Sri Lanka: How to Ruin a Nation

Over 6 million of the 20 million living in Sri Lanka don’t know where their next meal is coming from. Inflation is running at almost 60 percent, turning basic necessities into unaffordable luxuries. Nearly 80 percent of the country has cut down the number of meals they eat per day or has switched to less nutritious food.

Many are fleeing the country. They have been joined by the now ex-president Gotabaya Rajapaksa, deposed when protesters stormed his palace in the capital.

What was once an up-and-coming Second World nation in the middle of the list of global prosperity has been thrown into poverty. The effects could prove more permanent than if it had been hit by a natural disaster. But this catastrophe was caused by men—by their own government, in fact.

Sri Lanka is a powerful example of the destructive potential of a corrupt or inept administration.

Sadly, many other nations are following the Sri Lanka formula. It’s easy to do. It simply means following some easy steps.

Borrow Big

Before 2009, Sri Lanka was engaged in a lengthy civil war. Once it ended, the country seemed poised for explosive growth. Over the next three years, its economy grew by over 8 percent per year. In 2015 the World Bank called it “a development success story.” Economists believed Sri Lanka was destined for success, so banks were willing to lend it a lot of money.

In 2010, Sri Lanka’s foreign debt was 36 percent of its annual economic output. By 2015, that figure was at 94 percent. One third of government revenue went to paying off Chinese debt. In 2021 the debt hit 119 percent of the nation’s gross domestic product.

Now the country owes over $50 billion to foreigners. It defaulted on its debt for the first time in history on May 20.

Potential investors have seen the writing on the wall, and they don’t want to be holding currency from an economy going under. Combine that with money printing, and it has caused the value of the Sri Lankan rupee to plummet, leading to hyperinflation.

With no one willing to invest in Sri Lanka and with little to sell, the country has all but run out of foreign cash reserves. It cannot get dollars to pay for oil or anything else. And once oil is unaffordable, everything shuts down.

Run Out of Oil

In April, Sri Lanka passed a new law: Armed guards had to protect each petrol pump. Thousands lined up daily for their ration of 4 gallons of fuel. For some, waiting eight hours in line in the heat was too much—they died.

In June, even this ration was cut: Fuel was reserved for essential services. Even then, doctors were left in lines over a mile long trying to get fuel.

Fuel shortages led to rolling blackouts. Many Sri Lankans have generators, but this only makes the fuel lines longer.

The state-run Ceylon Electricity Board asked to increase its prices 835 percent to cope with the crisis. The government is looking at capping prices at half that level, which still means Sri Lankans will be paying four times more for their electricity.

With energy so expensive, even the wealthy have no money left for luxuries. With no one going out to eat or taking holidays, restaurants and the tourism industry shut down.

And the price of everything went up. In some cases, food rotted in farms while people starved in cities. The fuel to drive that food to market wasn’t available.

Get in Bed With Other Nations

Sri Lanka relied heavily on China to get in this much debt. Infrastructure projects were handed to Chinese businesses with no competitive bidding.

Chinese money also flooded into what Forbes called “the world’s emptiest airport,” the Mattala Rajapaksa International Airport. Chinese money also helped build Mahinda Rajapaksa International Cricket Stadium in Hambantota, which holds more seats than the town center’s population. By 2015, nearly 70 percent of the country’s infrastructure projects were funded by China.

Sri Lanka has become the poster child for China’s “debt-trap diplomacy.” China lent Sri Lanka around $1 billion to build a new port in Hambantota. When the port proved unprofitable and Sri Lanka couldn’t repay the loan, China took it over on a 99-year lease. “The acquisition provided Beijing with a deepwater port in the region in which it can dock its navy, off the coast of its key regional competitor, India,” Foreign Policy wrote (Oct. 29, 2018).

Embrace Corrupt Leaders

How could any leader who loves his country get it into this situation?

He couldn’t. Sri Lanka is in this abysmal state because its leaders were intent on enriching themselves or hanging on to power rather than seeing to their people’s welfare.

Sri Lankan politics was dominated by one family: the Rajapaksas. Mahinda Rajapaksa first came to power as president in 2005. Until recently he was prime minister, while his brother Gotabaya Rajapaksa held the presidency. It looks a lot like nepotism, but the family insists they’re simply choosing the best men for the jobs. It so happens that around 40 family members are “best qualified” for various government jobs.

In 2015, the Rajapaksas temporarily lost office. They were accused of fraud and money laundering, stealing government money, and stashing it abroad. The Seychelles and Indian governments promised to help track the funds.

But on Easter Sunday 2019, the country took a very different turn. Islamist bombings killed 270 people. Suddenly, allegations of corruption didn’t seem as important. Mahinda Rajapaksa had a reputation as a strongman who ended the civil war. That autumn he was voted back into office. Unsurprisingly, the investigations have gone nowhere.

Sri Lanka is a “democratic socialist” republic, with many industries under government ownership, such as the main electricity company, SriLankan Airlines and free universal health care. This gives anyone in government access to a lot of lucrative jobs, and a lot of cash.

The Rajapaksas quickly funneled that cash to China. The massive and largely useless infrastructure projects were all in the Rajapaksas’ home town of Hambantota. But not all this money flowed to Beijing. In 2018, the New York Times reported that millions of dollars flowed directly from Chinese port construction funds to the 2015 Rajapaksa reelection campaign. The Chinese ambassador lobbied voters to support the family’s allies. For years prior to the vote, the Rajapaksas were dogged by accusations that they had taken bribes from Chinese government-controlled companies.

Embrace Weird Environmental Rules

Another key part of Sri Lanka’s fall was a government decision last year to abruptly ban the import of pesticides and force the country to switch to organic farming.

There is a lot to condemn about modern, intensive, pesticide-heavy agriculture. But moving away from this system cannot be done overnight simply by not using pesticides. It requires changes across the whole system of agriculture.

When Sri Lanka made these moves, rice production plummeted 20 percent in the first six months. Crops that were crucial for export and generating foreign cash, like tea, were hit even harder. By November, the government was forced to roll back much of its program, but it was too late: The damage to the nation’s farming industry was done.

Could It Happen to You?

There were other critical factors. A 2019 terrorist attack and the covid-19 pandemic dealt two critical blows to the nation’s tourism industry. Russia’s invasion of Ukraine sent food prices soaring. Drought has also played a role. Forty percent of Sri Lanka’s electricity typically comes from hydropower. But now the lakes are running low.

But these are shorter-term issues, largely beyond Sri Lanka’s control. The leadership put the country in a position where it could not survive these hits.

Sri Lanka is a sobering demonstration of how thoroughly bad leadership can destroy a nation. Perhaps the most shocking part is that many other leaders in other nations are following the same blueprint for disaster.

The United States is also borrowing like there’s no tomorrow. Compared to the size of its economy, America’s debt is even larger than Sri Lanka’s. At over $30 trillion, U.S. debt is 125 percent the size of its annual economic output, compared to Sri Lanka’s 119 percent. Generally, over 90 percent is considered the “danger zone” where the economy risks collapse.

Just like Sri Lanka, America imports dramatically more than it exports, having to sell much of its currency to cover the shortfall. And America is also rapidly printing money. Roughly 30 percent of all dollars in circulation were created since covid hit.

The big difference is, the U.S. dollar is the world’s reserve currency. Despite many horrible decisions, people are still willing to buy it. They need it to engage in international trade. Even so, inflation, now at 9.1 percent, is starting to bite.

The Biden administration is rapidly shutting down America’s oil production, making the country dependent on other countries. The economic effects of this decision are already hurting. The same administration is also toying with declaring a “climate change emergency” in an attempt to gain more powers to shut down parts of the U.S. economy.

Hunter Biden’s dealings with Chinese businesses are reminiscent of some of the Rajapaksas’ dealings. And of course, these include a cut for “the big guy.”

No one thinks that corruption, inflation or debt are good things. But it’s easy to lose sight of how destructive they can be. Sri Lanka is a wake-up call. These problems destroy nations.

“True education is founded on cause and effect,” wrote Trumpet editor in chief Gerald Flurry. America is making the same mistakes that are causing catastrophe in Sri Lanka—and they will have the same effects.

In January 1920, with the U.S. economy in full boom, statistician Roger Babson forecast “the worst business depression that our generation has ever experienced.” He could accurately forecast it because his models revolved around cause and effect.

“When you want to know the temperature in the room, now, you look at the thermometer on the wall,” said Babson. “But if you want to know what the temperature will be, an hour or two from now, the thermometer can’t tell you. You go down to the boiler room, or consult the U.S. weather prophet.”

Babson said that “there are laws that govern economic conditions. These laws are the factors which determine what conditions will be, a few months or a year from now. They are the causes.”

To forecast the economy, Babson said, “I looked at the way people as a whole were dealing with one another. I looked to the source which determines future conditions. I have found that that source may be defined in terms of ‘righteousness.’” More righteous behavior leads to prosperity; corruption, to ruin.

These are profound observations from a statistician. Herbert W. Armstrong related what Babson said in his autobiography and lauded him for his wisdom.

It is clear that rampant immorality has caused Sri Lanka’s collapse. America is guilty of similar immorality, and it will have similar effects.