The Failing Economy of Sri Lanka

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Sri Lanka has historically been one of the lower-middle-income countries in the world, and the standard of living has steadily dropped in recent years.

The Sri Lankan economy relies heavily on exports, particularly apparel exports, to fuel the nation’s economic activity. Over the past few years, the global environment has changed, and many of Sri Lanka’s trading partners have reduced their imports, leading to a huge downturn in demand for Sri Lankan exports.

Unemployment and underemployment rates remain stubbornly high, reaching a peak of 8.5% in 2019, and inflation has been on the rise since the beginning of 2019. This, combined with rapid devaluation of the Sri Lankan currency, has resulted in a dramatic drop in households’ purchasing power.

The country has also been hampered by the high cost of borrowing and poor access to credit for businesses and households alike, making it difficult for people to invest and expand businesses.

Sri Lanka is further hampered by an inefficient bureaucracy and government corruption, which has resulted in a cumbersome and expensive process of doing business.

The Central Bank of Sri Lanka has also taken a cautious approach to monetary policy, resulting in slow economic growth.

The country is also facing a debt crisis, with the national public debt reaching nearly 90% of gross domestic product (GDP) in 2020. This puts a severe strain on the economy, as the country is unable to invest in education, healthcare, and other public services.

The only way for Sri Lanka to regain its economic vitality is to enact reforms that reduce corruption and incentivise private investment. The government must also create an enabling environment that encourages businesses to take risks, innovate and invest in promoting the country’s economic prospects.

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