Crisis is upon Sri Lanka. Last week, President Gotabaya Rajapaksa decreed a state of emergency over food supplies, the dollar was being sol...
Crisis is upon Sri Lanka. Last week, President Gotabaya Rajapaksa decreed a state of emergency over food supplies, the dollar was being sold for over 230 Sri Lankan rupees on the black market (down from 216.55 Sri Lankan rupees on August 19), Sri Lanka was downgraded to CCC- by Standard & Poor rating agency (Fitch had downgraded the country to this level back in November) and general panic is setting in.
The most immediate impact for the ordinary citizen sees empty shelves in supermarkets and pharmacies, which are caused by the Sri Lankan government’s ban on imports. Import bans, something Sri Lankans have become intimately (and involuntarily) familiar with over the course of the past year, are only a symptom of a much larger macroeconomic problem.
Sri Lanka’s economic crisis is not one-dimensional, it is a hodge-podge of internal and external factors, varying in degree of severity and as intertwined as a spider’s web. I will therefore, to the best of my knowledge and understanding, document here the main causes and aggravating factors for anyone interested in this unfolding crisis.
Main causes
The economic crisis currently unfolding in Sri Lanka can be traced down to a few leading and severe reasons.
1. Debt sustainability, or the lack thereof
It is perhaps no...
