Reply To: What is the reason behind Srilankan economic crisis?

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    The global recession of 2018-2019 has killed around 65,000 jobs in Sri Lanka, as businesses and individuals reduce spending. But, why? The country was already hit by a double-dip recession in 2015-2016, which killed around 35,000 jobs. The present crisis is, therefore, worse than the previous one, as it has claimed more lives while being deeper and wider-ranging. The unemployment rate has risen from 4.9% in January 2019 to 7.6% in December 2019.

    There are various theories explaining the present situation. Some say it is because of the COVID-19 pandemic. Others say it is the result of bad economic policies. Whatever the reason, it is certain that the ongoing crisis has made many people in Sri Lanka poor. The rich are getting richer, while the poor are getting Poorer.
    <h2><b>What is the solution?</b></h2>
    The government of Sri Lanka has implemented a range of policies to tackle the economic crisis. These include, amongst others:

      <li style=”font-weight: 400;” aria-level=”1″>Introducing a new Rs. 10,000 cashback offer for individuals, through which the bearer can get up to Rs. 5,000 back if they purchase certain products (applied until further notice, available at ATMs only).
      <li style=”font-weight: 400;” aria-level=”1″>Allowing individuals to register as micro-businesses, with a limit on the number of employees and investment size. These policies are designed to boost the national economy by giving more opportunities to people to start and/or expand their businesses.
      <li style=”font-weight: 400;” aria-level=”1″>Allowing workers to claim a cheque for two weeks’ wages as an incentive to return to work.
      <li style=”font-weight: 400;” aria-level=”1″>Raising the threshold for the personal income tax, which is now set at Rs. 1 million Sri Lankan rupees (approx. US$11,000), up from Rs. 75,000 Sri Lankan rupees (approx. US$1,000).
      <li style=”font-weight: 400;” aria-level=”1″>Imposing a special additional income tax of 10% on high net-worth individuals and people with annual income above Rs. 1 million Sri Lankan rupees.

    <h2><b>What happened with Sri Lanka’s foreign debt?</b></h2>
    Sri Lanka recently announced that it has successfully concluded the restructuring of its $18 billion foreign debt. The country’s Finance Minister, Ravi Karunanayake, explained that the successful completion of the restructuring process is a major step towards returning the country to economic stability. However, some analysts believe that the crisis is only postponed and that Sri Lanka is still facing a long and difficult road ahead.


    Sri Lanka’s foreign debt grew out of control after the previous government imposed several policies that were designed to raise money but led to high and unpredictable budget gaps. The country ended up borrowing heavily from international financial institutions, including the International Monetary Fund (IMF). The government of Sri Lanka agreed to reduce the national debt and restructure its loans with the help of the IMF. As a result, the country had to agree to impose strict control on its budget and balance the books.

    The government then started talks with its main lenders – the IMF, the World Bank, and the European Bank for Reconstruction and Development (EBRD). These discussions led to the recent announcement that the government has successfully concluded the restructuring of its foreign debt.

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