How Canada can help Sri Lanka

Sri Lanka is in deep turmoil; understanding this crisis is crucial for Canada’s wider interests in the Indo-Pacific.

Prior to the upheaval, Sri Lanka had a thriving economy, among the best human development index scores in South Asia, and wide-ranging trade and preferential market agreements throughout the region and world. With access to global markets, many sectors — notably tea, agriculture, apparel, manufacturing, shipping and tourism — had expanded. Its economy was strong, growing, and supporting development and prosperity for all.

But these brighter days gave way to troubling warning signs. Sri Lankan politicians were warned as early as 2015 about the risks of an evolving economic crisis.

Reckless spending and ill-considered tax cuts contributed to a monstrous deficit. The 2019 Easter Sunday terror attacks and the pandemic both decimated tourism, Sri Lanka’s third largest source of foreign exchange.

The government pursued a notorious, UN-led ideological ban on fertilizers and mandated organic farming, which dramatically deteriorated agricultural productivity.

Sri Lanka now faces its worst sovereign debt and economic crisis since its independence in 1948. It has significant shortages of food, fuel, medicines and other essentials, with global inflation exacerbating these challenges.

Coupled with this economic crisis is a geopolitical one driven by China. In 2019, Sri Lanka was obliged to lease its Hambantota port, and thus part of its sovereignty, to China for 99 years under the predatory debt schemes of Beijing’s Belt and Road Initiative. Unsurprisingly, this “commercial” Chinese port received a military PRC surveillance vessel, which has capacity to monitor QUAD submarine and satellite activities despite Indian protestations.

Thus, rebuilding Sri Lanka and countering China go hand in hand. Sri Lanka constitutes a strategic marine theatre, with Beijing seeking to use the country as part of a broader strategy to secure its interests. And as home to the largest Sri Lankan diaspora in the world, comprising many Tamils who came as refugees, Canada also carries a moral responsibility for Sri Lanka’s well-being.

So, what is needed to help restore Sri Lanka? India is a critical partner for Canada in this endeavour. While Beijing’s aid has remained mostly insignificant, India stepped up with $4.5 billion in emergency economic assistance for Sri Lanka, approximately two thirds of what Sri Lanka requires to stabilize its crisis.

However, for a resilient and stable Sri Lanka, a larger international effort is needed.

Canada could host Western and Asian nations, assembling for Sri Lanka an economic debt restructuring package from the IMF with sound partnerships for Sri Lankans. With our closest partners — namely the U.S., U.K., EU, India, Japan and Australia — Canada could support Sri Lanka in enacting long-discussed economic and political reforms.

This would include supporting justice for Sri Lankans, releasing all political prisoners, demilitarizing peaceful Tamil populated areas, implementing a widely supported constitutional amendment devolving land and police powers to states, and unleashing enterprise and investment policies in an economic compact to rebuild and grow Sri Lanka.

Taken together, Canada and its partners are Sri Lanka’s largest trading partners, providing a natural opening for Sri Lanka’s indispensable role in the Indo-Pacific. It is timely that Canada is pursuing an ambitious trade deal with India, coinciding well with long continued India-Sri Lanka economic negotiations.

For major Pacific democracies determined to establish a rules-based order, this is an opportunity to counter Beijing’s hegemonic ambitions and demonstrate how collaborative interventions can help Sri Lanka overcome the crisis. Set within a clear-minded agenda for Canadian interests, this would enable Sri Lanka to emerge as a resilient and strong democracy, and provides an opportunity for Canada to earn some needed respect in a region it has been absent from for too long.

Sri Lanka now faces its worst sovereign debt and economic crisis since its independence in 1948.

It has significant shortages of food, fuel, medicines and other essentials, with global inflation exacerbating these challenges

SHUVALOY MAJUMDAR IS MUNK SENIOR FELLOW AND HEADS THE FOREIGN POLICY AND NATIONAL SECURITY PROGRAM AT THE MACDONALD LAURIER INSTITUTE. VIJAY SAPPANI IS OF INDOSRI LANKAN HERITAGE AND A MEMBER OF MLI’S CANADA INDIA STRATEGIC DIALOGUE.