Sri Lanka Economic Crisis: What You Need to Know if You’re an Investor

Sri Lanka's Economic Crisis What You Need to Know if You're a Investor

COVID- 19 Pandemic is one of the key causes of Sri Lanka economic crisis.Inadequate government finances, and increasing inflation, which has impacted foreign remittances.

Sri Lanka’s foreign currency reserves have fallen by 70% since January 2020, to roughly $2.3 billion in February, a drop of $779 million from December 2021. It faces debt payments of $4 billion for the rest of the year, one of which being a $1 billion government bond maturing in July. Its reserves are only sufficient to cover around a month’s worth of imports, implying a drop in basic goods like as gasoline, food, and medications.

Sri Lankaʹs economy 

The Sri Lankan government announced tax cuts in 2019, reducing the country’s income. President Gotabaya Rajapaksa vowed during his presidential campaign to lower the 15% value-added tax by nearly half and to remove other taxes in order to encourage consumption and growth.

Furthermore, the tourist industry, which is one of the country’s major earners, collapsed during the COVID-19 epidemic. Its foreign remittances have plummeted. But, even before that, the region was affected by the Easter bombing in 2017. COVID-19 hit it hard before it could recover.

Russia and Ukraine visitors accounted for 25% of total inflows through mid-February. The conflict, as well as the ensuing sanctions imposed on Russia, had an influence on the country. Tourism from India, China, the United Kingdom, and Germany has not rebounded.

Causes of the Sri Lanka economic crisis 

Following are the some of the causes of the Sri Lanka economic crisis:

1. Sri Lanka has been in the grip of an economic crisis for several years.

2. The crisis is the result of a multitude of reasons, including a drop in exports, an increase in imports, and a drop in tourists.

3. Corruption, mismanagement, and the influence of the global recession are all plausible reasons for the situation.

4. The government is attempting to solve the situation by enacting reforms, but recovery will most certainly be slow.

Effects of the Sri Lanka economic crisis 

With only four hours of power each day, electricity generation has been hampered. The printing sector has also suffered, causing publications to reduce production, even shut down completely, and school exams to be postponed.

This did not occur overnight. This took a long time to complete. For many years, the Sri Lankan economy experienced structural issues. Its foreign exchange reserves rose as a result of borrowing foreign dollars rather than exporting goods and services. Following are some effects caused by Sri Lanka’s economic crisis.

1. The economic crisis in Sri Lanka has had a widespread impact on the population.

2. Poverty and unemployment have increased as a result of the crisis.

3. The crisis has also resulted in a drop in living standards.

4. The government’s finances and ability to provide key services have been harmed as a result of the crisis.

5. The crisis has increased crime and terrorism.

Impact of the Sri Lanka economic crisis

The government is struggling to pay for basic imports after its foreign exchange reserves fell by 70% in two years. Protests against the Sri Lankan government have been fueled by a lack of gasoline, increasing food costs, and regular power outages.

The country’s credit ratings have been cut by international rating agencies, and many analysts believe it will be unable to service its $51 billion sovereign debt this year.

1. The economic crisis in Sri Lanka has had a tremendous impact on the country’s economy and inhabitants.

2. The crisis has resulted in a decrease in the country’s GDP, which has had a detrimental influence on citizens’ standard of living.

3. The crisis has also increased unemployment and poverty rates, as well as reduced the supply of products and services.

4. The economic crisis has also had a significant influence on the country’s tourism industry, as many people have decided to avoid Sri Lanka as a result of the crisis.

Also Read: Know About Various Paths to Financial Freedom

How did the economic crisis Start

1. The Sri Lankan economic crisis began in late 2009, with the collapse of the country’s stock market.

2. The crisis worsened in 2010 when the rupee, the country’s currency, lost half its value.

3. The problem persisted in 2011 when the government ran out of funds to pay its bills.

4. In 2012, the administration implemented tough austerity measures, resulting in increased unemployment and poverty.

5. In 2013, the government raised the price of gasoline, sparking additional protests.

6. In 2014, the administration allowed the rupee to fall, even more, causing even greater economic uncertainty.

7. In 2015, the Sri Lankan government doubled fuel prices, sparking additional protests.

8. In 2016, the Sri Lankan government imposed higher levies, sparking further protests.

9. In 2017, the Sri Lankan government implemented more austerity measures, resulting in increased unemployment and poverty.

Stock market during Sri Lanka Economic crisis

Sri Lankan stocks fell and were poised for another day of trading stoppage as the market opened for the first time in two weeks, during which the country’s economic situation worsened.

Sri Lanka Stock Exchange Within seconds of trading resuming, the Colombo All-Share Index plunged as high as 6.7 per cent, while the blue-chip index fell 5.2 per cent. If the blue-chip index falls by 7.5 per cent, a second circuit will be activated. If it falls below 10%, the market will be closed for the day.

On April 16, the Securities and Exchange Commission of Sri Lanka temporarily suspended the stock exchange for a week, claiming the need to allow investors time to assess the country’s economic realities.

Also Read: How to achieve financial freedom in India

Solutions to the Sri Lanka economic crisis

Sri Lanka is a small country with approximately 20 million inhabitants. The country is made up of people of various ethnicities and religions. Agriculture and tourism are the backbones of the Sri Lankan economy. Agriculture is the backbone of the Sri Lankan economy, yet it is in decline. The main source of revenue for the country is tourism.

  1. The Sri Lankan government has been grappling with the fall in agriculture and tourism revenues. They have been unable to generate sufficient funds to pay the country’s debts.

2. The Sri Lankan government has attempted to raise funds by selling off state assets but has been unsuccessful.

3. The Sri Lankan government has also attempted to raise funds by issuing new bonds. This has also not been successful.

4. The Sri Lankan government has been attempting to resolve the economic crisis, but the situation is deteriorating.

If the government works hard to improvise the situation, it may help to solve the crisis.


Since the end of 2010, when the global recession began to have an influence on the country, the Sri Lankan economy has been in a state of crisis. The recession has reduced exports, increased unemployment, and reduced government revenue.

This has resulted in a severe budget shortfall, which has deteriorated the country’s public finances. The crisis has also had a significant influence on the country’s tourism industry, as visitors have cut back on their spending due to rising unemployment.

Leave a Comment

Your email address will not be published. Required fields are marked *