Takshashila Case Study - Sri Lanka’s Economic Crisis

Executive Summary

The Sri Lankan economic crisis, which began in 2019, worsened in 2022 culminating in protestors storming the presidential palace in Colombo. The agitation of the people stems from acute shortages of food, fuel and other essential items, galloping inflation, long power cuts, and a collapsing economy with no avenues for employability.

This case study examines the crisis by looking at the fundamental causes that date as far back as Sri Lanka’s independence– the lack of industrialisation, the economic price of the prolonged civil war, and the majoritarian leanings of policy. Terror attacks and the pandemic only exacerbated the crisis. globally, travel bans were introduced, and Sri Lanka’s tourism sector suffered a huge setback.

More importantly, Sri Lanka’s debt portfolio has undergone a substantial change with the tipping of balance towards costly external debt. This crisis carries important lessons for developing economies – diversification of debt, industrialising the economy, avoiding populist tax cuts that hurt the government’s balance sheets, and cutting unnecessary public expenditure.

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