Why Sri Lanka’s Crisis Has No End in Sight

Welcome to Foreign Policy’s South Asia Brief.

The highlights this week: Sri Lanka’s crisis turns violent as the prime minister steps down, the Taliban announce a burqa mandate, and India’s currency takes a record drop relative to the U.S. dollar.

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For months, anti-government protesters in Sri Lanka have railed against skyrocketing inflation and an economic crisis that has nearly exhausted Sri Lankan foreign reserves. They have demanded the resignations of President Gotabaya Rajapaksa and his brother Mahinda, who stepped down as prime minister on Monday. Although the mass protests have been intense, they have largely remained peaceful—which makes this week’s surge in violence troubling.

The violence began on Monday when government supporters attacked anti-government protesters, escalating tensions and prompting retaliatory attacks. A ruling party lawmaker was killed during an attack by a mob, and rioters torched politicians’ homes. The protesters’ main source of ire, the Rajapaksas, have also found themselves under threat: People stormed Mahinda Rajapaksa’s compound after his resignation, and the family’s ancestral home was set on fire.

Sri Lanka’s government blames the economic crisis on coronavirus pandemic-induced shocks, but its origins can be blamed on a raft of bad economic decisions going back more than 20 years, from taking on too many loans to cutting taxes. Those early mistakes, taken with Rajapaksas at the helm, made Sri Lanka’s economy especially vulnerable to the pandemic and recent oil price spikes. The economic strain is further exacerbated by the political crisis—which won’t end anytime soon, despite the prime minister’s resignation.

As Sri Lanka’s 26-year civil war came to an end in 2009, Mahinda Rajapaksa—then the president—oversaw a post-conflict reconstruction effort marked by heavy investments in infrastructure, but less in tradeable goods. This development required loans that indebted an economy fragile from years of war, as Sri Lankan economist Dushni Weerakoon explained in Foreign Affairs. The government attempted to use foreign exchange earnings to pay it off, but commercial debt increased from 7 percent in 2006 to 55 percent in 2019.

In 2019, newly elected President Gotabaya Rajapaksa cut taxes, leaving the government with insufficient revenue when the pandemic began. The hit to tourism did further damage: The tourism industry’s contribution to GDP fell from 5.6 percent in 2018 to 0.8 percent in 2020. But the government still spent heavily, resulting in a currency depreciation. A 2021 ban on chemical fertilizer reduced agricultural yields, contributing to rising food costs.

Anti-government protesters are angry about political leaders’ failure to rein in the exorbitant prices of essential goods. But their demonstrations should also be read against the backdrop of years of economic mismanagement. For many Sri Lankans, the government’s heavy-handed response to the protests—although unsurprising—has been the final straw. Troops have been deployed in the capital with orders to shoot anyone involved in violence.

Likewise, Mahinda Rajapaksa’s resignation won’t appease the protesters; they are demanding that Gotabaya go too. The president has instead proposed that he oversee a unity government. On Thursday, Ranil Wickremesinghe was sworn in as prime minister; he has already served in the office five times for the opposition. Wickremesinghe doesn’t enjoy broad-based support within the opposition or among the public. He is thought to be close to the Rajapaksas, and his appointment may do little to ease political instability.

When the government does return its focus to the economy, it will likely pursue an International Monetary Fund (IMF) package that requires austerity, meaning more hardship. Such measures would be more acceptable to the public with a more palatable government in power, but that would mean a new interim government, Gotabaya Rajapaksa’s resignation, and early elections. None of that appears to be in the cards, given the president’s refusal to step down.

Sri Lanka could also get a boost if the pandemic subsides, allowing tourism revenue to resurge, and if the global oil price surges bring spikes in remittances from the Sri Lankan diaspora, many of whom work in oil-producing Persian Gulf states. The benefits of such outcomes may be tempered by the consequences of austerity measures that come with a new IMF package.

No matter what comes next, this much is true: The Sri Lankan government may eventually fall, but the Rajapaksa dynasty isn’t about to end, even if it’s dramatically weakened. The Rajapaksas are too powerful, and Sri Lanka’s opposition is divided. Even if the country manages to rescue its economy, the political environment will remain hyperpolarized.

For more on the crisis in Sri Lanka, join our next FP Live discussion on Friday, May 13, at 11 a.m. EDT. FP editor in chief Ravi Agrawal hosts Atul Keshap, a former U.S. ambassador to Sri Lanka under the Obama administration and now the president of the U.S.-India Business Council, for an in-depth conversation about what comes next for Sri Lanka. FP subscribers can register here.

Taliban announce mandatory burqa rule. Last Saturday, the Taliban regime announced a new decree requiring Afghan women to wear head-to-toe coverings in public. If a woman breaks the rule, her male guardian will receive a warning and increasingly harsh punishments with repeated violations. The decision has drawn global condemnation, and it comes on the heels of the Taliban reneging on its promise to allow older girls to return to school.

Both policies, also adopted during Taliban rule in the 1990s, reflect the power of the most hard-line elements of the group in the current regime. The burqa mandate will again make Western capitals and the international donor community more reluctant to provide financial assistance to the Taliban government, which is struggling to ease humanitarian and economic crises. Data released this week warns that nearly 20 million Afghans—almost half the population—are experiencing “high levels of acute food insecurity.”

The Taliban ideologues in power may care little about such suffering or about global perceptions, but they do care about their hold on power. This week, the National Resistance Front, Afghanistan’s main resistance group, has launched a new offensive in the Panjshir region. Although the group’s claims of territorial seizures are likely exaggerated, that it is actively fighting is significant. The Taliban have faced no viable opposition since seizing power last August.

Record rupee plunge in India. India’s rupee fell to an all-time low against the U.S. dollar (77.50 per dollar) on Monday. Depreciation has been fueled by large-scale selling by foreign investors in India, as well as the U.S. Federal Reserve’s recent interest rate increase. Although the political opposition has capitalized on the news to criticize the government, the Indian economy has rebounded relatively well from the pandemic. Unemployment remains a major concern, but the International Monetary Fund projects India’s economy will grow by more than 8 percent this year.

Compared to some of its neighbors, India is in a fairly good position. Nepal and Pakistan are both grappling with rising debt and soaring commodities prices, Sri Lanka is experiencing runaway inflation and has run out of foreign reserves, and Afghanistan is near economic collapse.

Senior U.S. business delegation visits Dhaka. A 25-member delegation of top U.S. business leaders visited Bangladesh this week to explore trade and investment opportunities. Bangladeshi Prime Minister Sheikh Hasina hosted the delegation, led by a senior Chevron executive, at her residence, and they also met with cabinet officials. Bangladeshi officials have also used the visit as an opportunity to prod Washington to reverse a 2013 decision to suspend trade privileges to Dhaka over labor rights concerns.

The visit highlights a surge in U.S.-Bangladesh relations. The delegation is part of the U.S.-Bangladesh Business Council, an initiative launched last year. The trip comes after U.S. Secretary of State Antony Blinken met with his Bangladeshi counterpart in Washington, and just before a bilateral security dialogue in Hawaii this weekend. This cooperation is in part intended to showcase the strength of the U.S.-Bangladesh partnership as they mark 50 years of relations, but Washington is also keen to work with Dhaka to counter Beijing.

This week, Pakistani Prime Minister Shehbaz Sharif appointed Qamar Zaman to serve as trade minister in Pakistan’s High Commission in New Delhi. The post has been vacant for five years, during which bilateral trade has nearly ground to a halt after a military crisis between India and Pakistan in 2019.

Pakistan’s commerce ministry says the personnel move has no bearing on policy, but it wouldn’t be surprising if Pakistan’s new premier were exploring resuming trade with India. With Pakistan mired in an economic crisis, cheap imports from India could relieve the public, and exports to Indian markets could bring in some much-needed revenue. (Sharif’s party base also includes the business elite in Punjab province, many of whom support cross-border trade.)

This isn’t the first time Pakistan has considered reopening trade. Last year, an economic committee advised lifting a two-year ban on cotton and sugar imports from India because of shortages of raw materials in Pakistan’s critical textile sector. Then-Prime Minister Imran Khan’s cabinet refused, saying any resumption of trade would be linked to India’s policies on Kashmir.

Any hopes of scaled-up trade in the Sharif era should also be tempered. India’s government currently has little to gain from expanding commercial relations with Pakistan; its hard-line stance on Islamabad has helped it politically. More importantly, Sharif’s government is a short-term one: Elections are scheduled for the summer of 2023, and senior officials have hinted they may come sooner. India may have little interest in engaging with a lame duck administration.

Indian journalist Jyoti Malhotra argues in the Print that India must tread carefully while navigating Sri Lanka’s political crisis. “India knows it needs to be seen to be supporting the people of Sri Lanka, not just the Rajapaksas. For the moment, just like the Buddha said, it seems determined to walk the middle path even if it’s a long and tortuous one,” she writes.

A Kathmandu Post editorial laments how Nepal’s electoral process does not provide sufficient services to the disabled, despite constitutional guarantees. “While local governments and the Election Commission continue to pass the buck to each other … persons with disabilities continue to face the structural barriers that impede their access to the polling booths as well as the voting process,” it argues.

Pakistani analyst Uzair Younus argues in Dawn that Pakistan’s economic crisis requires a bold and immediate response, ranging from the privatization of state-owned companies to “fundamental reform” of agricultural markets. “Shock and awe reform is the only plausible way to emerge on the other side of this crisis in better shape,” he writes.