Economy Politics

How political dynasties and poorly managed debt destroyed Sri Lanka

A state of emergency was declared after President Rajapaksa gled the country, following months of mass protests. What happens when a country runs out of money and a functioning government?

(written by Rico Chandra and Lee Ke Yin)

DISCLAIMER: This post contains content that may be objectionable. It is mainly purposed for competitive debate education. The situation is also still unfolding, so the article is only based on information available by its publishing date. It should not be taken as professional advice.

Sri Lanka’s crisis might be one of the most tragic in recent years. The ex-president, Rajapaksa, has used his immense wealth (garnered through decades of corruption) to flee the country while the country he left suffers.

Sri Lanka is quite literally out of money. As a result, the country cannot afford any of the goods it needs. People of all socioeconomic backgrounds face acute food shortages and starvation. The UN is now warning of malnutrition and a humanitarian crisis.

How did the situation get this dire?

In Sri Lanka, the government is a family affair.

The Rajapaksa family has dominated Sri Lanka’s politics for the past two decades. Recently though, it has increasingly run the island nation’s government as a family business. Brothers, sons, nephews, daughter-in-laws and other relatives occupied top positions in various administrations.

Despite the tremendous hatred against them now, the Rajapaksas were once seen as heroes for winning the civil war against the Tamil Tigers (a guerrilla organization that operated from 1976-2009). Mahinda Rajapaksa cemented the family’s ascent to prominence, rising to become prime minister and president for two terms from 2005 to 2015. Many approved of Mahinda Rajapaksa and his brother, Gotabaya Rajapaksa, for their success in the war.

For a couple of years in the 2010s, the Rajapaksas had widespread support from most Sri Lankans for being able to strengthen the country’s economy. However, it wasn’t a squeaky clean image for the brothers. Rumors around questionable deals with Chinese officials and the purchase of jet fighters from Ukraine swirled within the country. But this did not stop them from spending big.

They promised enormous economic growth and massive infrastructure projects (namely a Chinese-built airport and port in Colombo, both of which remain largely empty). They jumpstarted growth by taking on massive debts and trying to prop up the Sri Lanka rupee. In the short term, it worked. By 2019, the world bank considered it in upper-middle-income countries. But this growth came with a cost. Debt had tripled and soared to 119% of GDP.

Fatal mismanagement by the family

Every year, the Rajapaksas made fatal mistakes, each more dangerous than before.

  1. When Gotabaya Rajapaksa ran for president in 2019, he promised tax cuts to get elected. Consequently, the government lost a whopping 25% of its revenue. Worse, Covid smashed tourism in 2020. For Sri Lanka, tourism is one of the most significant sources of income to repay foreign debt. Then 2021 rolled around. Just as countries started reopening their borders, Russia and Ukraine went to war. Russians and Ukrainians happened to be two of the most significant contributors to Sri Lanka’s tourism. Sri Lanka’s revenues suffer even more.
  2. To prevent the drain of foreign-exchange reserves, the Rajapaksas banned all fertilizer imports in hopes that farmers would turn to organic farming. The move was, unsurprisingly, catastrophic, as no country can adjust to such a sudden change so quickly. Harvests plummeted. While the Rajapaksas lifted the misguided policy after seven months, the damage was already done.
  3. In 2021 and 2022, the Rajapaksas told the central bank to start printing money to cover the holes in their balance sheet, sending inflation to a record high. Estimates show that by June 2022, inflation was at 130%. This meant that essential goods, even things like printing paper became prohibitively expensive, shutting down schools and canceling exams.
  4. To combat the above, the Rajapaksas sunk themselves deeper into debt. At this point, the government was spending more than it earned. It imported more than it exported. The result? Foreign reserves began to run dry. While other countries have previously done the same to keep them afloat, the difference is that Sri Lanka’s foreign debt is so high they can’t even pay the interest to keep the debt expansion going.
  5. In April 2022, Sri Lanka effectively defaulted on its debt as it plunges deeper into an economic crisis.

All of these horrible decisions went practically unchecked, as most of the parliament was of Rajapaksa blood. Mahinda and Gotabaya’s siblings filled the top positions like finance minister. This meant that the competence of all the people in parliament was questionable at best, as they were put there not because of skill but rather because of nepotism.

The fall of Sri Lanka

The economic inflation in Sri Lanka has caused widespread protests, resulting in instability within the country’s government. The cabinet was officially dissolved on April 3rd as 26 cabinet members resigned all in the same weekend. As the country ran out of foreign exchange reserves, the dwindling food, fuel and supplies sent protesters onto the street. Citizens demanded that the dynasty exit the government immediately. Pressured, Gotabaya Rajapaksa emptied his cabinet of family members in May.

He turned to many parties for aid, even those that were oppositional to each other. The newly appointed prime minister started talks with the IMF for a bailout. Mr. Rajapaksa asked China, which chose to keep its distance. He went to India, which provided $4 billion in credit and loans, all of which Sri Lanka has burned through.

Despite all his attempts to pull Sri Lanka out of the rut, protesters did not have any of it. At one point, even members of the military chose to turn and join the protesters. They stormed the president’s residence in June, eating the food, swimming in the pool, and looting Mr. Rajapaksa’s wardrobes. Eventually Mr. Rajapaksa voluntarily steps down and submits his resignation via email from Singapore, his current place of hiding.

How you can help

Sri Lanka is currently going through a severe economic crisis. See the information below on how you can support Sri Lanka’s Economic Crisis through these organizations:

International Organizations:

  1. Sri Lanka Red Cross Society [T] +94 11 2691095 , +94 11 2691095
  3. Give2Asia

You can also make your donations to these local organizations which are more direct:

  1. Neluwapitiya Bodhimalakarama Development Society
    [T] +94 716339431
  2. Bhante Punnaji Education and Medical (BPEM) Fund
    [T] +60 12393 1823

Bottom line

Sri Lanka is a textbook example of how when a democracy elects a dynasty into power, it doesn’t take long for democracy to turn into a dictatorship and an eventual catastrophe due to incompetence. Moreover, the situation is similar to something that happened 36 years ago in another Asian country, when the Marcos political dynasty ran the Philippines. The same disastrous management brought instability and riots to the country. With political dynasties, history only seems to repeat itself.

Related motions

  • This House believes that Sri Lanka should give full autonomy to the International Monetary Fund (IMF) in managing the economic crisis
  • This House believes that developing countries should ban members of political dynasties from standing for elected office
  • This House believes that the Biden Administration should require the establishment of American military bases in Sri Lanka in exchange for American-led financial aid

Further reading

The information in this article is a compilation of several sources, which are listed below. We recommend you read them for further understanding of the topic.

Leave a Reply

Your email address will not be published. Required fields are marked *