After the resignation of Mahinda Rajapaksa, Ranil Wickremesinghe, who is the sole member of the United National Party (UNP), was sworn in as Sri Lankan Prime Minister on Thursday, May 12, 2022. Wickremesinghe will be holding the position of Sri Lankan PM for the sixth time. While the new Sri Lankan PM is a seasoned administrator, the task of restoring even a modicum of normalcy to the island nation’s economy, which is currently facing its worst economic crisis since its independence in 1948 seems to be a Herculean task (Wickremesinghe has clearly indicated, that his first task will be ensuring the supply of electricity, diesel and petrol to the people).
The grave economic crisis, which has resulted in acute shortage of food and essential commodities have brought ordinary people on the roads and demonstrations have resulted in violence and loss of lives (the Sri Lankan President had to declare a state of emergency twice first last month and then earlier this month). There had been a growing clamor for the resignation by President Gottabaya Rajapaksa but Wickremesinghe was sworn in after the exit of Mahinda Rajapaksa (protests have been carrying on even after the swearing in of Wickremesinghe)
During his previous tenure, Wickremesinghe had tried to reduce Sri Lanka’s dependence upon China, and in his current tenure he will be compelled to do the same. He had also been critical of the previous government for not approaching the IMF for assistance (Wickremesinghe has been repeatedly accused of being pro-west and having neoliberal leanings by many of his political opponents).
It would be pertinent to point out, that the PM had also batted for a coordinated regional response, by SAARC vis-à-vis the covid19 pandemic. The new Sri Lankan PM has also been an ardent advocate of improving ties with India.
While it is true, that Sri Lanka finds itself in the current situation due to economic mismanagement and excessive dependence upon the tourism sector (which faced a severe setback as a result of covid 19), it is tough to overlook the level of debts piled vis-à-vis China, and the fact that the Island nation was following China’s model of economic growth with a focus on big ticket infrastructure projects.
Another South Asian nation — Pakistan which witnessed a change last month where Shehbaz Sharif took over as Prime Minister, replacing Imran Khan, also faces daunting economic challenges. Pakistan’s foreign exchange reserves were estimated to be a little over $ 10 billion on May 6, 2022 and the Pakistani Rupee fell to its all time low versus the US Dollar on Thursday, May 12, 2022. Shehbaz Sharif ever since taking over as PM has repeatedly reiterated the importance of Pakistan’s ties with China and the Foreign Minister Bilawal Bhutto in a conversation with his Chinese counterpart alluded to the same, with Pakistan’s Foreign office in a statement released after the conversation between Bhutto and Wang Yi said:
“underscored his determination to inject fresh momentum in the bilateral strategic cooperative partnership and add new avenues to practical cooperation”.
Yet, China has categorically said that it will not provide any financial assistance until Pakistan resumes the IMF aid program. Pakistan has been compelled to look at other alternatives such as Saudi Arabia and UAE, which have also said that without the revival of the IMF program aid will not be possible. Only recently, Chinese power companies functioning under the umbrella of the China Pakistan Economic corridor (CPEC) have threatened to shut down their operations if their dues (to the tune of 1.59 billion USD) are not cleared. China had also reacted very strongly to the terror attack on Karachi University in which three Chinese teachers lost their lives, this is the second such attack after 2021. China in recent years had also indicated to Pakistan, that it was not happy with the progress of the China Pakistan Economic (CPEC) project. The current government in Pakistan has repeatedly pointed to this fact.
One point which is abundantly clear from the economic crisis in Sri Lanka as well as the challenges which Pakistan is facing is that excessive dependence upon China has disastrous consequences in the long run. If one were to look at the case of South Asia, Bangladesh has been astute by not being excessively dependent upon China – it has maintained robust economic relations with India and Japan. Given the changing economic situation it is becoming increasingly important for developing countries, especially in South Asia, to join hands to confront the mounting challenges posed by excessive dependency upon China. US, Japan and western multilateral bodies and financial institutions need to find common ground and provide developing countries with an alternative economic narrative. It is also time for India along with other countries in the South Asian region to find common ground and focus on robust economic cooperation.