Foreigners and independence

On Independence Day, much public debate took place on and off mainstream media and social media platforms about Sri Lanka’s relationship with foreign countries and how it has evolved since 1948 as well as how it might evolve beyond 2019. Tied intricately to this discussion on colonialism and its impact was a debate on Sri Lanka’s debt situation.  

Undoubtedly there is much need to discuss Sri Lanka’s engagement with the rest of the world, especially since no country can develop without having trade and diplomatic ties with others. However, this engagement and how it happens can be complex and at times tinged with xenophobia. It is true that Sri Lanka has a high debt to GDP ratio for a country with its socioeconomic indicators but all developing countries and many developed countries borrow funds for economic purposes.

In a capitalist system, it is impossible not to borrow, and lending is part and parcel of an economy, whether they are investment banks, other governments or development organisations, like the World Bank or Asian Development Bank (ADB). Companies borrow to grow their businesses and countries borrow to expand their economies. The problem, therefore, is not that Sri Lanka has borrowed but rather how it has spent or invested the money it has taken.

At the end of 71 years of independence, Sri Lanka is looking at debt of about 79% of GDP, primarily because of a mismatch between borrowings and good policies. In 2019, Sri Lanka’s debt has become a concern because the economy is growing at moderate levels, which means that the country is not earning enough foreign currency to repay its external debt obligations. Therefore, analysts have pointed out that the bigger challenge before Sri Lanka is to restructure the economy to improve exports and attract investment.

Even after a decade since the end of the war, Sri Lanka’s Foreign Direct Investment (FDI) has not expanded in the best way to fit the current aspirations of the country. While it is true that FDI is growing in absolute terms, the Government is still extraordinarily dependent on big ticket projects that do not necessarily match economic needs. For example, the Government recently announced plans to allow Singaporean companies to establish two large refineries in Trincomalee. These would bring in an estimated $ 3 billion to $ 6 billion in FDI, but there are few details about what such projects would achieve at the national level.

Many questions remain about whether there is enough demand to justify such large refineries, the potential pollution they may cause, especially for an area as integral to tourism as Trincomalee, how much employment they create, and whether they meet the employment needs of Sri Lankans who prefer service-related jobs. Given that Sri Lanka is regularly teetering on the cusp of a balance of payments crisis, can Sri Lanka afford to import the oil needed to run these refineries? What demand would they meet? If the refineries are linked to thermal power, then why is Sri Lanka not considering renewables along with the rest of the world? If it is for re-export, then how would that work?

Investments are good for a country but they must meet national goals and public aspirations. At a time when Sri Lanka is facing huge climate change challenges, why is the Government supporting projects that could increase emissions? FDI needs to be linked to strong local policies and introduced with great transparency so that the public can be vibrant stakeholders and not just passive observers. If this gap is bridged, then there would be less fear about foreign countries becoming involved in Sri Lanka.