A world apart, Lebanon and Sri Lanka share economic collapse

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BEIRUT (TSWT) — Lebanon and Sri Lanka may be a world apart, but they share a history of political turmoil and violence that has led to the collapse of once-thriving economies plagued by corruption, clientelism , nepotism and incompetence.

The toxic combinations have led to disaster for both: collapsing currencies, shortages, triple-digit inflation and growing hunger. Winding queues for gas. A decimated middle class. An exodus of professionals who could have contributed to the reconstruction.

There is usually not a moment that marks the catastrophic breaking point of an economic collapse, although telltale signs can be there for months or even years.

When this happens, the difficulties unleashed are all-consuming, transforming daily life so profoundly that the country may never go back to what it was.

Experts say a dozen countries – including Egypt, Tunisia, Sudan, Afghanistan and Pakistan – could suffer the same fate as Lebanon and Sri Lanka, as post-pandemic recovery and war in Ukraine trigger global food shortages and soaring prices.

THE ROOTS OF THE CRISIS

The crises in Lebanon and Sri Lanka are rooted in decades of greed, corruption and conflict.

Both countries endured a long civil war followed by a tenuous and difficult recovery, while being dominated by corrupt warlords and family cliques who racked up huge foreign debt and stubbornly clung to power.

Various popular uprisings in Lebanon have failed to rid themselves of a political class that has long used the country’s sectarian power-sharing system to perpetuate corruption and nepotism. Key decisions remain in the hands of the political dynasties that rose to power due to their immense wealth or by commanding militias during war.

Amid factional rivalries, political paralysis and government dysfunction have deepened. As a result, Lebanon is one of the most backward countries in the Middle East when it comes to infrastructure and development, including major power cuts that persist 32 years after the end of the civil war.

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In Sri Lanka, the Rajapaksa family has monopolized politics in the island nation for decades. Even now, President Gotabaya Rajapaksa still clings to power, although the family dynasty around him has crumbled amid protests since April.

Experts say the current crises in both countries are of their own making, including high levels of external debt and little investment in development.

In addition, both countries have suffered repeated episodes of instability and terrorist attacks that have disrupted tourism, a mainstay of their economies. In Sri Lanka, Easter suicide bombings in churches and hotels killed more than 260 people in 2019.

Lebanon has suffered the consequences of the civil war in neighboring Syria, which has flooded the country of 5 million people with around 1 million refugees.

Both economies were then hit again by the onset of the coronavirus pandemic.

Tipping Points

The Lebanese crisis began in late 2019, after the government announced proposed new taxes, including a $6 monthly fee for using Whatsapp voice calls. The measures sparked a long, simmering anger against the ruling class and months of mass protests. Irregular capital controls were put in place, cutting people off from their savings as the currency began to soar.

In March 2020, Lebanon failed to repay its huge debt, worth at the time around $90 billion or 170% of GDP – one of the highest in the world. In June 2021, with the currency having lost almost 90% of its value, the World Bank declared the crisis to be one of the worst the world had seen in more than 150 years.

In Sri Lanka, where the economy is still fragile after the 2019 Easter attacks, Gotabaya has imposed the biggest tax cuts in the country’s history. This sparked a swift reaction, with creditors lowering the country’s ratings, preventing it from borrowing more money as foreign exchange reserves plummeted.

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On the verge of bankruptcy, it suspended payments on its foreign loans and introduced capital controls amid severe shortages of foreign currency. The tax cuts have recently been reversed.

Meanwhile, the Sri Lankan rupee has weakened nearly 80% to around 360 to the dollar, making import costs even more prohibitive.

“Our economy has completely collapsed,” the prime minister said on Wednesday.

LIVES CHANGED

Prior to this latest descent, Lebanon and Sri Lanka had a middle-income population that allowed most people to live quite comfortably.

During the 1980s and 1990s, many Sri Lankans worked as domestic servants in Lebanese households. When Sri Lanka began its post-war recovery, they were replaced by workers from Ethiopia, Nepal and the Philippines.

The recent crisis has forced most Lebanese to give up this luxury, among others. Almost overnight, people found themselves with almost no access to their money, with savings evaporated and salaries worthless. A month’s minimum wage is not enough to buy 20 liters (5 1/4 gallons) of gasoline or to pay for the private generators that provide homes with a few hours of electricity a day.

At one point, severe shortages of fuel, cooking gas and oil led to fights over limited supplies – scenes now replicated in Sri Lanka. Cancer drugs are often out of stock. Earlier this year, the government even ran out of paper for new passports.

Tens of thousands of professionals, including doctors, nurses and pharmacists, have left the country in search of employment.

Similarly, Sri Lanka is now almost without gasoline and faces a severe shortage of other fuels. Authorities announced nationwide power cuts of up to four hours a day and asked state employees not to work on Fridays, except for those needed for essential services.

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Nearly nine in 10 Sri Lankan families are skipping meals or skimping to stretch their food, according to the United Nations World Food Programme, while 3 million are receiving emergency humanitarian aid.

Doctors took to social media to search for essential supplies of equipment and medicine. A growing number of Sri Lankans want passports to go abroad to seek work.

OTHER DISASTERS

In addition to political and financial turmoil, both countries have faced disasters that have deepened their crises.

On August 4, 2020, a catastrophic explosion occurred in the port of Beirut, killing at least 216 people and destroying large parts of the city. The explosion, widely regarded as one of the largest non-nuclear explosions in history, was caused by the detonation of hundreds of tons of ammonium nitrate stored in a warehouse for years. Hazardous material was stored there apparently with the knowledge of senior politicians and security officials who did nothing about it.

There has been widespread outrage at the endemic corruption and mismanagement of mainstream parties, which have been widely blamed for the calamity.

Sri Lanka faced disaster in early 2021 when a container ship carrying chemicals caught fire off the capital Colombo. It burned for almost two weeks before sinking while being towed to deeper water.

The burning ship belched noxious fumes and spilled more than 1,500 tonnes of plastic pellets into the Indian Ocean, which were later found in dead dolphins and fish on the beaches.

Fishing has been banned in the area due to health risks from chemicals in the water, affecting the livelihoods of some 4,300 families, who have still not received compensation.

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Rising reported from Bangkok. The Switzerland Times writer Krishan Francis in Colombo, Sri Lanka, contributed.

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