Sri Lanka is currently experiencing its worst economic crisis in decades, lacking the foreign exchange reserves to pay for imports of necessities like fuel, food and medicine, causing shortages of many products. In May, the country defaulted on its foreign debts and took steps to restructure it with the IMF but was unable to resolve the crisis, unable to even meet interest payments on its debts, according to AP News. The situation was worsened by the government, which was made up mostly of members of the president’s family, refusing to address the economic crisis. This eventually led to protesters storming the presidential palace, forcing the president to be resigned and replaced by a friend of the family.
Now, Sri Lanka is attempting to recover economically through negotiations with other countries and international institutions. According to Reuters, the Sri Lankan government is asking foreign oil companies to sell their products there, in hopes of increasing the fuel supply and bolstering imports they have been unable to afford. Debts to China, which has invested significantly in Sri Lankan infrastructure, make up 10 to 20 percent of Sri Lanka’s total debt, making negotiations with China a vital part of recovery, according to CNBC. Janet Yellen, the U.S. Treasury secretary, said in a press conference that “it’s my hope that China will be willing to work with Sri Lanka to restructure the debt — it would likely be both in China and Sri Lanka’s interest.” Sri Lanka has also participated in various talks with the IMF and World Bank in attempts to receive debt relief or help with restructuring debts, but so far no results have been achieved, according to DW.
The population’s response to the economic crisis was protest, demonstrating their displeasure to the government. These protests in particular were a good example of a peaceful manner of showing dissatisfaction and requesting change. When protesters entered the presidential residence, it was abandoned, so nobody was hurt, and the protest was organized in an orderly fashion so as not to cause damage to the properties, according to The New York Times. While they were successful in convincing the president to flee and eventually resign, the structure of the government has allowed the overarching issues to continue.
Overall, the government’s response to the crisis was lacking. When it first began with the decline of tourism, low exports, and large tax cuts, the government refused to acknowledge the issue, according to the BBC. This refusal prevented early action to be taken, which could have limited the severity of its effects and allowed for a faster recovery. A 2019 report found that debt repayment was the country’s largest expenditure, according to the UN, after which the government could have taken action to restructure debts or alter domestic policy to better support repayment. Later, the new president was chosen by the parliament rather than directly by the people, and is an ally of the previous one. Thus, he is still disliked by the protesters and civil unrest is likely to continue, despite some attempts to meet some of the protesters’ demands, according to The New York Times.
The focus on Sri Lanka’s economic recovery is also preventing both the international community and domestic government from relieving the immediate needs of the population. DW reported that the World Bank refused to give Sri Lanka any funds “until an adequate macroeconomic policy framework is in place.” While this framework is absolutely necessary, its creation is likely to take a long time, as demonstrated by the World Bank’s own report on setting up a functional macroeconomic policy framework in Brazil which began in the early 1990s and continued to face challenges 10 years later. This requirement reflects a universal tension between providing aid for people severely in need and ensuring that they aid is not mismanaged, as highlighted by economist Anit Mukherjee in AP News. Those who desire to provide aid have to find ways to assure that the aid will go to those who need it, but the current method of requiring a functioning economy before providing aid is clearly not working in this case.
One of the major issues with how aid is delivered currently is the manner in which it is delivered, mainly through governments and designated for specific purposes. Because so much aid is delivered through the government, it relies on the government being able and willing to distribute it appropriately. However, many countries, including Sri Lanka, are in dire economic situations because of mismanagement and corruption in the government, creating a roadblock where aid will not be given until the corruption is solved, but it is difficult to solve the corruption without aid to support the population.
One way that we have tried to solve this issue is by earmarking aid to be used for specified purposes, like USAID’s funding for small-scale agriculture. While this may help prevent aid from going to people who do not need it, it also means the countries providing the aid are determining who needs it the most, rather than getting the perspectives of those being impacted. This can also allow richer countries to force those in need of aid to develop in ways that benefit them, as Ishaan Tharoor accused China of doing in Sri Lanka in The Washington Post.
Direct dealings between governments are clearly not an ideal way to provide aid to countries that are struggling with their own economic policy, as every government has their own interests that likely differ from those of the struggling population. Rather, non-governmental organizations should be the focus of the aid we provide, and there must be a balance between providing for people’s immediate needs and supporting the recovery of the economy. While ensuring that necessities like food, medicine, and fuel are provided to Sri Lanka’s population, incentives must also be given for Sri Lanka to continue producing goods, both for its own consumption and for export to rebuild the foreign exchange reserves. NGOs, especially ones based in Sri Lanka with the knowledge of where aid is most needed, are the best to work with. They bypass any corruption existing in the government and provide local expertise that can help direct aid to where it is most needed.
There are also political reforms that can help Sri Lanka recover in the long term, decentralizing power from those who would use it for their own gain and to the detriment of the majority of the country. Increased investment in education, whether by the government or NGOs working on the ground, can provide a more diverse group with the tools to enter government, leading to greater diversity of thought and policy. Additionally, reversing the tax cuts and focusing taxes on the wealthy will provide Sri Lanka with the necessary revenue to import necessities and disincentivize any extreme accumulation of wealth that would worsen disparities.
Ultimately, we should focus immediately on resolving urgent needs that people are unable to live without, while keeping in mind how this support might impact long term economic recovery. Once more stability of resources is established for the population, we can consider longer term reforms that will help with recovery and prevent future crises. However, these plans should not be required before providing aid, as those suffering the consequences of poor government should not be punished again by being refused direly needed assistance. By working with NGOs and local leaders, the international community can help provide a path forward that allows for economic development at a sustainable pace without exacerbating existing suffering.