Sri Lanka Crisis: Lessons for Malaysia?

 Sri Lanka’s exclusionary model of development may have some lessons for Malaysia. Few would have expected the Sri Lankan government to collapse despite the high degree of ethnic Sinhala nationalism or extremism. 

It is a lesson for other countries that high degree of racial and religious nationalism does not necessarily beget sound economic and financial management. The entire Sri Lankan cabinet resigned en bloc leaving the country to be administered by the president. Whether the country would be able to administer itself with heavy doses of financial assistance from the International Monetary Fund (IMF) and countries like China and India is left to be seen. 

Extreme Sinhala ethnic Buddhist nationalism was defined against the Tamils in the country. Sri Lanka may have gone too far with this model of governance in administering the country.  While Sinhala ethnic nationalism was able to defeat the Tamil forces, such a methodology was not transferable to the economic management of the country. 

The family that ran Sri Lanka as though it was their personal property was the Rajapaksas (sounds like “Raja Paksa” for our context) 

In the last few decades of so, the brothers of the present president Gothabaya Rajapakse ran important ministries. The defeat of the LTTE was the reason for the rise in the popularity of the Rajapaksa family in general and Mahinda and Gothabaya in particular. However, success in the war was unfortunately not translated in the governance of the country. 

Over the period from the defeat of the LTTE until the present, the economy has deteriorated. The drastic reduction in the reserves of the country from over US400 billion to US2 billion was something catastrophic! 

More than this, currency devaluation, sharp fall of tourism revenue, slash in VAT, heavy debts to China for infrastructure projects, the cancellation of chemical fertilisers, lack of fuel  and the shortage of essential food supply brought the residents to the streets. Then there is endemic corruption and nepotism.

To what extent the IMF can rescue Sri Lanka from its own inflicted wounds is difficult to predict.  The fact that Sri Lanka sought to avoid the IMF by going to China for assistance might be damper on the degree of Western assistance to Sri Lanka. 

India might allow some credit assistance to Sri Lanka, but the country’s indebtedness to China might be a problem from a geopolitical angle.

Sri Lanka has seven major lessons for the world-:

(i) You cannot borrow and live happily ever after – sustainable debt is the key to survival;

(ii) Domestic consumption without too much borrowing matters;

(iii) When you can’t print the dollar as the US can, you descend en mass into poverty. (Fashionable liberal ideas like organic farming and pandering to Islamic terrorism doomed the country);

(iv) Corruption, nepotism and extreme nationalism speeds up the process to a “failed” state;

(v) Forex reserves help ameliorate any economic downturn;

(vi) Cutting taxes (VAT) is a populist choice but difficult to balance a budget; and

(vii) Having adequate food and fuel reserves will prevent street protest. 

Sri Lanka collapsed under its own weight, but Malaysia still has time to avoid the major and most excruciating pitfalls of a largely exclusionary model of development.

References:

Sri Lanka’s exclusionary model of development: some lessons for Malaysia, Prof Ramasamy Palanisamy, Focus Malaysia 5 April 2022

Sri Lanka’s nosedive into economic chaos holds global lessons, Ninad D Sheth, Deccan Herald, 2 April 2022