Srilanka is in the midst of the most arduous downturns since its independence in 1948, falling short on adequate essential resources.
The situation that was triggered by the Russian invasion of Ukraine and the subsequent rise in fuel prices has spiraled into an economic crisis with citizens facing 13-hour daily power cuts due to diesel shortage, inflation rates soaring to 18.7 percent, state-run hospitals drying up on life-saving drugs and the currency steeply devalued.

The crisis was prompted by the Covid-19 pandemic which disrupted the country’s tourism industry, followed by the administerial mismanagement and perennial borrowings causing the exhaustion of the foreign exchange reserves by 70 percent in two years. It further escalated when the Lankan economy hit the twin deficit— wherein a country’s expenditure is more than its gross income. Another important factor was the Rajapaksa government’s decision to ban all chemical fertilisers in 2021, which disrupted the agricultural industry and stemmed a decrease in the rice crop production. As of March, Sri Lanka owes $7 billion in debt repayments including $1 billion in International Sovereign Bonds—ISB’s make up a total of $12.50 billion in foreign debt while the total debt amounts to $51 billion, au contraire, the country’s reserves stand at only $2.31 billion.

The crisis has triggered many civilian protests across the country demanding the resignation of Gotabaya Rajapaksa who had earlier declared a state of emergency in the country, giving sweeping powers to the armed forces to arrest and detain suspects for long periods without trial. Following the protests, a string of cabinet ministers and the governor of the central bank have resigned from their posts. Economists are now suggesting an urgent need for debt restructuring and adopting fiscal consolidation— wherein a government borrows money from other governments and institutions to bridge the deficit.