Col R Hariharan
Sri Lanka Perspectives February 2022| South Asia Security Trends, March 2022| www.security-risk.com
The announcement of the Ceylon Electricity Board that a three -hour power
cut will be imposed daily from March 1 is symbolic of the failure of the
government to finance its fuel imports which has crippled daily life. The power
cut only formalises the erratic power shut downs Sri Lankans had been facing
during the month. To meet Sri Lanka’s energy crisis, India delivered 40,000
tons of diesel and petrol during the month. Earlier in the month, India had
agreed to extend a line of credit for $500 million to Sri Lanka to meet its
urgent energy requirements as part of the economic package discussed in
January.
Sri Lanka’s inflation in Colombo climbed to 15.1 percent in February
2022, up from the 13-year high of 14.2 percent in December 2021. It is not only
fuel, but essential food items and medicines were also in short supply.
The commerce ministry has signed an agreement with Myanmar for import of
rice to replenish dwindling food stocks. According to the agreement, Myanmar is
expected to supply up to 100,000 tonnes of white rice and 50000 tonnes of
parboiled rice. China is said to be committed to donate one million tonnes of
rice; it is expected to arrive by March 2022.
Trade minister Bandula Jayawardene during his visit to Pakistan is said
to have requested for a credit line of $200 million for imports from Pakistan.
The Rajapaksa government continued grope in the dark to find a solution
to the forex crisis that has become an existential threat. According to Sri
Lanka media, even after two cabinet meetings discussed the subject, no road map
to recovery seems to be in the horizon.
Already President Rajapaksa has disowned the responsibility for the
economic crisis, attributing it to Covid pandemic and the inherited issues of economic
mismanagement. But his government has to own up responsibility for the policy
confusion in the handling of the economic recovery. The rationing of food was
announced, only to be cancelled due to public protest. Same was the case when
the use of pesticide was banned, only to be lifted when farmers loudly
protested. Another example quoted in the
media is the government plan to withdraw the Special Goods and Services Tax
(GST) bill aimed at simplifying the present tax structure by consolidating
several taxes as a single tax, following the Supreme Court’s advice that it requires
a two-thirds majority in parliament and a referendum to enact it as a law.
There was also lack of discipline in handling imports. According to
Minister Mahinda Amaraweera even in the midst of financial crunch, around $600
billion was spent in 2021 on importing non-essential commodities. Majority of
the products imported were items that could be produced in Sri Lanka. These
included vegetables, fruits, honey etc. Mobile phone imports totalled $386.73
million. He said the primary challenge facing the country was the dollar
crisis. “When we earn $100, we must pay off $115 in debt,” he explained.
The
twin foreign exchange earners – foreign remittances and tourism – are facing
their own uncertainties. Expatriate workers remittances took a steep fall, touching a 13-year
low of $ 259 million in January 2022, adding to the Central Bank’s challenges.
This indicates the failure of Central Bank’s incentive measures to lure the Sri
Lankan diaspora to use official banking channels for remittances, after it
pegged an unrealistic exchange rate cap of SL Rs 203 per dollar. Evidently, expatriate
workers are now using unofficial channels to realise around SL Rs 260 for a
dollar in the black market.
The government eased the Covid restrictions on tourist arrivals and
vigorously promoted tourism. It patted itself, when tourist arrivals hit the all-time
high of 93,582 tourists in February, pushing the cumulative figure to 175,909
in 2022. However, the war in Ukraine has come as a rude shock, because Russia
had topped the tourist arrivals during this year with 28,932 tourists so far. It
was followed by India (24,141), UK (17,749), Ukraine (13,039) and Germany (12,779).
In February, a total of 14,914 Russian
tourists and 5,267 Ukrainians arrived. With the war on, Ukrainians are unlikely
to travel; in fact, around 4000 Ukrainian tourists are stranded in the island,
after the eruption of war.
Stringent economic sanctions slapped on Russia is likely to affect Russian tourist arrivals. Moreover, the value of rouble is rapidly going down. The closing of airspaces of many EU countries to Russian planes could also affect tourism. Media reports quoting a Colombo-based think tank said Sri Lanka imported 45 percent of wheat, more than half of soyabeans, sunflower oil, peas and asbestos requirements from Russia and Ukraine. Already, the war in Ukraine has resulted in steep increase of international oil prices as Russia is major source of oil and natural gas. Both Russia and Ukraine are also major importers of Sri Lanka tea. in the uncertain days to follow during the Ukraine war.
Overall, Sri Lanka will be facing multiple challenges in handling its
economy if the war continues. The economic crisis has brought to the fore the
rumblings within the ruling Sri Lanka Podujana Party (SLPP)-led coalition with
President Rajapaksa’s style of governance. Sri Lanka Freedom Party (SLFP)
General Secretary Dayasiri Jayasekara said that some of the members of the
ruling coalition would be presenting a set of alternative proposals on March 2.
He said “We really didn’t have any other option as the SLPP doesn’t believe in
consultations among the partners.” According to him, of the 145 parliament
members of the coalition, 30 members including 14 from SLFP are in the
dissident group. He said the
SLFP leader Maithripala Sirisena, would also attend the launch of the
alternative proposals on March 2. This is symbolic of the SLFP’s reassertion of its national identity, which had
been subsumed under the SLPP-dominated coalition.
In the midst of all this, the 49th session of the UN Human
Rights Commission will be discussing Human Rights Commissioner Michele Bachelet
scathing report on Sri Lanka and Sri Lanka’s replies thereof, on March 3. Commissioner
Bachelet’s report has strongly criticised the amendments proposed to Sri
Lanka’s Prevention of Terrorism Act (PTA). She has also called upon the
attorney general to function independently and wants action on 2019 Easter
Sunday massacres, a festering issue among Christian community in Sri Lanka.
Both Foreign Minister GL Peiris and Justice Minister Ali Sabry are taking
part in the event. They will have to tread carefully at the UNHRC session as it
could impact the future of EU’s GSP Plus preferential concessional tariff
scheme. EU-Sri Lanka Joint Commission meeting held on February 8, had noted that
important elements of the PTA had not been included in the Amended Bill gazette.
Overall, the Rajapaksa government is heading for turbulent times, as its
economic troubles are getting critically interwoven with the spill over of the war
in Ukraine and its impact on the power play in Indo-Pacific theatre.
[Col R Hariharan, a retired MI specialist on South
Asia and terrorism, served as the head of intelligence of the Indian Peace
Keeping Force in Sri Lanka 1987-90. He is associated with the Chennai Centre
for China Studies. Email: haridirect@gmail.com Website: https://col.hariharan.info]
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