The Sri Lankan economy has been facing various challenges in recent years, including a high level of public debt, a trade deficit, and low foreign exchange reserves. These challenges have been exacerbated by the COVID-19 pandemic and related lockdowns, which have impacted many sectors of the economy.
One of the main factors contributing to the crisis is the high level of public debt, which has been increasing steadily over the past decade. Sri Lanka's total debt-to-GDP ratio was around 95% in 2020, which is one of the highest in the region. This has led to concerns about the country's ability to service its debt, particularly as a significant proportion of it is denominated in foreign currency.
The trade deficit is another major issue for the Sri Lankan economy. The country's imports have consistently exceeded its exports, leading to a persistent current account deficit. This has put pressure on the country's foreign exchange reserves, which have declined in recent years. In addition, the COVID-19 pandemic has had a significant impact on Sri Lanka's export-oriented industries, such as textiles and apparel.
The pandemic has also affected the tourism industry, which is a major source of foreign exchange earnings for Sri Lanka. The country's borders were closed for much of 2020, leading to a significant decline in tourist arrivals. This has had a knock-on effect on other sectors of the economy, such as hospitality and transport.
To address these challenges, the Sri Lankan government has implemented a range of measures, including currency controls and import restrictions. The government has also sought assistance from international financial institutions, such as the IMF, to help stabilize the economy. However, the long-term sustainability of the Sri Lankan economy will depend on a comprehensive approach to addressing the underlying structural issues that have contributed to the crisis.
