By Sumanasiri Liyanage –

Sumanasiri Liyanage

During the final phase of the Yahapalana government (government for good governance), the Ranil–Mangala duo proposed that Sri Lanka’s economy should be placed under long-term management according to the formula prescribed by the International Monetary Fund (IMF). However, not only did this economic policy fail to reverse the downturn that had emerged around 2016, it also created a disastrous situation for the majority of the population.

The net result of implementing the package of economic policies jointly designed by the IMF, the Central Bank of Sri Lanka, and the Treasury was the acceleration of economic decline and the increased exposure of the Sri Lankan economy to the fluctuations of global capital markets. As a direct consequence, economic growth fell below negative two percent in 2020. The country’s indebtedness increased by USD 7 billion through the open market sales of International Sovereign Bonds. In the 2019 presidential election, the Sri Lankan people brought this economic policy trajectory to a halt. What occurred, however, was not an endorsement of a coherent alternative economic program but rather a rejection of the policies that had been implemented.

Although economic growth turned positive in 2021, this was not the result of a well-conceived economic strategy. Rather, it was a patchwork of disparate measures. While some reduction in foreign borrowing was evident, the overall stock of public debt and the debt burden continued to rise due to increasing unproductive government expenditures funded by inflationary finances.

The year 2022 was marked both by the Aragalaya (popular protest movement) and by widespread hopes for change. A significant proportion of those who gathered at Galle Face during the first week of April 2022 were young people who had previously remained distant from protests and political mobilizations. In class terms, they largely belonged to the urban middle class. The issues that affected them most directly were the energy shortages and the broader crisis associated with them. For farmers, the crisis centered on the disruption of supplies of the agricultural inputs upon which they depended.

Two Interpretations of Crisis

A political economist may interpret the economic crisis of 2021–22 in two ways. These interpretations are complementary rather than contradictory. Professor Prabhat Patnaik explained the crisis as a contingent crisis, distinct from a structural crisis of capitalism. Indeed, in its form it resembled the Greek crisis of 2010–11. Predicting the arrival of the crisis in advance was difficult because the economy appeared, at first glance, to be relatively healthy. As Professor Patnaik explains, financial configurations become decisive in such crises. He opines:

“[Many] explanations completely ignore the role of neo-liberalism in precipitating Sri Lankan crisis. Under neo-liberalism, apart from the distress of the working people even in the best of times, apart from the structural crisis .. there is a third kind of crisis that particularly effects small economies, whose fortunes can change in at the fraction of a moment. I shall call this the contingent crisis unleashed by neo-liberalism… It affects not the world economy as a whole, nor even a huge swathe of it, but particular countries that happen to get caught in it at certain times. A hallmark of it is that wisdom invariably comes to everyone after the event.” (“Reflections on the Sri Lankan Economic Crisis” Peoples Democracy)

The second interpretation views the crisis as the trough of an economic cycle. From this perspective, the nine years between 2016 and 2025 constitute a single economic cycle, within which contingent events may emerge. Although 2022 can be read in isolation as a debt crisis or a foreign-exchange crisis, it is more accurate to understand both the debt and foreign-exchange problems as cyclical phenomena.

The social strata most severely affected by energy shortages viewed the crisis of 2021–22 as an isolated event and as a consequence of the Gotabaya regime. The nature of the economic crisis itself was a question that the protest movement largely sidestepped. Their June 5 declaration by a joint committee of Aragalaya illustrates this clearly. Constitutional reform and democratization formed its central components. Consequently, the movement acquired sufficient strength to achieve political change—namely, the overthrow of the Gotabaya regime. Yet the necessity of a far-reaching transformation of the economy never entered its agenda.

It was in this context that Ranil Wickremesinghe carried out the first political “surgical operation” by removing his allies from the Galle Face encampment and suppressing the protesters deploying armed forces. The next item on his agenda was the revival of the IMF program that had originated in the 2017 Ranil–Mangala agreement and had been suspended in April 2019. Dr. Nandalal Weerasinghe and Mahinda Siriwardana were enlisted as the surgeons.
Even before the IMF formally arrived, the program announced in March 2022 was not a counter-cyclical response aimed at reversing the recessionary cycle that had unfolded since 2016. Rather, it was a deflationary strategy that further reinforced that cycle. Sri Lanka’s economic contraction of more than seven percent in 2022 was a direct consequence of these deflationary policies.
Ranil’s surgical intervention produced only a lower-level stability. Per capita income declined. Unemployment and poverty increased. The proportion of the population falling into poverty rose sharply, and assessments by the Food and Agriculture Organization placed Sri Lanka alongside countries such as Somalia and Afghanistan in terms of food insecurity concerns.
The social groups that had mobilized during the 2022 Aragalaya elected a National People’s Power government in 2024 in the hope that it would, at least to some extent, reverse Ranil Wickremesinghe’s policies and improve the living conditions of the lower strata of society. Yet the National People’s Power was, in the sense defined by Leon Trotsky, atypical example of a “People’s Front.” Even before the presidential election, its principal constituent, the Janatha Vimukthi Peramuna, displayed a tendency toward class collaboration by incorporating segments of the middle class—such as intellectuals and professionals—as well as individual members of the capitalist class.

As a result, the National People’s Power gradually evolved into a political force shaped by the requirements of the capitalist class and, through them, by the interests of imperialism. The trajectory of the National People’s Power cannot be understood through simple arithmetic but through higher mathematics—not by the quantitative sum of its components, but by the resultant of a parallelogram of forces. The outcome, ultimately, is that it finds itself compelled to dance to the tune of the IMF placing Sri Lanka once again at a tipping point essentially like the situation in 2021- 22. Moreover, under the NPP regime the country appears to be preparing for a new debt cycle.

*The writer is a retired teacher in political economy. sumane_l@yahoo.com