The Political Economy of the Crisis in Sri Lanka

Sri Lanka is going through the worst economic crisis since the 1930s and the most formidable protests since the Great Hartal of 1953. The interpretations of the crisis are as diverse as the competing political factions trying to shape the narrative about the ongoing protests. According to the Gotabaya Rajapaksa government, external shocks, especially the COVID-19 pandemic and, most recently, the war in Ukraine, are to blame for the country’s woes. Meanwhile, the opposition argues that the government itself is responsible, pointing to its tax cuts when it came to power in 2019. The Rajapaksa regime must indeed take the lion’s share of the blame for wasting precious time and focusing solely on its political consolidation during its tenure. However, we must examine the underlying structural characteristics to explain the profound shifts in the political economy of Sri Lanka that have caused the crisis. These are further reflected in the changes in the global economy.

Since 1978, Sri Lanka has been a poster child of economic liberalisation in the wider South Asian region. On the advice of the International Monetary Fund (IMF) and World Bank, the country undertook major economic reforms, such as floating the rupee, reducing import tariffs, slashing welfare, including the food subsidy, and generally making the country more open to international trade and finance. Indeed, the country’s elites themselves demanded these changes.