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Lessons from Sri Lanka
Ethnocracy and concentration of power can derail even an affluent nation.
Amajor event at the end of August was the declaration of economic emergency in Sri Lanka. This was following a surge in food prices after a sharp depreciation of the Sri Lankan rupee. This was followed by a crackdown on hoarding of essential commodities by traders. A former army general was put in charge of the distribution of essential supplies to bring down prices.
However, this was not entirely unexpected. Sri Lanka has been steadily slipping into a crisis as growth decelerated and the fiscal balance deteriorated sharply, thus raising government debts in the last decade. The external sector scenario also worsened as imports surged faster than exports running down foreign exchange reserves, and the Sri Lankan rupee sharply depreciated. The COVID-19 pandemic, the consequent lockdown, and the devastation of the tourism sector—a major foreign exchange earner—were the last nails in the coffin. This has caused a sudden depreciation of the Sri Lankan rupee, surge in prices, and the consequent emergency.
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