Sri Lanka has been facing a severe economic crisis for several years. The country defaulted on its debt obligations in 2022, which led to food, electricity, and fuel shortages. The government’s borrowing spree to fund public services coincided with a series of natural and man-made catastrophes, including heavy monsoons, a government ban on chemical fertilizers that decimated farmers’ harvests, and the Covid-19 pandemic. In 2018, the President’s dismissal of the Prime Minister sparked a constitutional crisis. The following year, hundreds of people at churches and luxury hotels were killed in the 2019 Easter bombings. Sri Lanka’s foreign currency shortage has left it struggling to import essential goods, even as the coronavirus pandemic has cut off vital tourism revenue1.
In 2023, Sri Lanka reached an agreement with the Exim Bank of China on key terms and principles for restructuring its debt, a key step toward unlocking a second installment of a $2.9 billion package from International Monetary Fund aimed at rescuing the island nation from a dire economic crisis2.
The crisis has led to crippling inflation, sending the cost of basic goods skyrocketing. The worst economic downturn since the South Asian country gained independence in 1948 has thrown the government into disorder1.
Sri Lanka is an island nation of 22 million people facing an economic and political crisis. Protesters have taken to the streets in defiance of curfews, and government ministers have stepped down en masse1.
In conclusion, Sri Lanka’s economic crisis is multi-faceted and complex. It is hoped that the agreement with China’s Exim Bank will help restructure its debt and provide some relief to its citizens.