From default to recovery

From queues to recovery is Sri Lanka’s quintessential comeback story and this comment coming from a highly placed US official is something the country should be proud of. And hats off to the Sri Lankan policymakers led by President Ranil Wickremesinghe in averting a major crisis of disproportionate levels as seen in Greece or Venezuela.

These two countries faced a similar crisis, defaulting on their debt (Venezuela US$60 billion and Greece Euros 1.6 billion owed to the IMF) but are taking much longer and many more years to recover.

Granted, Sri Lanka, despite any misgivings, is looking much better than what it was in 2022 – when the country was engulfed by long snaking queues for fuel, cooking gas and medicines. There were virtual riots on the streets at fuel stations as motorists often clashed with police or the military brought in to ensure order.

The crisis was what triggered the ‘Aragalaya’ (Protest) at Galle Face green, essentially driven by sections of the upper middle class affected by the shortage of fuel and other essentials. The protest culminated with the ignominious departure and resignation of President Gotabaya Rajapaksa to be replaced by Mr. Wickremesinghe, who quickly moved in, declared Sri Lanka was bankrupt and unable to pay its loans and made overtures to the international community to restructure bilateral and commercial debt.

Inflation plunged to 70 per cent but has gradually recovered to 6.4 per cent in January 2024 from 4 per cent in December 2023, according to official figures. Central Bank officials say the economy is stabilising despite major challenges particularly the impact of increased taxes from January which could trigger another round of inflation, albeit at a lower level.

With numbers, figures and economic estimates swirling around me, I reached out to Seeni bola, my banker friend (so named by friends after he once boasted that other banks were handling ‘seeni bola’ deposits compared to his bank) on the phone this Thursday morning, to share a fix on the Sri Lankan economy and the way forward.

“Did you hear about the US official who praised Sri Lanka’s economic recovery,” I asked him.

“Yes, I vaguely read about this in the newspapers this week but my reading of the situation is that we still have a long way to go for a full recovery,” he said.

“You are right. The IMF bailout package which Sri Lanka so desperately relies on will just paper the cracks in the economy. We need to get our act together and that responsibility lies with Sri Lanka and Sri Lanka alone – not any external agency or country,” I said, adding that Sri Lanka’s export base needs to grow to increase revenue similar to what is experienced in regional economies like Bangladesh and Vietnam.

“The other problem is that we are moving into a troubled period of elections and uncertainty as to what election would be held first,” he said.

“While the government has officially announced that the Presidential election would be held this time – between September and October –, another fished-out-of-nowhere drama whose actors are unknown is taking place: the debate on the scrapping of the Presidency. With this being debated in political corridors, it is unclear what would come first in terms of elections or whether this drama is just another fishing expedition to keep the public on their toes,” I said.

The comments on Sri Lanka’s recovery were made by United States Assistant Secretary of State for South and Central Asian Affairs, Donald Lu while speaking at a high-powered panel along with other administration officials from the State Department, National Security Council and Pentagon to mark two years of the Joe Biden administration’s Indo-Pacific strategy, at the US Institute of Peace (USIP).

This is what he said: “Americans love a comeback story. In the region I work on, there is no greater comeback story than the story of Sri Lanka. If you were to go back with me in time, a year and a half, you will remember a country in crisis, you will remember mass riots on the streets, you will remember lines for petrol and for food snaking around the corners. You will remember protestors seizing the President’s home, protesters swimming in his swimming pool. If you have been to Sri Lanka lately, it is a very different place. Currency is stable. Goods and fuel prices are stable. They have gotten reassurances on their debt restructuring. And IMF money is flowing.”

Lu said Sri Lanka was an example of the success of the administration’s Indo-Pacific strategy in collaboration with partners such as India, adding that Sri Lanka’s comeback happened with the support of friends. “What we saw was countries like India coming up with concessional loans that allowed Sri Lanka to bring in vital supplies during the most difficult time. USAID, during the same days, provided hundreds of millions of dollars in agricultural inputs, fertilisers and seeds, so farmers could grow their own crops.”

However, Lu’s comments about the “currency is stable. Goods and fuel prices are stable” do not mean Sri Lanka is out of the woods and we need to just listen to the woes of Kussi Amma Sera and her friends to understand the current plight that Sri Lanka is in, in terms of the cost of living, rising electricity and water rates and the cost of vegetables.

Climate change is also playing a key role in the country’s agriculture future with long, prolonged droughts coupled with intense rain badly affecting agriculture production forecasts. For example, shortages led to carrots being sold at over Rs. 2,000 per kg (who could buy at such exorbitant levels?), while in recent weeks it has come down.

For a further affirmation of this long-playing record of woes from the trio, I watched from the kitchen window while sipping my second mug of tea and listened to what they were discussing.

“Elavalu-wala mila pahatha bahinawa wage mae davas wala (Vegetable prices seem to be coming down these days),” said Kussi Amma Sera.

“Eh, sapayuma wedi wela thiyena nisa. Eth kochchara kalekata mehema thiyevida kiyala balanna oney (That’s because the supply has improved but how long that would happen remains to be seen),” noted Serapina.

“Kathawak thiyenawa viduli mila adu-wei kiyala. Meva chandeta issara-wela aanduwen karana wettu-da (There is also talk that electricity prices are coming down. Are these preelection stunts by the government),” asked Mabel Rasthiyadu.

“Ha-ha eka wenna puluwan (Ha..ha. That might be the case),” laughed Serapina.

As I wound up my column, with elections on the horizon, the people can expect many more sops from the government as it attempts to bring down inflation, increase economic growth and generally make the populace happy and contented!