“Sri Lanka, the Emerald Isle, is excruciatingly balanced on a razor’s edge of democracy and mobocracy, with seemingly only its security infrastructure preventing its plunge from fiscal red to blood soaked red of civil strife.” – Veteran Col RS Sidhu
Relevant Demographic
Profile of Sri Lanka
The second feature is the Buddhist religion professed by the majority Sinhala, and Hinduism practiced by the minority Tamils have also originated from India. Nevertheless, the Sinhala have over time developed their own culture and proud identity, whereas the Tamils have continued to maintain affinity with their ethnic counterparts in South India. However it may also be averred that this factor also complicates the demographic divide within Sri Lanka. The 18 million Sinhala subconsciously identify the 4 million Sri Lanka Tamils as being part of the 76 million Tamil fraternity in India, and hence look at them as a potential threat.
Out of the nine provinces of Sri Lanka, the Tamils are in overwhelming majority in Northern Province, comprising Jaffna peninsula, Mullaitivu forest region, Vavuniya region, and Mannar peninsula. In Eastern Province, comprising Trincomalee, Batticaloa, and Amparai regions, the Tamils are the largest ethnic group, closely followed by the Moors and Sinhalese. The ethnic chasm gets further sub-divided into the religious rift of Hindu and Muslim Tamils, Muslim Moors, Buddhist and Christian Sinhala.
Current Scenario
Thirty
five years post signing of the Indo Sri Lanka Agreement of 29 July 1987, the bilateral
relations between the two neighbours are again at the same cross road, but with
a difference in mutual expectations. In 1987, it was a dominant India which
pushed for strategic intervention by its armed forces for peacekeeping
operations in a reluctant Sri Lanka, a country having an established governance
organisation, an effective security infrastructure and yet rife with ethnic,
linguistic and communal fervor. In 2022, it is an economically beleaguered Sri
Lanka, faced with an open collapse of its avaricious governance structure, devoid
of revenues to pay for even daily essentials, which is pulling a reluctant
India for financial intervention to pull it out from the fiscal morass of its
own making that the island nation has fallen into.
Before
delving into what the crisis portends for the future course of the bilateral
relations between the two close neighbours, its essential to understand the key
aspects of the gravity of the economic situation that Sri Lanka finds itself
in.
Economic
Situation of Sri Lanka
(All
figures quoted are in US Dollars, unless otherwise specified)
Government
has no foreign exchange to buy energy, food is scarce, medical supplies are
low, schools and colleges are closed, power cuts have been enforced impacting
commercial productivity, commercial production has halted leading to loss of
family income, major urban centres are aflush with street rioting, and the very
legitimacy of the government has been undermined rendering it ineffective.
Sri
Lanka, with an economy valued at 80 billion, is holding total external debt of
51 billion, of which it has to repay 7 billion every fiscal year for next four
years. It has already defaulted on 78 million external debt. With a meagre 50
million foreign currency reserve holding, it is unlikely to be able to meet its
debt servicing obligations to foreign creditors. 95% of government revenue will
go towards only debt servicing.
The
problem is likely to be further aggravated as its import bill exceeds its
exports by 3 billion annually, popular annual tax cuts have reduced revenue
collection by 1.4 billion, tourism industry accounting for 1/10th of
GDP is now down to under 1% of GDP, there’s 50% drop in food grain production, and
earnings from tea and rubber exports are heavily reduced.
The
government in an attempt to cover its deficit has printed additional currency
valued at near 400 billion Sri Lanka Rupees, causing inflation soaring to above
54% and further assessed to cross 70%. Sri Lanka rupee is currently trading at
350 per US Dollar, resulting in 61% reduction in official foreign remittances.
Rising
world prices of energy, chemical fertiliser, and food will cause rise in import
bill, whereas the government revenues shall be further depleted due to
decreased domestic production activity, leading to decrease in exports and
further increase in external debt.
Prognosis
All
financial and political indicators point to the governance and economic crisis
of Sri Lanka deepening even further and getting prolonged. Only substantial
foreign financial assistance shall enable it to avoid becoming a failed state.
Negotiations
for 3 billion International Monetary Fund bailout package and World Bank aid of
600 million, being negotiated by the government, will come with a package of austerity
measures, raise in interest rates and taxes. This will impact government
freebies that will further fuel social unrest.
The
ensuing cycle of violence adversely impacting revenue generation activities, leading
to greater external debt, furthering more social unrest, is likely to continue
to feed on itself for the foreseeable future.
The
current loss of credibility of the government, followed by rampant street
violence, has created a political void which will hamper fiscal negotiations
with international financial institutions and countries. Political situation is
not conducive to take hard fiscal decisions needed to rescue the situation.
Currently,
the security infrastructure is the only arm of the government which is standing
between a semblance of governance and complete anarchy.
Aggravation
of energy, food, and medical infrastructure shortages will further fuel street
violence, which may suck a substantial part of the security forces. Strong
possibility exists of continued street violence deteriorating into ethnic
bloodshed.
Role
for India
India and Sri Lanka have serious differences on the latter stalling progress on meeting the legitimate concerns of discrimination by the minority Sri Lanka Tamils. Maverick Tamil politicians are already calling for intervention by India in Sri Lanka to mitigate the sufferings of Sri Lanka Tamils.
However,
this is not the right time to pursue these concerns. There’s no credible government
in Sri Lanka with requisite political capital to negotiate this volatile subject.
Concessions, if any, made by Sri Lanka will only exacerbate the ethnic divide
and result in the government losing its political legitimacy with the Sinhala
majority. A revisionist political hierarchy may come to power in Colombo which
may undermine such an accord.
India’s
interaction with Sri Lanka needs to be handled with tact and maturity. Towards
that end, India’s announced aid of 3.8 billion US Dollars, including 44000 ton
urea, and 25 tons medical aid, is an excellent beginning.
But
India needs to monitor the internal security situation within Sri Lanka
carefully. It would be worthwhile to maintain discrete link with the Sri Lanka
security establishment to influence the street violence, hitherto an urban
phenomenon directed against the government, from spilling into country wide ethnic
conflagration.
The
domestic public and political opinion within Tamil Nadu too will have to be
handled with due sensitivity. Attempts at sectarian aid by NGOs need to be
handled firmly and discouraged. All aid should be routed through Sri Lanka
government or UN aid agencies network.
Potentially
emerging scenarios within Sri Lanka should be brainstormed and own appropriate response
to them formulated accordingly. A scenario may arise wherein the beleaguered
government of Sri Lanka may approach India for assistance in maintaining law and
order. Such a request should be discretely considered only under the framework
of an all political party consensus or as part of an UN / International
Security Assistance Force. Even then, deployment of an Indian armed contingent
should be in conjunction with Sri Lanka security forces, and for a specified
duration of time or managing events.
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