What Is The Cause of Sri Lanka’s Worst Economic Crisis Since 1948?


When you hear the word Sri Lanka, you get a visual of beautiful beaches, cricket, and a small nation with happy and hard-working people in your mind. No one expected that in the 21st century, where we celebrate globalization, a country could go through such a bad economic situation and things could reach such a level that it couldn’t even feed its people. Sri Lanka is a classic example of how a bad government and bad decisions can bring a nation to its knees. Before going through the reasons for its sudden collapse, I would like to give a picture of what the island nation is going through.

What News Do We Have Regarding The Sri Lanka Crisis?

In this small island nation, the country does not have the funds to import petroleum and diesel. The power generation units are struggling to meet the requirements of the people, and power cuts of 12 to 18 hours have become a norm. Moreover, the country is not able to import grain and rice to feed its people either. The situation regarding medical supplies is not any better. The condition of the overall economy is not looking bright, and people have no option but to come onto the streets and demand answers from the government. The nation is not able to feed its people and provide them with the necessities.

The news of the protest is coming from all parts of Sri Lanka. Although the current president, Gotabaya Rajapaksa, is still in the seat, many of his cabinet members have resigned from their posts due to pressure.

Reasons For The Collapse Of Sri Lanka’s Economy:

Several factors have contributed to the economic collapse of Srilanka. The island nation has a population of 2.2 billion and has always relied on tourism itself. However, with the advent of COVID-19, the tourism sector has gone downhill and the economy has suffered. However, the experts say that many other factors have contributed to the downfall as well. The public and experts have a common opinion that the current Sri Lankan government is the main reason behind this downfall.

There has been no profound transformation or upgrade to Sri Lanka’s domestic economy since the end of the civil war. After the end of the civil war, the country tried to develop its infrastructure and improve the business environment to promote both social and economic development. This did work for 2 to 3 years, as the country achieved GDP growth of close to 9% till 2012. However, by 2019, GDP growth reached a low level of 2.3 percent, a 7 percent decrease from 2013.

Moreover, Sri Lanka’s government failed to leverage the opportunity to restructure its economy and introduce long-term reforms. Construction and domestic retail drove the growth. But neither of these can be traded on the global market. In terms of exports, Sri Lanka is primarily dependent on textiles and agricultural products such as tea and rubber, which remain the country’s major foreign exchange earners. However, they do not make the economy fly. Furthermore, since most of the necessities as well as the means of production rely on imports, the overall economy is unable to sustain itself.

Allegations On The Current Srilankan Government :


Throughout the last few years, Sri Lanka has relied on foreign funding to finance public services. However, the mismanagement of the economy started taking a toll on the country’s foreign reserves and with each passing year, the deficit in the annual budget started becoming wider. With the deficit-increasing with each passing year, the world’s credit rating agencies started devaluing the country’s currency. Because of this, it became increasingly difficult for Srilanka to raise more loans. Confronting the tough condition, the current president Gotabaya Rajapaksa started decreasing the taxes in 2018 to stimulate the economy but it did the opposite. Moreover, the breakout of the Covid-19 did not help the economy of Srilanka either.

Another move that compounded the problem was the government’s ban on chemical fertilizers that affected farmers’ harvests. Srilankan government had to take this ban back but the effects had already made a severe impact on the economy. Sri Lanka’s government had to dip into foreign exchange reserves to pay off its current loans. It shrank its reserves from $6.9 billion in 2018 to $2.2 billion this year. This affected imports of fuel and other essentials, which caused prices to soar.

The series of making bad decisions did not end here as in March this year the Srilankan Government floated the Sri Lankan rupee. It meant that the price determination of the Srilankan Rupee started depending on foreign exchange markets’ demand and supply. Experts say that in a bid to qualify for a loan from the International Monetary Fund (IMF) and boost remittances, the Srilanka government made this move. However, the rupee’s nose-diving against the US dollar made matters worse for ordinary Sri Lankans.

The public has been making allegations of corruption as well on the current government. They are particularly critical of how the president gave the place to his relatives in the cabinet and run the country like a private business. Moreover, it is evident that the current government didn’t heed the early warning and kept on making mistakes after mistakes.

Who is Helping Sri Lanka:

flag-india-sri-lankaIn terms of helping Sri Lanka in its crisis, India is playing a leading role. To aid Sri Lanka’s economy, India has provided $1 billion in credit. This credit will help Srilanka to keep its food prices and fuel costs under check. India has helped the Island nation with 247000 tonnes of fuels as well. In addition to this. Moreover, India is exporting medicine, medical equipment, and food items to help Srilanka to come out of its dismal situation. The total credit approved to Sri Lanka by India is $1 billion for imports of food, medicine, and essentials, and $500 million for petroleum products. Srilanka is still in deep water and the credit line will only help Srilanka until the end of April. However, India keeping a close eye on the proceedings and the representative of the country is in constant touch with Indian counterparts, India may extend the credit line to Srilanka in the future.


The collapse of the Srilankan economy and the Srilanka crisis is a reminder to all countries that they cannot afford to remain relaxed and take things for granted even in this globalized world. Moreover, if the government is not competent then it doesn’t take much time for circumstances to turn worse. We hope, Srilanka comes out of these quickly and returns to the path of prosperity.

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  • Vikas Luthra is a professional content writer. He enjoys writing about technology, travel, and current affairs. Passionate about writing, he also enjoys writing short poems.

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