Sri Lanka is Drowning in Debt
The Covid "Cure" is Worse Than the Disease
Sri Lanka is a prime example of how irrational Covid policy destroys a country. Prior to Covid-hysteria, the living standards in Sri Lanka were rising at a healthy rate to a point where Sri Lanka recently became a top tourist destination. But all that progress got washed away when Covid hit and the government reacted irrationally with complete lack of perspective (and continues in the same fashion), as so many other governments did as well.
To illustrate the absurdity of the world we are living in, in April 2020, the Sri Lankan government was ranked as the 9th best in the world in terms of the response to the pandemic. Clearly, the word “best” must be interpreted in the dystopian sense.
The World Bank estimates that the amount of people in Sri Lanka set back into poverty increased by ~12% in 2020 (over half a million people). They equate this to five years’ worth of progress. Now Sri Lanka finds itself in a deep financial and humanitarian crisis. How did it get to this point?
The government banned the arrival of travelers from seemingly everywhere until the end of 2020 with many restrictions still in place, such as quarantine requirements that make visiting not worth the hassle. Tourism is one of the country's main foreign exchange earners, but with global and local travel restrictions, tourism earnings plunged to just $957 million in 2020, down from $3.6 billion the previous year.
In March 2020, a full lockdown was ordered followed by extensions of curfews, because, well, you know, Covid only comes out at night, apparently. But, that didn’t stop many Sri Lankans who had to continue living life in order to, you know, live. In fact, in a period of less than two months, over 55,000 people had been arrested from across the country for violating the curfews. Some of their sinful crimes were, “loitering on the roads,” “gathering and consuming alcohol at public grounds,” and “traveling by vehicle on the roads.” Nothing says “stop the spread” more than throwing a bunch of people together in jail for non-crimes.
The lockdowns caused factory shutdowns, curtailed production, and left many Sri Lankans who were already just scraping by with no income. There’s even thought that this led to the exacerbation of an already prevalent horror of modern slavery.
It wasn’t until May that the Sri Lankan government lifted the curfew which really allowed the public to return to work.
And all that in 2020 for what?
The Central Bank of Sri Lanka (CBSL) maintained an accommodative monetary policy stance throughout 2020 to support businesses through Covid-mania. It has been printing money at a high rate. From December 2019 to August 2021, Sri Lanka's money supply increased by 2.8 trillion rupees, or 42%.
This, of course, has severely devalued the Sri Lankan currency — the rupee. Consumer prices in Sri Lanka continue to rise aggressively, hitting 12.1 percent year-over-year in December of 2021.
The struggle is no joke. As reported in The Guardian,
“Anurudda Paranagama, a chauffeur in the capital, Colombo, took on a second job to pay for rising food costs and cover the loan on his car but it was not enough. ‘It is very difficult for me to repay the loan. When I have to pay electricity and water bills and spend on food, there is no money left,’ he said, adding that his family now eats two meals a day instead of three.
He described how his village grocer was opening 1kg packets of milk powder and dividing it into packs of 100g because his customers could not afford the whole packet. ‘We now buy 100g of beans when we used to buy 1kg for the week,’ said Paranagama.”
Ban on Imports
As the rupee faced an accelerated decline in purchasing power in March of 2020, the government responded by enacting an indefinite import ban. The thought was that banning imports would help stop foreign currency from leaving the country so that the government can service its international debt to the tune of billions. But, the result is that businesses are not able to maintain stock of goods upon which their business relies. So they are fighting to survive. This has affected the smaller businesses the most. Food shortages worsened as the import ban added fuel to the fire. Banning the import of something as seemingly benign as a spice has caused all sorts of issues. Turmeric — a vital ingredient in local cuisine — is treated like an illegal narcotic. But, the black market (the free market) inevitably arises to come to the rescue.
“Since the pandemic, demand [for turmeric] has increased so much that prices have shot up 20-fold to an eye-watering 9,000 rupees ($48) a kilogramme -- a week's wages for many Sri Lankan workers.
‘Our home-cooked curries are not the same since the pandemic,’ said health worker Prarthana Weerasinghe, who claimed that many market varieties were now ‘adulterated’.
‘We never thought turmeric would be such a big issue. We had taken it for granted. Now, we can't afford to use it in our daily cooking.’
Customs agents recently found 25 tonnes of the spice smuggled into the country from India in containers marked ‘onions’, while navy patrols have seized several tonnes from Indian fishermen.
Those seeking turmeric have watched on helplessly as officials burn seized turmeric at crematoriums, claiming they do not want to flood the market and depress prices.”
President Gotabaya Rajapaksa (not to be confused with Prime Minister Mahinda Rajapaksa), even put a ban on all fertilizer and pesticides without warning farmers. Supposedly, this was done to promote organics in the name of “green agriculture.” This absurdity crushed formerly prosperous farmers who struggled to produce healthy crops. Many decided not to cultivate crops at all, adding to the food shortages and price spikes.
The Sri Lankan government has essentially imposed an embargo on itself. So naturally, the cost of things in low supply has skyrocketed. It’s like kicking a man while he is down.
With price inflation hitting record highs, many who were previously well off are now struggling to feed their families. President, Gotabaya Rajapaksa, gave the military power to ensure “essential items” were sold at set government prices in September 2021. How do they ensure this occurs? How do you think? With force, of course.
The government imposed a maximum price of 125 rupees ($0.62 USD) per kilo of sugar. And with price controls come shortages. And with shortages comes rationing.
“Queues formed outside state-run supermarkets even before they opened to sell sugar seized from private dealers at less than half the price charged on the open market 24 hours earlier.
‘There is no sugar available elsewhere,’ moaned K. Perumal, 62, at the Sathosa store in Colombo’s Maligawatte area where he waited for his two kilogram (2.2 pound) quota. ‘There are small children in my family, we need about six kilos of sugar a month … I have not been able to find milk at all.’”
Not surprisingly, the government has insisted that shortages are a result of greedy profiteers. No mention of their policy impacts.
“‘Now where the government has found it necessary to impose an emergency is not because of a scarcity of essential products,’ Foreign Minister G L Pieris, a former law teacher told reporters.
‘It is to do with actions by a few traders to hoard these commodities. Commodities are very much there. Sugar is there, rice is there. But there are unscrupulous elements that are stashing it away, concealing it, hiding it, in order to create artificial shortages. Not genuine shortages.’
‘And if there are problems because of the malicious, venomous, totally irresponsible behavior of a small minority of traders then the government is duty bound to take all measures at its disposal to protect the innocent public,’ he said.”
It seems one the most pressing problems for the Sri Lankan government is its debt burden. They just don’t have the money to pay it, as their foreign exchange reserves have been depleted. And no creditor in their right mind is going to accept printed rupees. So, Prime Minister Rajapaksa is at the mercy of its largest creditor — China. The Sri Lankan government owes China more than $5 billion dollars. Earlier this past weekend, the two governments met to discuss the restructuring of the loans and access to preferential credit for imports of essential goods. This, of course, is an opportunity for the Chinese government to further sink its teeth into control of Sri Lankan assets and infrastructure. China considers Sri Lanka to be a critical link in its “Belt and Road” global infrastructure initiative.
In 2017, China loaned Sri Lanka $1.4 billion to build a port in the city of Colombo, but they couldn’t pay it back, obviously. So, guess what? Sri Lanka was forced to lease the facility to a Chinese company for 99 years.
Sri Lanka claims it has $3.1 billion of foreign reserves, drained down from $7.5 billion in 2019. But, even so, that won’t last long. International rating agencies have downgraded Sri Lanka with concerns about its ability to service its debt. The major problem facing the country now is how to manage foreign debt service of $4.8 billion being due during February-October 2022.
“‘Technically we can claim we are bankrupt now,’ said Muttukrishna Sarvananthan, principal researcher at the Point Pedro Institute of Development. ‘When you have your net external foreign assets have been in the red, that means you are technically bankrupt.’”
The central bank has even called on its people for foreign currency — even loose change that people may have lying around after returning from overseas trips!
Debt is a bitch, as they say (well, I don’t know who says that, but I sure do). Caught in a downward spiral, the island now finds itself rationing electricity just last week after running out of foreign currency to import oil for its thermal generators.
To add insult to injury, the government is now following the absurdity of other governments and requiring proof of vaccination to participate in society, as it becomes clear that vaccination does little, if anything, to stop the spread. The Sri Lankan people have bigger things to worry about right now, like not starving.
This is a clear case of the Covid “cure” being worse than the disease.