The Sri Lankan economy: Hope, despair and prospects

Abstract

This paper provides an interpretative survey of economic policy and performance of the Sri Lankan economy during the post-independence era with a focus on the sources of the country's vulnerability to the unprecedented economic crisis in the wake of the Covid-19 pandemic and prospects beyond the crisis. The analysis infers that, contrary to the popular perception that the crisis was caused by the COVID pandemic, the crisis is the culmination of debt distress that has been building for over two decades aggravated by more recent policy blunders. Recovery from the crisis and placing the economy on a self-sustained growth path requires combining the standard IMF approach to macroeconomic stabilisation with coherent structural adjustment reforms to redress the long-standing anti-tradable bias in the incentive structure that was the root cause of the vulnerability to the crisis.

Key words: Sri Lanka, IMF, sovereign debt crisis, dependent economy model, debt restructuring Show more