Economic crisis in Sri Lanka and Pakistan Comparing approaches of two States
SRI Lanka, the country of 22 million people, is suffering its worst economic crisis since its independence from the British in 1948.
The country once known for high human development index is now facing shortage of fuel, medicines and cooking gas because a severe lack of foreign exchange has stalled imports.
People are compelled to starve due to food rationing. On April 12, 2022, having run out of dollars, Sri Lanka even defaulted on its external debt and sought the IMF’s assistance.
Sri Lanka was the first country in South Asia to liberalise its economy in the late 1970s through ‘open economy reforms’.
However, investment gradually dried up due to 26 years long domestic unrest. In 2009, after the end of prolonged domestic violence, massive investment was witnessed.
However, this increasing financialisation did not remove the structural weaknesses like a narrow export base and extravagant spending of the Sri Lankan economy.
Rajapaksa dynasty has ruled Sri Lanka for almost two decades. Mahind Rajpaksa emerged as a victorious figure for Sinhalese population in 2009 after thrashing the Tamil insurgency.
Nevertheless, lately his character was blemished with charges of human rights abuses and corruption.
It is ironic that ethnic bias superseded national interests and the family ruled the country without much opposition.
Successive governments in Sri Lanka heavily invested in development projects to uplift the living standard of people of the country.
These projects are built by debts from different donors including donor states and agencies.
The Sri Lankan economy mainly relies on tourism. On the eve of Easter in 2019, bombing by terrorists in Colombo churches and luxury hotels brutally killed a large number of people.
This was a severe blow to the Sri Lankan economy as tourist influx declined sharply in the aftermath of these attacks.
After winning the 2019 election, as a populist move President Gotabaya Rajpaksa drastically slashed different taxes resulting in severely hampering the economy which was already in decline.
The Covid-19 proved a fatal blow to the tumbling Sri Lankan economy due to deteriorating tourism industry.
A large number of overseas unskilled workers returned home and could not go back to their jobs, resulting in a significant decline in remittances from overseas Sri Lankans.
As the economy was declining and foreign exchange was sharply depleting, the Rajpaksa government announced a ban on import of fertilizers which resulted in a severe blow to the farming industry of the country, thus resulting in a shortage of food in the country.
When the economic crisis was looming around, the stubborn attitude of Sri Lankan leadership to delay restructuring of mounting debt also contributed to the current economic fiasco.
It is irony that opposition parties were unable to dislodge an incompetent government.
People of the country took to the streets and violent protests resulted in the exit of Prime Minister Mahind Rajpaksa, who was replaced by Ranil Wickremesinghe.
It was a mere change of face as policies of the ruling party remained in vogue. During the first week of May this year, when the country had already entered into crisis, the opposition parties submitted a vote of no-confidence motion to the Speaker of Parliament Mahinda Yapa Abeywardena which he turned down.
Had there been a successful vote of no confidence, the crisis would have been averted.
Some important inferences can be drawn from the prevalent economic crisis in Sri Lanka to endeavours in Pakistan to avoid Sri Lanka like crisis.
Pakistan is a country of 220 million. Like Sri Lanka, Pakistan also faced the menace of insurgency.
Pakistan overcame this insurgency with collective and cohesive efforts of defence forces of Pakistan and representatives of people of the country.
Democratic institutions stood with defence forces to thwart this menace. The war against terror in Pakistan was supported by the entire nation and it was not against any ethnicity or religious group.
This success against insurgents did not undermine any segment of society and not elevated any personality as Saviour.
It is a matter of fact that some prudent strategies of the previous government including establishment of NCOC proved effective to overcome Covid-19 pandemic without significant disturbance to the already fragile economy.
The Ehsaas Program was also useful to ameliorate worries of downtrodden segments of society.
Again it was a joint effort by military and civil leadership that people of Pakistan were saved from disastrous effects of the pandemic, whereas, in case of Sri Lanka such a body was missing.
Pakistan defence forces always come to the occasion to thwart any crisis, natural or man-made.
Rightly, the people of Pakistan trust their defence forces and expect to save the nation from any catastrophe.
It is a good omen that defence forces have always come to the expectation of the nation and guarded national interests.
Another important factor to overcome economic challenges is the development of the agriculture sector.
This sector is the livelihood for the majority of people of Pakistan. Despite negligence from successive governments in Pakistan, the agriculture sector has survived on its own.
Unlike Sri Lanka, Pakistan is not facing any food security challenges. Nevertheless, this is the time to uplift the agriculture sector by declaring it as industry and announcing subsidies on fertilizers and pesticides.
Agriculture sector can become a major contributor to earn exchequer for the country. Pakistan is now confronting an uphill task of high inflation and a crippling economy.
The Russia-Ukraine war has proved fatal for fragile economies. Government has taken some harsh decisions including an increase in fuel prices and taxes.
People of Pakistan expect that these harsh days of high inflation will soon be over; as once again national leadership including civil and military leadership has ostensibly averted a Sri Lank-like situation.
The country has rescheduled its loan with donor countries and institutions.Bilateral ties with old friends like the Kingdom of Saudi Arabia are revived.
Above all, the credibility of the country is not compromised at international level. People of Pakistan have always sacrificed in the larger interest of the country.
Today they are again doing this. But now they expect that the elite class of this country should contribute to strengthening the economy of the country and share economic burden.
Instead of levying taxes on essential commodities such as food items, the government should improve tax collection mechanism by adapting more transparent policies.
—The writer is contributing columnist, based in Islamabad.
