As of: 09/28/2021 4:01 p.m.
Traders who can no longer afford stocks of goods and expensive capital market loans: Sri Lanka is not coming out of the economic crisis. The permanent emergency is also a political risk.
Grocer Balanchandran has been selling rice and sugar in Sri Lanka’s capital Colombo for 25 years. Now his supplies are almost exhausted. He cannot afford replenishment: the purchase price is higher than the sales price that the government had temporarily introduced for groceries – a loss for the retailer.
Not only the prices for rice, sugar, onions and potatoes have risen. Milk powder, kerosene and gas are also in short supply. At times long queues formed in front of many shops.
Sri Lanka’s President Gotabaya Rajapaksa had already declared an economic emergency on August 31st in order to – as it was said – curb the rapid inflation. The national currency had lost eight percent of its value. Food prices had risen rapidly.
Waiting for customers: Many citizens of Sri Lanka are struggling with rising food prices – and some traders can no longer generate the retail prices.
Image: EPA
Expensive loans from the capital market
Muttukrishna Sarvananthan founded and runs the private Point Pedro Institute for Development in northern Sri Lanka. If you want to understand the current situation, says the economist, you have to take a closer look at Sri Lanka’s economy over the past few decades. The pandemic only worsened the economic situation. “We’re running out of foreign currency, our foreign currency reserves are exhausted.” They fell from more than $ 7.5 billion in 2019 to around $ 2.8 billion in July 2021.
Since 2006, Sri Lanka has been getting more and more loans on the international capital market, explains Sarvananthan – at interest rates that are significantly higher than those for loans from organizations such as the World Bank or the Asian Development Bank. “We took out a lot of loans; for consumption, but also for investments such as highways, a new international airport, a new port. But none of them yields profits,” he says. “The major investment projects have been making losses for more than ten years.”
New lenders included China and India. These countries are not interested in necessary controls. Your interest is geopolitical, says the economist. It’s about their influence. Sri Lanka is constantly taking out loans to repay the loans.
Tourism came to a standstill
The suicide attacks on hotels and churches in 2019 and the Covid-19 pandemic since 2020 have dramatically exacerbated Sri Lanka’s economic situation. As a result of the suicide attacks on Easter Sunday 2019, Sri Lanka experienced a sharp decline in tourism, which until then had contributed more than ten percent to the gross domestic product and was the country’s third largest foreign exchange earner. The industry came to an almost complete standstill first because of the attacks and then because of the corona pandemic.
Garwin Murray, director of the travel company Detroves Travel in Colombo, saw 2019 looking forward to what may be its best year economically. Since then he has been fighting for his company. He hopes that his customers will come back to the island: “We are seeing an increasing number of inquiries and bookings in the coming months,” he says.
The Corona factor: Due to a lockdown well into September, many shops in Sri Lanka’s capital Colombo could not open – including this market hall.
Image: EPA
Risk: The Power of the Military
The United Nations is concerned about the economic emergency in the country and the deepening recession for another reason: The military could expand its influence, fears the UN High Commissioner for Human Rights, Michelle Bachelet. She worries about its influence on democratic institutions.
In the context of an emergency, President Rajapaksa has far more powers: he can intervene directly in economic and political processes without the consent of parliament. The economist Muttukrishna Sarvananthan shares the UN’s concern: “The danger is that there is no time limit for this emergency.”