Sri Lanka's Debt Crisis

Introduction

In 2022, Sri Lanka faced its worst economic crisis since independence. The country ran out of foreign currency, defaulted on its debt, and experienced severe shortages of fuel, food, and medicine. Protests eventually forced the president to resign.

What Went Wrong

Sri Lanka had borrowed heavily from international lenders to fund infrastructure projects. Tax cuts in 2019 reduced government revenue. Then the pandemic devastated tourism, a key source of foreign currency. A sudden ban on chemical fertilizers also hurt crop production, including the important tea industry.

The Crisis Hits

By 2022, Sri Lanka could not afford imports. People waited in lines for hours to buy fuel, and electricity was cut for long periods. Inflation soared above 60%. In May 2022, the country defaulted on its foreign debt for the first time in its history.

The Recovery

Sri Lanka received a bailout from the International Monetary Fund in 2023 and began restructuring its debts. The government raised taxes and cut spending. Inflation has fallen, tourism has returned, and the economy has started growing again, though many families still struggle.

Conclusion

Sri Lanka's crisis shows how quickly debt problems can spiral. Its recovery is a reminder that tough reforms can help countries get back on their feet!