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1 1 (October 17, 2023)

handle is hein.crs/goveneq0001 and id is 1 raw text is: Congressional Research Service Informingi th egislved dbae sne 1914 Sri Lanka: Background and Issues for Congress Background The Democratic Socialist Republic of Sri Lanka is a constitutional democracy situated off the southeastern tip of India's Deccan Peninsula and in close proximity to key sea lines of communication in the Indian Ocean. The Biden Administration has identified Sri Lanka as occupying a strategic location in the Indian Ocean and in the middle of the geopolitical competition for influence. Since its independence from the United Kingdom in 1948, Sri Lanka (known as Ceylon from 1948 to 1972) has struggled to manage ethnic, religious, and economic divisions among its citizens. From 1983 to 2009, the Tamil militant separatist Liberation Tigers of Tamil Elam (LTTE) fought to establish a separate state or internal self-rule in the ethnic Tamil-dominated areas in a civil war that may have cost up to 100,000 lives, displaced hundreds of thousands of people, and seen serious human rights violations committed by both sides. (Sri Lanka has never allowed an independent investigation into the conduct of the war and associated human rights violations, despite pressure from the United Nation Human Rights Council.) Since 2008, U.S. assistance to Sri Lanka has focused on supporting the country's democratic institutions, promoting good governance, and facilitating post-war reconciliation. U.S. policymakers, including in Congress, have raised concerns about the Sri Lankan government's growing ties to the People's Republic of China (PRC, or China) over the past two decades. Under former Presidents Mahinda Rajapaksa (2005-2015) and his brother Gotabaya Rajapaksa (2019-2022), Sri Lanka's government relied on China to support its fight against the LTTE and numerous post-war development projects, causing some observers to express concern about the potential for the PRC to exert economic and military influence in a key part of the region. Sri Lanka's 2022 Twin Crises In early 2022, Sri Lanka experienced its worst economic crisis since gaining independence; annual inflation reached 60%, the currency depreciated by over 80% against the U.S. dollar, and, with foreign reserves dropping almost to zero, the government defaulted on its debt. Sri Lanka's gross domestic product contracted by an estimated 7.9% that year, poverty rates doubled (to 25% of the population), and half a million jobs were lost. The economic crisis is rooted in years of corruption, poor economic policy, and growing indebtedness. The COVID-19 pandemic, global inflation, and government actions have exacerbated the crisis. In 2021, for example, then-President Gotabaya Rajapaksa imposed a ban on chemical fertilizer and ordered the country's farmers to use only organic fertilizers. Domestic rice production fell 20% in the first six months after the ban went into effect and domestic prices for the dietary staple surged by around 50%. Production of other export crops such as tea, rubber, and coconut was similarly affected. Updated October 17, 2023 In March 2022, thousands of Sri Lankans began protesting the government's handling of the economy, which had resulted in rapidly rising inflation, fuel shortfalls, medicine shortages, and rolling blackouts throughout the country. On April 1, 2022, Gotabaya Rajapaksa declared a state of emergency and gave the military sweeping powers to arrest and detain demonstrators. On April 3, most of his cabinet resigned, and, on April 12, the government announced it was defaulting on its foreign debt of $51 billion. The imposition of a curfew and announcement of a military shoot to kill order failed to quell protests, and in July demonstrators stormed the homes of several government officials, including the President's official residence. Both Gotabaya and Mahinda Rajapaksa (who was serving as Prime Minister) resigned, and Gotabaya fled the country in mid-July 2022. Parliament elected Ranil Wickremesinghe as President, in accordance with Sri Lanka's constitution. Figure I.Sri Lanka in Brief Source: World Bank; CIA World Factbook. President Wickremesinghe moved to address the country's debt crisis and make economic reforms. In March 2023, the International Monetary Fund (IMF) finalized an agreement with the Wickremesinghe government to extend a US$3 billion loan, subject to a series of conditions that Sri Lanka address its financial shortfalls and renegotiate its external debt. In September 2023, however, the Sri Lankan government failed to secure IMF agreement to release the next $330 million tranche of its bailout loan due to concerns about shortfalls in government revenue. Some analysts say that the government's decision to increase taxes and reduce expenditures on key government services to close the funding gap already is causing hardship for the Sri Lankan people and pushing professionals to emigrate.

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