S. Abeyratne

Abstract

This paper is aimed at an investigation into the sources of current economic crisis in Sri Lanka and to outline a policy approach to the way forward. The crisis has built up slowly from the country’s anti-export bias growing over the past 20 years. Its last episode ended with the collapse was triggered by a series of external shocks and domestic policy issues during 2020-2021. Sri Lanka presents a classic example of a “twin-deficit” economy with growing policy bias against exports along with an unsustainable economic growth from the debt-financed non-tradable sector. In the absence of a sustainable growth momentum from the tradable sector, there was growing foreign exchange imbalances even though foreign exchange was needed for financing the country’s growing imports and maturing foreign debt. The paper concludes that Sri Lanka has a policy need not only to recover from the crisis but also to ensure an export-led progressive growth path beyond the crisis.

Keywords: Economic crisis, Foreign exchange crisis, Debt crisis, Sri Lanka