Lessons from Venezuela for Sri Lanka

By Dhananath Fernando

Originally appeared on The Morning

Venezuela is often discussed today through the lens of geopolitics, sanctions, and global power games. But if we set those aside for a moment, the country offers a far more fundamental lesson. It is a reminder of how moving away from basic market principles can slowly push even a resource-rich nation to its knees and eventually turn it into a geopolitical problem.

At one point, Venezuela stood among the most prosperous countries in Latin America. Its citizens enjoyed living standards comparable to advanced economies in the region. Today, that reality feels distant.

The collapse did not come from a lack of resources. Venezuela sits on vast oil reserves and is rich in other minerals as well. The problem was not what the country had, but how it chose to manage what it had.

For decades, Venezuela’s oil industry attracted global companies, expertise, and capital. Productivity was high, technology improved, and the sector generated steady income. That changed when the State decided it should take full control.

Nationalisation sent a clear signal that private investment was no longer welcome on fair terms. Efficiency declined, reinvestment slowed, and political priorities replaced commercial logic. Profits that should have gone back into maintaining and improving production were instead used to fund widespread subsidies.

When global conditions were favourable, this model appeared to work. Oil revenues masked structural weaknesses. But when prices turned, the system had no buffers. Subsidies could not be sustained, production could not be ramped up, and confidence had already evaporated.

The State turned to the easiest option left: printing money. What followed was a devastating inflationary spiral that destroyed savings, wages, and trust.

Once inflation runs out of control, people respond in predictable ways. Workers leave. Skills drain away. Businesses shut down or relocate. Venezuela experienced this painfully.

As foreign companies exited and domestic capacity weakened, productivity fell further, creating a vicious cycle. Sanctions later worsened the situation, but by then the foundations had already cracked. The greatest cost was borne not by politicians or ideologues, but by ordinary Venezuelans.

Sri Lanka does not need to look at Venezuela as a distant or irrelevant case. Too often, we have followed a similar logic, believing that the State can run businesses efficiently while ignoring the political interference that inevitably follows.

We have also been suspicious of foreign investors, forgetting that resources only become valuable when capital, technology, and skills are combined with them. Without investment, even the richest endowments slowly lose their economic meaning.

The story of subsidies is another shared lesson. Prices exist for a reason. They signal scarcity, abundance, and trade-offs. When prices are artificially suppressed, demand grows without regard for supply or cost.

It is no different from spending beyond one’s income and hoping the bill never arrives. Sri Lanka learnt this the hard way through unsustainable fuel and electricity pricing, which played a central role in the recent economic collapse.

There is also a deeper lesson about money itself. Before the crisis, many in Sri Lanka believed that money creation could continue without consequences, echoing arguments once made in Venezuela. But money is not just paper or digits. It is a store of value based on trust. When that value is diluted without public consent, people respond with anger, protest, or migration. Sri Lanka saw all three during and after the crisis.

Venezuela’s experience goes beyond geopolitics. It is a cautionary tale about abandoning basic economic principles. When countries ignore incentives, undermine markets, and treat capital with suspicion, they make themselves fragile. That fragility invites external shocks and political pressure from abroad.

For Sri Lanka, the lesson is clear. Staying anchored to sound economics is not an ideological choice. It is a practical necessity. If we want stability, prosperity, and genuine independence, we must respect markets, welcome investment, price resources honestly, and protect the value of money. The alternative is not self-reliance; it is slow decline, followed by crisis.

(The writer is the Chief Executive Officer of Advocata Institute. He can be contacted via [email protected])

(The opinions expressed are the author’s own views. They may not necessarily reflect the views of the Advocata Institute or anyone affiliated with the institute)