technology in 21st century. With geostrategic location along the major sea lanes of the Indian Ocean, Island nation has the potential to become a premier transshipment hub. Plugging into global supply chains will drive investment, productivity, employment, growth and development. South Asia’s largest market, India, is among the world’s fastest-growing major economies. Sri Lanka can take advantage from that growth of India by being its trading partner globally. Sri Lanka has also easy access to the markets of the Middle East and emerging markets of Africa, a continent that boasts many of the fastest-growing economies. The possibility of opening up of the island nation to the private sector in a big way has ensured massive enthusiasm within several sectors like hospitality, food processing, cement, pharmaceutical production, fishing rights, infrastructural development, new start-ups and general economic cooperation.
Strengthening collaboration in this vital sector will help enhance our overall energy partnership and contribute towards our global efforts to tackle climate change and reduce emissions, former President Rajapaksa said in his statement in June. “Sri Lanka is going green, and we are working extensively to make it happen. Today, we formalised the agreement on the Line of Credit worth USD 100M b/w Sri Lanka and the Export & Import Bank of India. Steadily, we’re getting closer to the goal of 70% renewable energy by 2030.” To increase the contribution of renewable energy sources will reduce the import coal and oil bill substantially. However, Colombo realized its weakness, but it is too late.
A ray of hope
Lord Buddha says, “No Matter how hard the past, You can always begin again.”
It is wonderful ray of hope as Sri Lanka managed to earn $10 billion from merchandise exports during the first 9 months of current year, despite all economic woes and import restrictions. The exports could have higher if import of raw materials were allowed. It shows that Colombo is capable of coming back to the normal. Now, the country should be managed judiciously using resources and without self interest of politicians. Citizens now need to be very cautious do not fall into the pitfalls that already led to the country into disaster.
Sri Lanka’s tea industry, famous for its Ceylon Tea, has benefited from the crisis of currency depreciation and higher global prices and expected to earn $1.4 billion in exports in 2022, according to Roshan Rajadurai, spokesman of Planters Association of Sri Lanka.
A renewed focus on the strength of agriculture with a growth in cash crop production towards export has the scope to ensure sufficiency in food production as well. In addition, reviving the art of textile manufacturing and exports would also be a step in the right direction.
Lord Buddha says, “With Our thoughts, we make the World.”
What is needed is a long-term vision, patience and a steady hand at helm to guide Sri Lanka to steer away from the crisis through pragmatic leadership. As much as it is important to weed out the vested interests that wish to serve countries that prey on debt-laden smaller economies, it is equally important to ensure that friendly countries step up and aid with humanitarian assistance like India has been doing on various occasions. With joint venture projects coming to fruition, a great deal has been achieved in the areas of education, trade and commerce already between the two nations.
As the world is coming out of Covid impact and the countries are opening up, Sri Lankan unique tourism could once again play in revival of the economy. For coming back on track and promise to be fulfilled, one should recognize the economic future of Sri Lanka is necessarily and inextricably linked to its pragmatic and visionary leadership, which must reflect the needs, aspirations, and diversity of its entire people. Prosperity and security is intertwined with potential to be realised through taking steps in right direction, and that the whole world stands to benefit from a robust, resilient, and prosperous Sri Lanka.