Case study

on sri lanka
economic crisis
Govt policy

•Sri lanka has a budget and trade deficit

•Instead of reducing the debt it

expanded its debt

•Today debt to gdp ration 111%

 Rajapaksa dynasty

•Gotabaya Rajapaksa the former

president and head of the family

•Made the following promises during his

election campaign-

•Deep tax cuts

•This was one more disaster as the

country didn’t had any other source of
revenue.

•There were 9 members of rajapaksa

family In union cabinet
Tax cuts
followed
•Sri lanka’s forex was falling

•It was downgraded to near default

levels

•The result of this foreign

investment plunged and sri lankan
goods couldn’t access foreign
markets
 The biggest blunder of all
• Sri lanka banned all import of chemical fertilizer to stop forex reserves from falling

• Outcomes due to ban of fertilizers

• Rice output fell by 50%

• Forced to import rice and futher falling forex reserves

• Ban of luxury goods

Covid-19
impacts
• Tourism accounts for 13% of sri lankan
gdp .
• Due to covid they lost around $ 7.5
billion of tourist revenue
• The easter bombings also reduce
tourist inflow
• `lankans living abroad stop sending
money and tax revenue fell
• Agricultural output reduced which
accounted 8% of gdp
Money
problem
• During covid no agency was
lending money
• so Sri lanka borrowed from its
neighbours-

• Bangladesh $200 million

• India $500 million for oil

• They also devalued sri lankan

currency for an imf loan
The effect of devaluing
•The purchasing power of
people and govt reduced

•The currency lost 32% of its

value

•Inflation is on all time high of

30%

•It doesn’t have money for basic

necessities
The hometown of
Rajapaksa

•They took billions of debt for this mega project

•India refused to give debt and said this project
will fail
•Instead they took debt from china
•This 2 projects cause sri lanka billion in losses