Part 4: Sri Lanka Analysts Predict More of the Same!

SRI Lanka’s ousted President Gotabaya Rajapaksa says he took “all possible steps” to avert the game-changing economic crisis that engulfed the Asian island nation of 22 million.

In his resignation letter (emailed from Singapore), Rajapaksa said the financial crisis was rooted in years of economic mismanagement that pre-dated his presidency and the COVID-19 pandemic had drastically reduced the island’s crucial tourism earnings and remittances from Sri Lankans working abroad.

The ex-President said: “It is my personal belief that I took all possible steps to address this crisis, including inviting parliamentarians to form an all-party or unity government.”

Parliamentarians met Saturday to start electing a new president and will meet again today (Tuesday) to accept nominations for the post of the president and MPs will vote tomorrow (Wednesday) to decide who.

Prime Minister Ranil Wickremesinghe, a veteran political operator, is one of the top contenders to take on the role full-time, but the protesters say he’s a Rajapaksa ally, casting dark shadows over his possible selection by election.

The opposition’s presidential nominee is Sajith Premadasa, but commentators say senior ruling party lawmaker Dullas Alahapperuma is a potential spoiler.

Wickremesinghe said Saturday he would implement “an urgent relief programme to provide fuel, gas and essential food items to those struggling because of the economic situation,” and promised to enter dialogue with protesters on “reducing government corruption.”

The governor of the country’s central bank told The Wall Street Journal the island’s economy is likely to contract by more than six per cent this year as political instability and social unrest affect discussions on financial relief with the IMF.

The Rajapaksa family, with decades of deep involvement at all levels in Sri Lanka politics, has been squarely blamed for runaway inflation, shortages of basic goods and corruption and foreign exchange reserves having dwindled to close to zero, with inflation hitting 54.6 per cent in June.

In the midst of the turmoil and uncertainty, there was some small hope this past weekend, as Energy Minister Kanchana Wijesekera announced the first of three shipments of fuel had arrived on Saturday, the first in nearly three weeks.

A second diesel consignment will also arrive next Saturday, with a shipment of petrol due by next Tuesday – and “Payments completed for all three,” according to the minister in a tweet.

In the midst of it all, the World Bank has been negotiating a bailout with the interim government and the International Monetary Fund (IMF), which Rajapaksa supporters say can worsen the crisis.

The World Bank and IMF are hedging their bets as the crisis rolls out, expected to offer the usual loans and grants with tight conditions and prescriptions.

Meanwhile, the Bretton Woods financial institutions are already warning that what’s happening in Sri Lanka is also likely for at least a dozen other countries.

Citing traditional debt-crisis signs such as crashing currencies, bond spreads and depleted foreign exchange reserves, financial experts also point to a record number of developing nations they consider can now be heading into deep trouble.

According to a July 16 report on New Delhi Television (NDTV): “Sri Lanka, Lebanon, Russia, Suriname and Zambia are already in default, Belarus is on the brink and at least another dozen are in the danger zone as rising borrowing costs, inflation and debt all stoke fears of economic collapse.”

It continued: “Analysts calculate US $400 billion of debt is in play. Argentina has by far the most at over $150 billion, while next in line are Ecuador and Egypt, with $40 billion to $45 billion.”

NDTV says, “Crisis veterans” hope many of the developing nations heading Sri Lanka’s way can still dodge default, “especially if global markets calm and the IMF rows in with support…”

With the five named states already defaulting, the analysts say those at risk are: Argentina, Belarus, Ecuador, Egypt, El Salvador, Ethiopia, Ghana, Kenya, Nigeria, Pakistan, Tunisia and Ukraine.

As per usual, these are analyses based on patent and potentially potent reality and speculation, related projections and assessments, all of which are subject to change if the governments concerned act early enough, or too late, to ward off the crises they’re being warned about.

For example, while Russia is officially registered as being ‘in the red’ by the book(s), it’s currency (the ruble) has proven to be the most successful worldwide in 2022, oil and gas sales to Europe earning Moscow one billion US dollars per day, while realigning its energy exports to China and India and offering to increase food aid and trade to and with African nations denied essential grain supplies by the Ukraine war and its sanctions.

Same with Suriname, which is being assessed in the absence of consideration of the positive certainties associated with its recent oil-and-gas finds that will certainly allow Guyana’s neighbour to take itself out of the red and into the black — and in time to avoid the imminent dangers.

Not that the countries named by the preachers of global cyclic economic doom and gloom ought not to worry, but in each case the governments have the Sri Lanka experience from which to learn — and how Russia has played global economics by its own rules, allowing its critics to have their full say, while patiently prodding on, with time on its side.

Russia, also as the world’s largest wheat producer, will continue to earn its way out of the crisis for quite some time before Europe can eventually effectively wean itself off Russian energy supplies.

Ex-President Rajapaksa is right that the snowballing crisis preceded his administration and the accumulated effects simply couldn’t have been overcome; and the financial gurus are warning that Sri Lanka, far from being a basket case, is only a warning of more to come.

No government anywhere has had a smooth ride since the COVID-19 pandemic was declared in 2020 and Sri Lanka is proof positive that more of the same can be expected.