The economic crisis that has long been building in Sri Lanka erupted into civil unrest and national emergency during late March and early April. Imported food and fuel is becoming scarce, the government is under fire, and the finance ministry has stopped making payments on its international sovereign bonds and must go to the IMF to seek a restructuring. A new central bank governor, called back from retirement, has a lot of work to do to get things back on track.
At the heart of the problem is an unsustainable level of public debt, which has been rising steadily for 10 years and today stands at about 120% of GDP. While this has happened, the government of president Gotabaya Rajapaksa has also cut taxes, reducing government revenue and affecting fiscal policy, all of which was meant to protect Sri Lanka through Covid, but has led to extreme budget deficits and inflation.
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