Analyzing the Root Causes of Sri Lanka's Economic Crisis: A Multi-faceted Examination

Abstract

The Sri Lankan economic crisis of recent years has drawn significant attention from scholars, institutions, and policymakers alike, prompting an in-depth analysis of its root causes and implications. This paper employs a comprehensive approach to dissect the crisis, drawing from a myriad of sources, including academic works, governmental reports, and the insights of renowned experts in the field.

The analysis categorizes the findings into eight key dimensions that structure the understanding of the crisis. These dimensions encompass policy initiatives, debt composition, political factors, foreign exchange challenges, resistance to IMF assistance, monetary policies, crisis management, and governance-related issues, including corruption and human rights concerns.

The paper underscores the critical lessons for the global economy that emerge from Sri Lanka's experience. It highlights the significance of maintaining robust central bank reserves as a buffer against tightening global financial conditions. The crisis also raises concerns of a broader emerging market debt crisis, with a substantial proportion of emerging economies at risk of debt distress. Additionally, the paper examines the complexities of sovereign debt restructuring when a major creditor like China is involved, demonstrating the intricate negotiation dynamics in such scenarios.

The analysis serves as a valuable resource for policymakers, economists, and scholars seeking to better understand the intricacies of economic crises in emerging markets and the lessons that can be drawn from Sri Lanka's experience.

Keywords: Corruption, Crisis, Debt stress, foreign reserves, Policy issues, Sri Lanka

JEL Classification: D01, F45, F59, G10, G28, G38