ReliefWeb

EXECUTIVE SUMMARY

Sri Lanka is a lower middle-income country with an estimated total population of 23 million people. More than a decade after the country’s civil war ended, there has been significant economic and diplomatic progress. Nonetheless, social and political weaknesses continue to stymie efforts to ensure all Sri Lankans enjoy the benefits of economic growth.

The economy had been growing at an average of over 5% annually for a decade when the COVID-19 pandemic caused a contraction. While the economy is relatively diverse, the country does rely heavily on tourism-related services and on exports of consumer goods, both of which were badly hit by the pandemic-induced global slowdown. Sri Lanka’s consumer and commodity agricultural activities are expected to better weather the slowdown while tech-oriented manufacturing and services along with mining should be reliable pillars in the post-pandemic economy. Having pushed poverty rates down to nearly 4% by 2016, the country may see some rise in poverty rates as workers pushed off the lowest rungs of the employment ladder slip back into poverty.

Sri Lanka maintains a mostly non-aligned diplomatic stance in hopes of avoiding becoming a client state of any world or regional power (India, China, the U.S., etc.). Since 2009, successive governments have cultivated investors, development partners, and regional organizations to insulate the country from great power competition and retain options for seeking assistance. China and Japan are development and infrastructure investors; India is a key business partner; and the U.S. and Europe are major export markets. Still, concerns are high that Sri Lanka’s loss of control of key infrastructural projects due to debt will affect political and diplomatic stances.

The country has expanded public utilities, state-sponsored health care, and modern education as infrastructural development and repair have taken hold, particularly in areas of the north and east coast that were still struggling recover from the civil war and the 2004 Indian Ocean tsunami (Boxing Day tsunami). That tsunami is only the most extreme example of natural disasters that Sri Lanka regularly confronts. Storms, flooding, and landslides can accompany tropical cyclones that occasionally strike. Meanwhile, drought is becoming increasingly common as climate change affects the timing and volume of monsoon rains.

Some deep socio-political divisions remain. The Sinhalese (74.9% of the population) have a strong hold on political, economic, and cultural activities. Tamils (15.4% of the population) and Moors (9.2%) can face discrimination. In the wake of the 2019 Easter bombings, many Muslim Tamils and Muslim Moors confronted harassment or loss of business as their Buddhist Sinhalese and Christian neighbors stayed away out of a mixture of concern over terror threats and anger at the Islamist terror plot that left 250 dead. During the COVID-19 pandemic, tensions increased when government ordered that all persons who died of COVID-19 be cremated, contrary to World Health Organization guidance. The policy angered the Muslim community, as Islam forbids cremation. Following pressure that culminated in a visit from Pakistan’s Prime Minister, in February 2021 Sri Lanka reversed the order.

In addition to communal tensions, political rivalries stand in the way of needed reform. The present dominance of the Sri Lanka Podujana Peramuna nominally presents President Gotabaya Rajapaksa and his Prime Minister-brother, Mahinda (who served as President from 2005 until 2015), an opportunity to drive reforms.15 However, there are concerns they will use their strong political position to entrench their clan’s (and fellow Sinhalese) dominance while exacting revenge on activists and journalists who opposed them during or immediately after the civil war – when Gotabaya was both a military general and Secretary within the Defense Ministry under his brother’s Presidency.