Sri Lankan economic crisis: Socialism kills slowly, but when combined with Chinese debt trap policy it kills surely

Sri Lanka is in deep trouble, due to the economic crisis and subsequent public outrage that has affected the common man badly. The skyrocketing inflation, fragile government policies, and pandemic have smashed the country poorly. On Saturday, the Sri Lankan government enforced a 36-hour curfew as a part of a nationwide public emergency. The following day, it also blocked the country’s social media platforms’ usage amidst the call for more protests. The question remains who is responsible for this situation in the island nation. Among several other reasons, China’s debt-trap policy deserves a part of the blame. The primary reason, by some analysts, is capitalism; however, that’s anything but factual. For this pathetic condition, the socialist policies and their continuous hangover are to be blamed. Sri Lanka got its freedom in 1948, just six months after India. Soon after gaining independence, its romance with socialism began. In 1956, SWRD Bandaranaike started doing socialist reforms during his tenure as prime minister, backed by four nationalist-socialist parties. He started by nationalising bus companies and enacting the Paddy Lands Act 1958, among other things. His wife, Sirimavo Bandaranaike, completed what was remaining in the socialisation of the country after his assassination in 1959. During her first term, she started by nationalising banking, education, industry, trade, and even newspapers which ultimately resulted in her removal from the office in 1965. Even in her second term during 1975-77, she more or less continued to do the same, which resulted in the high debt from other countries and the IMF. In 1977, the United National Party came to power and started an open economic policy, some say, in contrast to the previously closed economic policy, bringing financial stability to the country. They attribute this opening to the start of neoliberal or capitalist policies in the country, though it is correct to say that. First, the state control over the economy was not primarily removed. Second, the government-owned more than 500 companies at that time. Third, the Mahaweli development project resulted in unavailable borrowing credit. Fourth, the state machinery was expanded rather than contracted during this period. The Cultivation Officer Service was started, and the institutions like the Board of Investment were formed. It all resulted in the budget deficit year by year. The country didn’t attract such a huge investment, partially thanks to the political instability in the northern part from the 1980s to the late 2000s. During all these years, the national expenditure rose exponentially and the national income marginally. Sectors like tourism and farming were flourishing, but the government didn’t consider diversifying their income further. Since 2006, the government started borrowing heavily and investing in projects that proved to be economically inefficient. It invested heavy capital as high as $290 million to develop Mattala Airport, with $190 million given as a high-interest loan by the Chinese bank. Still, the airport was known to be “the world’s emptiest airport”, borrowing the words of Forbes. Other heavy capex but underutilised projects include Hambantota Port, Sooriyawewa Stadium, Hambantota International Conference Hall, Nelum Pokuna, Nelum Kuluna, etc. Sri Lanka Freedom Party, in 1994, also started a social security scheme, Samurdhi, which still transfers cash to the citizens based on the members of the family. A digression: Does this story sound familiar to what happened in Venezuela? On the other hand, the Sri Lankan government was not selling the Public Sector Companies under their control, although they were doing everything apart from making a profit. The largest electricity company in Sri Lanka, Ceylon Electricity Board, is the state-owned company making a loss. Unnecessarily people were hired by the companies like Sri Lankan Airline, causing chaos. The same is the fate of numerous other companies, but the Lankan politicians mastered the art of repeating the “We will not sell national assets” grandiloquence. Only people having mental bankruptcy can call this system capitalist. The condition of Sri Lanka was already terrible — and the COVID-19 pandemic struck the country, leading to the collapse of the tourism industry due to the restrictions on movement. Meanwhile, the 2020 parliamentary elections happened, and the Rajapaksas came to power by promising to cut the VAT of 15 per cent, which was reverted later anyway. The enthusiastic environmentalist government did the rest thing by banning the chemical fertiliser overnight, leaving no options for the farmers and tumbling the agriculture sector, particularly the rice crop. The Ukraine-Russia war hiked the oil prices globally and ultimately harmed the fragile economy. Sri Lankan foreign currency reserves plunged by nearly 70 per cent since January 2020 to $2.3 billion by February 2022. Also, it has to make debt payments of around $4 billion through the rest of this year. The national debt is 1.19 times the GDP. The credit agencies have also significantly reduced the credit score of the island nation, making it difficult to borrow from the markets. To cut a long story short, the problem in Sri Lanka lies in nationalisation, socialist policies with a mixture of populism, subsidies and freebies, and a controlled economy. Socialism kills. Slowly but surely. The writer is an independent columnist who writes on international relations, and socio-political affairs. Views expressed are personal.​ Read all the Latest News , Trending News ,  Cricket News , Bollywood News , India News and Entertainment News here. Follow us on Facebook, Twitter and Instagram.