Issue Brief on “Sri Lanka’s Economic Crisis and its Impact on India”

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Sri Lanka is facing the worst economic crisis since its inception in 1948.  Months of political and economic turmoil in the country culminated in protestors gathering at the Presidential residence in the second week of July.[1] Consequently, President Gotabaya Rajapaksa fled the country to the Maldives and later resigned. [2] Currently, Mr. Ranil Wickremesinghe is heading the country, who is still struggling to gain popularity among the masses. [3]

Experts say that this crisis has been in the making for years. From the 1970s to the mid-2000s, Sri Lanka had multilateral loans at low-interest rates.[4] In the mid-2000s, the country turned towards foreign lenders.[5] In 2007, Sri Lanka issued its first international bond,[6] a specific debt instrument issued by the government to raise money for financing government programs, or to pay down old debts etc. However, unfortunately, the money was mostly used for political gains like Colombo Lotus Tower,[7] a massive scandal replete with corruption allegations.[8] The economy has been on a free fall ever since then and a plethora of reasons have contributed to it.

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