Rajan Karki - -
The main question for Nepal is - what lessons can Nepal learn from Sri Lanka? Democratic Socialist Republic of Sri Lanka, is an island country in South Asia. It lies in the Indian Ocean, southwest of the Bay of Bengal, and southeast of the Arabian Sea; it is separated from the Indian subcontinent by the Gulf of Mannar and the Palk Strait.
Sri Lanka is an intelligent country. According to the World Bank, Sri Lanka’s GNI per capita income in 2020 is 12,870 dollars and GDP per capita income is 3,682 dollars.
What happened again and Sri Lanka reached the land of economic chaos? This is the main question for a developing country like Nepal.
Load shedding every day. After the loss of fuel, food and medicine, the common people came out from their houses and took the streets. Rebellion spread throughout Sri Lanka. This happened last April.
Sri Lanka could not pay not only the foreign debt, but also the interest. Srilanka stopped borrowing from the international world. There was a situation of not getting more foreign loan. The reputation of the country was damaged. Public confidence in Sri Lanka’s currency and economy has come to an end.
President Rajapakshya resigned, fled the country. Ranil Wickramasinghe became the Acting President. He declared a state of emergency. Despite this, the needs of Sri Lankans who were starving and living in darkness could not be meet. Relief from financial crisis was the first condition. Sri Lanka has a foreign debt of 51 billion dollars. Only China owes the most debt.
Restructuring is being discussed on how to pay the debt. The G7 countries Canada, France, Italy, Japan, UK and the US have said that they will support Sri Lanka’s debt repayment efforts. The World Bank has offered 600 million dollars to Sri Lanka and 1.9 billion dollars to India. The IMF has said it will lend 3 billion dollars. However, there is no stable government in Sri Lanka. can increase taxes. The crisis of confidence will continue until a new government comes in.
Sri Lankan people are hungry. The Sri Lankan people have an empty plate. Dishes has thrown up against the price increase and lack of supply. There is no option for Wickramasinghe to print new notes even for the salary of the employees. Printing notes means increasing inflation, raising prices. Sri Lanka has requested Russia and Qatar to reduce the price of fuel, but it is not possible.
Of course, because of foreign debt and undemocratic Sri Lanka is on the way to a failed nation. This is an unfortunate situation for neighbors including Nepal in South Asia. Sri Lanka’s terrible financial crisis started in 2019. There are many reasons for Sri Lanka’s plight. Mainly corrupt rulers, their family and nepotism and unsustainable debts.
When the situation was favourable, Sri Lanka took loans blindly. It was immediately spent on unnecessary infrastructure, corruption occurred and may have helped visible development. China is the main creditor of Sri Lanka. Some subsidies were also given by China. Over the past several years, China has invested heavily in Sri Lanka under the BRI, both commercially and officially. This includes major projects like Colombo Port City and Hambantota Port.
Sri Lanka fell into financial crisis. Couldn’t get out of the debt crisis. The people did not get any facilities, shortages increased in every area.
The people were forced to revolt. Sri Lanka has initiated talks with the IMF and the World Bank for emergency aid.
What is clear that these lenders or monetary institutions are not charitable institutions. They are reluctant to step-in.
The IMF and the World Bank know that lending to Sri Lanka means that the money will be used to pay off the Chinese. By doing so, creditors would essentially bail out the world’s second largest economy. Second, the World Bank and the IMF will only provide loans if they have assurances that the money will be used wisely. Sri Lanka will have to undergo deep political reforms to gain confidence. Which is not immediately possible.
Another way out of Sri Lanka’s economic crisis is for China to forgive Sri Lanka’s debts and provide more financial aid. Which is impossible. Because it can be understood from the silence of China – By not getting involved in the Sri Lankan mess, China be trying to protect other loans it extended to developing countries all over the world under the auspices of BRI. Sri lanka receives a helping hand from the Chinese government, what other countries would also ask for debt forgiveness ?
Nepal can learn a lot from Sri Lanka’s economic crisis. Loans are not development, problems can increase. For rapid development, there should be financial moderation, financial discipline should go hand in hand. Nepal is not able to cover the salaries of the employees from its revenue, the debt is increasing and the trade deficit has become unsustainable. Nepal, which is a remittance economy, should strictly follow the policy of not taking bilateral loans.
Looking at the current problems of Sri Lanka, Nepal seems to have done a wise thing by passing the MCC. Because this is not a loan. For the development of Nepal, there is a need for economic support with such democratic discipline. Nepal should accept and encourage grants for building such development infrastructures, not loans.
The China-Sri Lanka friendship and the current dangerous results teach Nepal that too close a relationship with a superpower is going to be dangerous. Big powers cannot give up their interests.
If Nepal falls into an economic trap like Sri Lanka, there is no guarantee that Nepal will be saved. Therefore, it is the national duty of think tanks to think before coming crisis. It is the accountable responsibility of people’s representatives.
Because Nepal’s geopolitics is strategic for world powers. Therefore, Nepal drowning in foreign debt will be like committing suicide.