The West must prevent Sri Lanka from becoming the Lebanon of South Asia

Soaring food and fuel prices in Sri Lanka have precipitated the worst political unrest in the South Asian country in years, as tens of thousands of protesters march for change on an empty stomach. As the government falters alongside its economy, the international community must take urgent action to help stabilize Sri Lanka, where domestic challenges are used to globalizing rapidly.

Sri Lanka is on the edge of the abyss. Last month, the country became the first in South Asia to default on debt repayments in two decades. With an external debt estimated at more than $50 billion, the government has admitted that it is now difficult to scrape together even $1 million in reserve currency, as reserves have fallen to their lowest level on record. Inflation soared to 30% in April, the highest in Asia, sending prices skyrocketing on basic supplies such as food, fuel and stoves. An economic crisis is now a public health calamity. Dwindling medical supplies are forcing doctors to make heartbreaking choices as many families struggle to afford the rapidly rising cost of scarce prescription drugs. A country that aspired to be the next Singapore is now eyeing a Lebanese-style collapse, with the Sri Lankan rupee the world’s worst-performing currency.

Like many countries, Sri Lanka is still reeling from the shocks of the COVID-19 pandemic, particularly to its historically vibrant tourism sector, as well as inflation caused by Russia’s invasion of Ukraine. However, Sri Lanka’s economic vulnerability to these events is also the result of years of misguided economic policy, disastrous agricultural decisions, and overreliance on Chinese infrastructure spending.

After years of unsustainably cutting taxes, the Sri Lankan government has run out of revenue and so its rating has been downgraded, cutting the country off from international debt markets. Sri Lanka’s gross debt fell from 91% of annual output in 2018 to 119% in 2019, according to the IMF. Worse still, Sri Lanka was facing a food supply crisis long before the Russian invasion as the government unilaterally cut off Sri Lanka from basic fertilizer imports to save money, which instead resulted in a reduction in crop yields. As crop yields plummeted, Sri Lanka’s rice imports jumped 368%, according to the UNDP. Finally, lucrative Chinese loans have instilled a culture of corruption in government. And now the chicken is coming home to roost on Sri Lanka’s extensive ties with China, as Belt and Road Initiative (BRI) infrastructure loans totaling up to $3.5 billion to high interest rates don’t pay off.

Much like recent protests in the Middle East against corruption and economic mismanagement, the multinational protests in Sri Lanka in response to this perfect storm appear to represent a large cross section of what has always been a sharply divided society. Political independents, students and liberal-minded youth are leading the call for change in Sri Lanka. By organizing pop-up universities and community food hubs, there is room for optimism when a population historically divided along ethnic and religious lines comes together for a better future.

Police use a water cannon to disperse medical and science faculty students during an anti-government protest demanding the resignation of Sri Lankan President Gotabaya Rajapaksa due to the country’s crippling economic crisis, in Colombo, May 29, 2022.

In recent elections in Lebanon, independents were among those re-elected to parliament. Similarly, grassroots movements in Sri Lanka should channel their energy into conventional politics to increase the representation of pragmatic progressives. The unrest could be an opportunity for Sri Lanka to reset and secure its future for the next 50 years.

However, the grievances that drive these grassroots movements today are as much a potential threat as an opportunity. In a country where Islamist extremism has already killed hundreds and historic Tamil grievances remain largely unaddressed, economic and political instability will provide an attractive breeding ground for destructive ideologies and influences. During the civil war in Sri Lanka, the Tamil Tigers were one of the most widespread terrorist groups internationally. A pioneer of modern suicide bombings, political extremism in Sri Lanka has often found its way to foreign shores.

The international community must pay attention to the crisis in Sri Lanka, and the risk of renewed terrorism is not the only reason. As in other countries, Sri Lanka’s dependence on Chinese investment has made it vulnerable as the country turns its back on the IMF. Sri Lanka is far from the only emerging country over which China exercises strategic financial leverage. Private bondholders and China have gone from 5% of poor states’ debt in 2006 to 29%. Rather than turning its back on countries burned by Chinese diplomacy from the debt trap, the West should use the growing skepticism about China’s role in emerging countries as a window of opportunity to reinvest in countries like the Sri Lanka.

What Sri Lanka needs is responsible government and sustainable international investment. The UK, once Sri Lanka’s most important bilateral partner, is expected to join the US, India and other ‘quad countries’ in providing urgent bridge funding to stabilize the country and to offer a coherent competitive alternative to the dependence of investments on China.

Matt Godwin is program manager at the Tony Blair Institute for Global Change. He has published on the internationalization of Sri Lankan politics, including in a forthcoming book. His Twitter is @mkgodwin.

The opinions expressed in this article are those of the author.

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