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Dollar Crisis: What aggravated it

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by Eng. D. Godage

Total foreign currency reserves of the country were around seven billion dollars at the beginning of 2021 but it decreased to around 1.2 billion dollars towards the year end, even though the Central Bank announced that there was a reserve of three billion dollars. The net foreign assets of the total banking system are said to be a US$ 4.1 billion deficit by 2021 end. Everybody knows the suffering and difficulties the countrymen undergo as a result of the depletion of foreign currency or dollar reserves. Without elaborating on those effects, it is the intention of the writer to examine how foreign reserves depleted so fast.

Politicians, officials, public speakers very often tend to blame every government since independence over the past 70 years for ruining this country, but with regard to foreign debt, it is not applicable. Moreover, the effects of the COVID-19 pandemic were felt globally but other countries in this region did not suffer as much and face such crises like the ones faced by Sri Lanka, so it is no excuse. It is not essential to elaborate on this fact as it is common knowledge. Consequently, the writer makes an attempt to understand how and when it happened. The focus of this discussion is on infrastructure development, and not other debt instruments.

Debt burden since independence

The Oya project implemented around 1948 using local funds comes to mind. Moreover, from 1950 the major port development scheme of Colombo Harbour created the Colombo Port, one of the most modern ports at the time, by 1956 under the leadership of the Minister of Transport and Works, Sir John Kotelawala in the Dudley Senanayake Cabinet, utilising local funds amounting to 110 million rupees. While work was in progress, the ship ‘Gothic’, carrying Queen Elizabeth II, berthed alongside the newly constructed Customs Quay to christen it the Queen Elizabeth Quay (QEQ). Incidentally, the QEQ was buried in the privately developed SAGT or South Asia Gateway Terminals around year 2000.

The Mahaweli Development Project, a massive irrigation cum hydroelectric scheme originally planned for 30 years but telescoped into about six years, was undertaken by the J.R. Jayewardene government using concessionary loans as well as grants. Funds were provided based on a thorough feasibility study, with eminent engineer late Dr. A.N.S Kulasinghe and his team of engineers working as consultants. Resultant benefits are well known and they did not lead to any debt crisis in the country.

Road and railway infrastructure development has been carried out with locally raised funds. After the 2004 tsunami disaster, the Railway Department staff rehabilitated the destroyed line to recommence operations with the least possible delay. It is said that northern rail line improvements carried out later on loans under Uthuru Wasanthaya had spent two to three times the cost.

Since 1980 the country has seen another major development programme in the port sector. Studies had been conducted at a time of increasing demand for container traffic, confirming the urgent need to expand port facilities. The first phase of expansion, requiring US$ 32 million, was funded in the form of a Yen currency loan. The project progressed systematically aided by further loans, through a transparent bidding process. As a result, the Colombo Port was elevated from the global rank of 127 in 1981 to 21st in 1997. These loans were granted only after proper feasibility studies were carried out and confirmation of loan repayment capability, as affirmed by the lending Japanese Agency. Extensive borrowing for project infrastructure became the norm only after about 2000 and not since independence.

Newer debt accumulation

A Sunday English newspaper on March 9, 2014 and May 1, 2016 reported, with details from the External Resources Department, on 28 projects funded predominantly by China Exim Bank loans amounting to US$ 7,671 million, with five-year grace and 10-year repayment periods; their interest rates are not indicated but is supposed to be over six percent. All these projects are said to have been initiated through unsolicited tenders. The same newspaper published a report under the caption, “Normal tender procedure not possible for mega projects: PBJ”. This is a questionable statement. Further examination of the above list shows seven projects, all in Hambantota, totalling US$ 5,054 million, for airport, port, highway extension, railway extension and local road network. None of them seem capable of generating revenue to repay the massive loans even though they have been in operation for around 10 years by now. These loans alone require about US$1 billion per year as repayment, burdening the country, and using up its dollar reserves. During the previous regime the Hambantota Port was given out on a 99-year lease.

Did the Treasury officials who handled these borrowings not see the danger of the debt burden or debt trap and the country’s inability to repay them without adequate future revenue? One can cite the shifting global financial structure and unforeseen circumstances as the reason. But they should have been taken into consideration in any plan. High costs due to unsolicited proposals without a competitive bidding process are also an issue. As for costs, the Treasury Secretary has said that it is the engineers who determine costs. This is not an acceptable excuse.

The Colombo Port South Harbour was found to be an urgent project, and proved viable after an extensive feasibility study by 2001. After producing detailed designs, cost estimates and all implementation requisites, it was not possible to proceed due to lack of funds. The Hambantota Port project was also given high priority by the same government though two feasibility studies failed to show the viability of the project. For the Colombo Port project, the Treasury Secretary advocated commercial borrowing claiming that the lending agency conditions were unacceptable.

In fact, only one lending agency came forward to offer approximately one third of the fund requirement. The Ports Authority managed to obtain very concessionary loan of US$ 300 million in 2006, to proceed with the project, albeit after a two-year delay. The new harbour was completed successfully within the stipulated time and cost while adhering to a transparent tender process. It is worthwhile to note that the lowest cost, approximately US$ 320 million, was quoted by the Korean contractor who successfully completed it, while the next bid was around US$ 570 million by a Chinese contractor. This project seems to be generating more revenue than budgeted.

In fact, the biggest container ship in the world ‘Ever Ace’, with a carrying capacity of 24,000 TEU, berthed in the Colombo South Harbour in October 2021 as it is the only port in the region that could accommodate a ship of that scale, bringing great honour and promoting the Colombo Port.

Most Chinese funded projects that commenced during the past two decades seem now complete and in operation, spread among power and energy, transportation, airport and aviation, ports, irrigation and water sectors. Debt distribution is US$ 1,553 million in power and energy, US$ 3.99 billion in transportation, US$ 232 million in airport and aviation, US$ 1,336 million in ports and US$ 101 million in irrigation. This includes projects indicated by the aforementioned 2016 news item, and subsequent major projects like the Central Highway are not included.

Expensive ventures like the Norochcholai coal power plant costing US$ 1,346 million have helped to meet the country’s energy demands and there has to be a post project evaluation to ascertain its financial gains and loan repayment capacity. Highway projects undertaken on expensive loans do not seem to generate enough revenue to meet dollar loan repayments. Although some benefits accrue, the post project economic and financial evaluations are not satisfactory. The highest revenue on a peak day on the Southern Highway has been 38 million rupees a day. Considering the average annual turnover minus the operation and maintenance costs it could take 100 years to repay loans. Authorities should perform a post project evaluation for the benefit of future planners.

Lessons to learn

This is history but should not be discarded, for the valuable information and data therein demonstrate the actual scenario and resultant repercussions. Decision makers and economic advisors to the government, especially of the Treasury and any other relevant officials could review them.

The debt burden has aggravated the dollar crisis during the past two decades. The COVID-19 pandemic during the past two years is not an excuse as other countries in the region too have faced the same but are performing better. The negative economic growth in 2020 and the considerable dollar debt burden, with the country’s reserves collapsing have not occurred suddenly. Severe import restrictions have made day to day life of the people inconvenient and led to the collapse of some domestic industries.

The worst is yet to come, as warned by the Secretary to the President, delivering a speech in Colombo, as reported by a Sunday English newspaper on 28 Nov. 2021. He was the Treasury Secretary during the past two decades, when China Exim Bank loans were signed to the tune of billions of dollars mostly for white elephant projects, The massive dollar debt seems the root cause of most problems faced today.



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Opinion

If Sri Lanka wants ‘real’ stability, only one way to achieve it, in a short time

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by Sunil Abhayawardhana

After the economic crisis of 2022, and the IMF programme that followed, some are of the opinion that ‘stability’ was achieved, but followed by ‘not out of danger yet’. Where is the ‘stability’ then?

We know that the cause of the crisis was a lack of foreign exchange. However, the IMF programme focused on the fiscal aspects, not one that enhanced export earnings. So, we are once again in a situation, facing the same problem, with the ‘fiscal discipline’ thrust on us.

Therefore, it is clear that if we seriously want to achieve ‘real’ stability, we need to use our heads much more and get out of the ‘epistemic insularity’ that has been around for so long. (Epistemic insularity is a state where an individual or group becomes isolated from alternative perspectives, data, and frameworks of knowledge. It occurs when individuals, groups or communities construct a protective bubble around their beliefs, making them resistant to outside evidence or challenging viewpoints).

It applies also to guys who have recently got into the bubble and being taught Neo-liberal lessons.

Fixing targets for budget deficits and tax collection is ok if it is in relation to a development drive. If not, it would only increase the misery of a higher cost of living. That development drive is what is missing in Sri Lanka.

A development drive comes after formulating a development plan, which is not an instant production, takes much time and effort. Therefore, Sri Lanka needs right now an accelerated ‘urgent’ project, that would bring ‘real’ stability, in the shortest possible time. Once ‘real’ stability is achieved, the focus should shift towards a greater development plan.

The only way

The only way for Sri Lanka to achieve ‘real’ stability is by enhancing its export earnings by at least $ 20-25B. Most of the projects that are being thought of are not capable of bringing in earnings on the scale required, in the shortest possible time.

Over the years, tea, rubber and coconut was the first base of exports. Then there were many smaller products such as gems and petroleum products that were not developed, tough the potential was there, followed by garments and IT, which were small in scale.

Continuing on the same path, is not going to change the story. A radical change of stance is urgently needed. What is amazing is that it has not yet been realised.

A point to note is that a World Bank report issued a few years ago, highlighting the possibility of enhancing exports by the present exporters by as much as $10B, if provided with some assistance, was not even considered. However, this should be an ongoing programme, but conditions of the IMF programme may not be able to give the required support to these industries.

Historically, since Independence, the path chosen has not been able to bring the desired results. Should we then, not change our thinking, to be able to bring about the urgently required outcomes?

Widespread development is going to take time with the existing conditions. The governments programmes would at best, bring in an additional $5B by 2030 at best. Therefore, targeting one specific sector and industry, with total focus for about a year or two, has a better chance of success.

Even if total investment is around 10% of GDP and half of it is diverted to a single project capable of increasing export revenue by 100%, that bold decision should be taken. The shortfall in public investment for a short time should be tolerated.

Sri Lanka has never embarked on such a programme and is the only way it could achieve ‘real’ stability.

Therefore, after much research, the only single project, capable of enhancing export figures by as much as $20 -25B was identified as mentioned below.

Oil refinery in Trincomalee

This is a project that should have been started at the time of Independence in 1948, when the funds were available from the Sterling Balances Agreement. However, it did not materialise and the country paid a heavy price.

Now, to be able to generate $20-25B, a refinery with at least a 400,000 b/d refinery is urgently required to be set up in Trincomalee. India is planning to set up eight new refineries in the coming years. The world’s largest refinery is located in Jamnagar, India, with a capacity of around 1.6 million b/d, owned by Reliance Industries.

The funding of such a project has many options, Multi-lateral sources, Joint Ventures and many more. (However, for a country that could release $2-3B for vehicle imports, should be able to work that out).

An idea of the cost could be determined by the Chinese cost for a 200,000 b/d refinery, which works out to around $3.7B. Sourcing equipment from China is considerably lower, compared with other western sources.

Sourcing the correct equipment, from suppliers at a price that the project can afford becomes critical. Equipment from the west is highly inflated, while Chinese equipment is now available at a much lower price.

The shortest time a refinery has been established is one year, in South Korea, and Singapore’s first refinery, a little over a year. There are many hurdles that have to be got over and a government has the ability to do so, if it is really determined. Most of it is paperwork and environment issues, with site selection.

The Ceylon Petroleum Corporation has been in existence and operating the 50,000 b/d refinery from the late 1960s and should be able to handle such a project, if not outside help would have to be deployed.

Most governments do not see the long- term benefits of such a project, due to the normal long- time frame to commence such a project. However, this is where ‘urgency’ has to be understood. As the CPC is the only institution involved, apart from the state bureaucracy, there is no reason for delay. If there is a strong will, there would always be a way of getting it off the ground, in the shortest possible time.

The discussions already commenced regarding the UAE, India, SL project, could be beneficial. A joint venture with India, is a strong possibility. The pipeline distribution would reduce delivery costs. However, total dependence on the Indian market would not be a good strategic or business decision.

The second refinery

China offered to establish a 200,000 b/d refinery in Hambantota, three years ago. Obviously, the government is under tremendous external pressure on this. This is where diplomacy at its best is required.

Sri Lanka had this ability in the 1960s and early 70s and later in the 1990s and early 2000s. This ability does not seem to be around at present, but needs to be revived.

I remember in the early 1970s during the Bangladesh war, Pakistan requested permission to fly via Colombo to East Pakistan. No one expected Sri Lanka to grant permission. But it was granted, keeping the relationship with India intact.

The proportion to be released to the local market and tax concession, should be worked out with the best interests of the country in mind. Even though the original percentage to be released to the local market was 20%, a further 20% would reduce the export earnings, but would save importing that amount, as SL imports around 100.000 b/d of refined petroleum.

Tax concessions face obstacles with the IMF programme, which could be solved via negotiations, that convince the IMF of the greater benefits to the country, but requires skill, as mentioned earlier.

A project of this nature, which brings immediate results, has never been seen in SL and lacks the confidence needed, but has to be built up to take bold decisions. It would face many obstacles, but as mentioned earlier, if there is a will, it could be done.

The Hambantota refinery could easily add another $10-15B to the aggregate earnings from petroleum exports, which would total around $ 35-40B in total.

Would that not bring ‘real stability’ to the economy?

No other project or projects could bring in the foreign exchange on the scale that these two could. In fact, expanding the refinery capacity in Trincomalee and Hambantota, could be considered later.

Other possibilities

While aiming for ‘real’ stability, it should not be forgotten to bring ‘real’ stability to the farming community in the country.

The mistakes of the past in relation to agriculture development needs to be corrected by the farmer being the ultimate beneficiary from agriculture development. It is ridiculous in an under developed economy like Sri Lanka, where the farmer toils so hard, while the big millers get the ultimate benefit.

Therefore, the thinking should change, where the farmer sells rice, with milling by farmer coops and linking the farmer to the rice market.

Once stability has been achieved and a sizeable reserve built up via earning as against borrowings, Sri Lanka should set its sights on development and not stop at stability. Listed below are a few projects that could be initiated.

An iron and Steel mill for export in Trincomalee- which could bring in around $10-15B.

*  Develop Colombo as The Gem and Jewelry center of the World $ 5-10B.

*  R+D into graphene if could be used for semiconductors

*  Aircraft repair and maintenance facilities to service the huge fleet in India

*  Local IT companies registered in SL, operating out of Jaffna

*  R+D to be incentivised in various fields

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Opinion

Navigating Sri Lanka’s Israeli Dilemma

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Sovereignty, Tourism, and the Law:

by Sasanka Perera
(The writer is on X as @sasmester)

On 28 October 2024, I wrote in this column an essay, titled ‘Israelis in Sri Lanka and the Advent of a ‘Neo’ Colonialism.’ My concern then was the disruption long-term Israeli tourists, often over-staying tourist visas, were causing particularly in the Eastern Province. Government intervention was mostly visible through relative inaction. Over the past year, Sri Lanka’s pristine coastal enclaves, from Hikkaduwa and Weligama in the west to Arugam Bay in the East, have found themselves at the centre of a complex and needless geopolitically-inflected controversy. As I explained in my earlier essay, too, the rapid growth of Israeli tourism has brought to light serious concerns regarding regulatory oversight, economic fairness, and national sovereignty. The latest controversy erupted in August 2026, in Hiriketiya, near Dickwella, in the country’s south. Unlike in the east, where the protesters were mostly from Muslim communities, in Hiriketiya, the protests were led by Buddhists, including monks.

At the centre of latest public debate is the establishment of a ‘Chabad House’, essentially a Jewish community and religious centre, catering to Israeli travellers. One of the primary demands the protesters made, was to investigate if this religious entity was established legally and if the activities of Israeli residents, including running businesses, were legal. In the context of the earlier controversy, Prime Minister Harini Amarasuriya is on record for clarifying in Parliament on 8 January, 2025, that neither the Ministry of Buddhasasana, Religious and Cultural Affairs nor any other government institution had granted official permission for the establishment of Israeli religious sites. In other words, what existed was illegal.

Chabad Houses as private business entities

Representatives of the local Chabad Houses, of which there are about six at present, claim they operate as registered private business entities. However, operating public religious and communal hubs on standard tourist or corporate permits violates local town planning and immigration guidelines. Besides, despite the claim, it is very unclear even if standard business licenses were issued in the first place. If religious entities were run under temporary business licenses, then, that itself is a clear violation of Sri Lankan law showing scant disregard to both the legal system in the country and its socio-political sensitivities.

This setup stands in stark contrast to how Sri Lanka’s own religious presence is managed in Israel. In Tel Aviv, a Sri Lankan Buddhist temple was established in 2013 to serve thousands of Sri Lankan migrant workers. The effort was facilitated by the Sri Lankan Embassy in the Israeli capital. To respect local Israeli laws and urban regulations, that temple operates discreetly inside a private apartment complex rather than as a prominent, independent public centre with an overt public religious personality as is usually the case with Buddhist temples globally. The Chief Incumbent of the temple, at the time it opened in 2013, Ven. Karavilakotuwe Dhammathilaka, is on record for stating very clearly that in keeping with the religious sensitivities in Israel, the inaugural ceremony itself was also held on a low scale without much publicity. This makes sense given the fact that Israel is one of the most religiously intolerant societies in the world as its track record amply demonstrates. This is more so in the last few years. What is important in the context of the opening of the Buddhist temple in Tel Aviv is, no laws were violated, the temple was meant for long term-residents, and respected local laws and sensitivities. It was also an effort formally facilitated by the Sri Lankan Embassy.

The comparison raises a fundamental question of parity: why should foreign nationals in Sri Lanka, including Israelis, establish public religious and cultural centres without municipal or government authorisation, while Sri Lankans abroad strictly abide by local constraints, as the nondescript Sri Lankan Buddhist temple in Tel Aviv clearly demonstrates?

The debate and anxieties around the Israeli presence in Sri Lanka occurs alongside another pressing concern. That is, the relatively precarious position of thousands of Sri Lankan workers in Israel who are mostly in the construction, agriculture and caregiving sectors. Recently, thousands of Sri Lankan migrant workers faced deportation from Israel due to job category violations, after switching from agriculture or caregiving to unauthorised sectors. The Sri Lankan Foreign Ministry reportedly actively intervened with Israeli authorities to negotiate regularisations and protect these workers. In my view, Illegality is illegality everywhere. If Sri Lankans violated Israeli law, that country had every right to deport them, and we should not have intervened. But I do understand the government’s position, too, as it relates to employment of citizens. Then, there should be a system where such regularisations are managed via the facilitation of the Sri Lankan Embassy, and if citizens do not make use of such a facility, they should clearly face the consequences of Israeli law.

Troubling double standard

Whichever way one looks at it, this highlights a very troubling double standard. That is, while Sri Lankan workers and the government have to cautiously navigate strict Israeli labour and visa laws, Israeli visitors in Sri Lanka frequently evade local visa laws without consequence. This mostly occurs as a result of the institutionalised spinelessness of our law enforcement when it comes to foreigners, and particularly seemingly ‘white’ foreigners. But surely, over 78 years after Independence, spineless meekness on our part must have clear limits. There needs to be clear reciprocity. Besides, Israelis are not here to work as the Sri Lankans in Israel are. They are supposed to be tourists. They should neither work nor establish religious edifices as they feel fit violating our laws and sensitivities as a matter of routine. This is why the ongoing Israeli activities reek of settler-colonialism.

Also, it is not only a matter of Israeli intransigence and official and public Sri Lankan apathy. The latter becomes possible when locals, who rent buildings to visa facilitate in running illegal Israeli businesses depriving their own citizens of legitimate incomes, are not even prosecuted by local law enforcement and judicial systems. As often is the case, foreign arrogance is built upon local meekness and lack of even the most basic sense of national pride. Of course, this does not apply to anyone, including Israelis who are operating a business in Sri Lanka legally, based on legitimate licenses issued by the government.

The proliferation of unlicensed, foreign-run businesses poses severe economic challenges to Sri Lanka’s local tourism industry. Many Israeli visitors enter this country on standard tourist visas but illegally set up guesthouses, surf camps, and cafes. Often operating exclusively in Hebrew, these businesses transact via informal channels or foreign accounts. When foreign visitors, including Israelis, run unregistered businesses, there are numerous local fallouts. For one thing, Sri Lanka loses substantial corporate, local government, and value-added tax revenues. Secondly, these activities severely undercut local livelihoods. Local vendors, tour guides, and small hoteliers are excluded by closed-loop and illegal Israeli operators. One of the common complaints where illegal Chabad Houses have been established is that they provide accommodation and meals to Israeli tourists, seriously disadvantaging local tourism-related businesses.

Adverse economic impact

Much of the income earned from these closed illegal operations, hardly comes to Sri Lanka in any way except for payment for supplies and rentals. Finally, since properties lease informally at inflated long-term rates to these operators, it drives up costs for Sri Lankan entrepreneurs and small business owners. But all this has become possible and so entrenched because of the established track record of relative inactivity of the Sri Lankan government in general as well as local governments and law enforcement in particular.

This brings to my mind the Israeli feature film, Arugam Bay. Directed by Marco Carmel and shot on location in Sri Lanka, including Ella and Arugam Bay. The film follows former Israeli soldiers using Sri Lanka’s coastal towns to process military combat trauma. The production received formal clearances for filming from the Sri Lanka Tourism Promotion Bureau in so far as publicly available information indicates. However, its narrative — framing Sri Lankan beach towns as retreats for Israeli military veterans — with blood in their hands and massive human rights violations to their credit, reaffirms local concerns about the island being used as a backdrop for Israeli human rights violations against Palestinians without sufficient regard for local perspectives.

It is precisely this kind of narrative, through word of mouth as well as social media, that creates an image of Sri Lanka as meek and trouble-free destination for Israelis intent on illegal activities. Do the Sri Lankan government or Sri Lankans want such a label attached to the country? I certainly don’t. It is quite shocking that the Sri Lanka Tourism Promotion Bureau gave permission for a such film to be shot locally. It shows both the Authority’s sorry view of what tourism is and scant disregard for ethical tourism.

Pushback mischaracterised as anti-Jewish sentiment

Public pushback against these illegal activities has sometimes been described by local as well as Israel supporters as anti-Jewish sentiment. But this completely mischaracterises the issue. Global condemnation of Israel’s military actions in Gaza and beyond and massive rights violations of entire Palestinian communities is rooted in international humanitarian law — not antisemitism. Differentiating between opposition towards violating state policies and hostility toward Jewish people is critical. Sri Lankans standing against Israeli military aggression or localised law-breaking are asserting human rights and national law as well as decent and legal behaviour by foreigners in our own country. This is not engaging in discrimination. That is, Israelis must be treated here as our people are treated in Israel. By law and by the book.

Sri Lanka must remain a welcoming host to international tourists. However, hospitality must not replace accountability. The government must strictly enforce visa restrictions, shut down unauthorised commercial and communal spaces, and protect local businesses. By upholding the rule of law uniformly, Sri Lanka can safeguard its economy, preserve its national sovereignty, and maintain harmony along its shores.

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Opinion

Whatever on earth happened to meritocracy, pragmatism, and honesty in Sri Lanka?

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Lee Kuan Yew

By A Concerned Aficionado

In 1959, just over a decade after Ceylon, as Sri Lanka was then known, gained Independence, a tiny, resource-barren island in many ways, named Singapore, elected a man called Lee Kuan Yew as their Prime Minister. Before that, having been ejected from the Malaysian Federation into forced independence, the founding fathers of independent Singapore looked across the Indian Ocean with envious eyes. The subject of their admiration was Ceylon: “The Pearl of the Indian Ocean.” Here was a nation in a pearl blessed with fertile land, a highly literate population, a functioning model of the civil service, robust infrastructure, and standard English education. Lee Kuan Yew openly declared that his ambition was for Singapore to emulate Ceylon.

Decades later, the tragedy that developed out of this historical juxtaposition is staggering. Singapore now sits comfortably in the first world, boasting a GDP per capita exceeding US Dollars 80,000, world-class institutions, and zero tolerance for corruption. Sri Lanka, meanwhile, lies in the ashes of sovereign default, a begging bowl in hand, passing from one economic crisis to the next, crippled by debt as well as rampant corruption and governed by political short-sightedness.

What went wrong? The answer can be found in a simple three-letter acronym popularised by Singaporean diplomat and academic, Professor Kishore Mahbubani, MPH: the acronym for Meritocracy, Pragmatism, and Honesty: the proven mantra of that country.

Mahbubani famously argued that any nation, regardless of size or origin, can achieve extraordinary success if it rigorously applies these three foundational doctrines. If Singapore stands as the global poster child for the triumph of the MPH model, Sri Lanka stands as its renowned antithesis; a tragic case study of what happens when a country systematically dismantles every single one of those three sacred creeds of good governance.

Meritocracy Dismantled: The Triumph of Nepotism and Tribalism in the Pearl

Meritocracy, in Mahbubani’s framework, demands that a nation relentlessly selects its best and brightest to lead its institutions, regardless of ethnicity, family lineage, or political affiliation. In Singapore, early leaders like S. Rajaratnam, a Sri Lankan Tamil, were elevated to the highest positions strictly on ability.

In Sri Lanka, we did the exact opposite. Almost immediately after independence, our political class realised that exploiting communal divisions was far more lucrative than building a meritocratic state. The Official Language Act of 1956 was the first lethal blow, substituting raw linguistic nationalism for competence. This was followed by media-wise standardisation policies in higher education, which effectively told our youth that their brainpower mattered less than their geographic or ethnic identity. In short, this was the political misdemeanour that destroyed the Sri Lankan nation.

The institutional decay spread rapidly into our civil service, which was once the envy of Asia. The Independent State Services Commission was systematically gutted and replaced by political patronage. State corporations, statutory boards, and diplomatic missions became dumping grounds for politicians’ children, loyalist party hacks, henchmen and henchwomen and despicable sycophants.

Instead of putting domain experts at the helm of economic, medical, and technical bodies, our rulers appointed cronies whose primary qualification was their willingness to bow and kneel before their political masters. The resulting brain drain has been catastrophic. For generations, Sri Lanka’s greatest export has not been tea or garments, but its finest minds, driven out by a system that rewards loyalty to a party over loyalty to intellectual competence.

Pragmatism abolished: Ideological Dogma and Economic Madness in the Pearl

Pragmatism means deserting ideological blinders and adopting policies simply because they work. As Singapore’s Dr Goh Keng Swee put it to Mahbubani: “No matter what problem Singapore encounters, somebody, somewhere has solved it. Let us copy the solution and adapt it.”

Sri Lanka, by contrast, has been a graveyard of economic dogmatism and harebrained experiments. Rather than copying proven global best practices, our policy decisions have consistently been driven by shortsighted populism, ideological posturing, and economic illiteracy.

Consider our economic history: alternating decades of closed-economy import substitution that strangled private enterprise, followed by unbridled, corrupt market deregulation without supervisory safeguards.

Perhaps the ultimate symbol of our anti-pragmatic hubris was the infamous overnight ban on chemical fertilisers in 2021. Ignoring every agricultural scientist and expert in the country, the government imposed a purely ideological and immediate “100% organic” policy by a Presidential Decree. The result was immediate and devastating: agricultural yields collapsed, food security evaporated, and tea production; our main foreign exchange earner, suffered disastrous damage. It was economic suicide masquerading as some kind of a vision of splendour.

Pragmatism requires looking at numbers, listening to experts, and adjusting and changing course when a policy fails. In Sri Lanka, political leaders routinely ignore basic arithmetic and even common sense to preserve their political narratives. They cut taxes when the treasury is empty, print trillions of rupees while inflation soars, and hold off on seeking IMF restructuring until the country literally runs out of foreign currency for fuel, medicines, and food.

Honesty is dead: The Culture of Systemic Corruption, the Misery of the Pearl

The third component, Honesty, is perhaps where Sri Lanka has fallen down the furthest. Professor Mahbubani notes that corruption is the single biggest reason why third-world countries fail. Singapore combated this by establishing near-zero tolerance for corruption, enforcing the strict rule of law, and ensuring that no public official, no matter how powerful, was above accountability.

In Sri Lanka, dishonesty is not merely an occasional scandal; it has become the fundamental operating system of the state. Corruption in Sri Lanka is institutionalised from the bottom to the absolute top. White-elephant infrastructure projects were financed through high-interest commercial loans: not because they offered viable economic returns, but because they offered massive kickbacks and inflated procurement contracts. Commissions were pocketed on everything from highways and airports to coal shipments, vaccines, and even basic food commodities.

Worse still, a culture of complete impunity took root. Commissions of inquiry were appointed not to uncover the truth, but to whitewash theft and buy political time. Files mysteriously vanished, prosecutors were pressured, and political deals were struck to protect corrupt figures across all political divides. The public watched in desperation as billions were drained from the national coffers, leaving the country bankrupt while the perpetrators enjoyed immunity, private jaunts, and even clandestine offshore accounts.

The Current Dispensation: Have They Got Their Wires Completely Crossed

If the public expected a sharp break from this pattern with political shifts in recent years, the disillusionment is totally complete. However, amidst a rhetoric towards a milk and honey nation, the aftermath has been everlasting desolation, as the stark reality has proven bitterly disappointing. The current political leadership appears to have got its wires completely crossed.

Instead of a sharp return to the MPH principles, what we witness is a baffling mix of improvised policies, misplaced priorities, and political double-speak. On the one hand, the government attempts to eloquently speak the language of reform and fiscal discipline to satisfy the gullible citizens and even the international lenders. On the other hand, it continues to rely on the same tired playbooks of executive heavy-handedness, administrative opacity, and political backroom deals.

Where is the true Meritocracy in the current administration? Key appointments in crucial public sectors are still dominated by political trade-offs and ideological echo chamber minions rather than competent people with independent, proven track records. Technical expertise is treated as a secondary consideration, way behind political compliance. The intense tragedy is the folly of ignoring and suppressing capable and efficient people and bringing in the henchmen and henchwomen.

Where is the Pragmatism? Rather than instituting big structural changes, modernising our public sector, and stripping away red tape to attract genuine foreign direct investment, the government remains addicted to piecemeal band-aid and bureaucratic control. Instead of fixing fundamental market distortions, it attempts to micro-manage the economy through top-down mandates, price controls, and extremely heavy taxation that burdens the middle class while leaving structural inefficiency untouched.

Where is the Honesty? Transparency remains a distant unattainable dream. Crucial state contracts, energy deals, and restructuring terms are still negotiated behind opaque doors. There is a glaring absence of genuine accountability for those whose past financial crimes pushed the nation into default. The rhetoric of “anti-corruption” is deployed aggressively against political adversaries, yet remains conveniently muted when it touches allies or organisational dishonesty within state institutions.

Instead of showing the public a clean, transparent roadmap for national recovery, the current regime seems intent on managing optics, suppressing dissent, and maintaining political survival at all costs.

The Path Forward: Can the Pearl be Restored?

Sri Lanka’s journey from being the envy of Asia in 1948 to a terribly bankrupt state in the 2020s is not a result of bad luck or external conspiracies. It is the direct consequence of our miserable choices. We chose tribalism over Meritocracy. We chose ideological populism over Pragmatism. We chose systemic corruption over sanctified honesty.

The Singapore story proves that natural resources, land size, and historical advantages do not determine a nation’s destiny. It has very clearly demonstrated that it is only the realism of proper governance that leads to prosperity. Singapore had no oil, no timber, no agriculture, and not even its own fresh water. What it had was a leadership obsessed with execution, integrity, and competence.

If Sri Lanka is ever to rise from the ashes of its self-inflicted ruin, it must abandon the political illusions that brought it to its knees. No amount of foreign loans, IMF bailouts, or geopolitical manoeuvring will save us if we do not transform the way we govern ourselves.

The formula is already written. It does not need to be reinvented. It has only to be implemented with untold dedication.

· Enforce absolute Meritocracy: Strip politicians of their power to appoint cronies to state bodies. Establish an independent, politically insulated mechanism for public sector leadership based entirely on competitive, verifiable competence.

· Embrace Pragmatism:

Kill economic dogma. Listen to experts, even when their opinions are unpleasant, copy proven global models, digitise state processes, and evaluate every public policy solely on one metric: would it or does it deliver measurable results for the people of our nation?

· Institutionalise Honesty:

Enforce an absolute, unyielding rule of law with zero tolerance for deceit and fraud. Empower independent anti-corruption agencies with real teeth, strip away immunity for financial crimes, and make asset declarations mandatory and publicly accessible for every elected official.

The time for empty political slogans, hereditary politics, and ideological arrogance should be over and, in fact, should be wiped out forever. Sri Lanka has run out of the flight runway. Until we, as a nation and the citizenry of a united nation, demand a radical pivot toward Meritocracy, Pragmatism, and Honesty, the “Pearl of the Indian Ocean” will remain nothing more than a tragic reminder of what it could have been.

It is never too late. All it needs is a supremely committed political and national obligation to the glorious vision of a prosperous future for the entire nation. However, we are forced to lament whether any of our current lot of so-called statesmen, or, for that matter, stateswomen, of any hue and rhetorically imbibed, are up to that committed task of getting the pearl back into its long-lost pristine glory.

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