Prime Comment of economic crisis in Sri Lanka

The Sri Lankan economy was performing reasonably well among developing economies with an average real GDP growth rate of 5.2 percent from 2011 to 2018. However, the economy took a downturn with the onset of COVID-19 and subsequent lockdowns, and the real GDP growth rate declined from 3.3 percent in 2018 to a negative 3.6 percent in 2020 and rose to 3.7 percent in 2021. The government was struggling to manage its fiscal operations facing fiscal and current account deficits like most developing countries. Nonetheless, the situation worsened due to an exponential rise in global commodity and energy prices, a halt in tourism activities due to pandemic enforced lockdowns and travel restrictions, the surge in external obligations from a rise in external debt, and a significant loss in tax collection due to ill-conceived tax reforms.

Resultantly, Sri Lanka had to announce bankruptcy on external obligations in April 2022 where the government’s external debt stood at $51 billion in 2022 and was unable to fulfill its external obligations because foreign exchange reserves fell to $1.94 billion.

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