Contents

- What is Economic Crisis ?

- Types of Economic Crisis?
- How the Economic Crisis Began
- Reasons of Economic Crisis in Sri Lanka
- How Economic Crisis affected Sri Lanka
- Declining Foreign Reserves
- Measure that can be taken to control crisis
- Recovery of the Sri Lanka Economy
- Summary/Conclusion
 What is Economic Crisis ?
Types of Economic Crisis?

The economic crisis represents a situation in which the economy of a

country passes through a sudden decrease of its force, decrease usually
brought about by a financial crisis. The economic crisis may have the shape
of a stagflation, of a recession or of an economic depression.

There are 3 types of financial crisis

- Banking Crisis
- Speculative Crisis
- International Crisis
How The Economic Crisis Began
Gotabaya Rajapaksa Regime Change – 2019
Inheritance of Depleted Economy
Terrorist attacks and political crises
Already miserable situation worsen further by COVID
Climbing Imports bills and impeded imports
Fuel and Power Shortage
 Reasons of Economic Crisis in Sri Lanka
• Sri Lanka has faced several factors that could contribute to an economic crisis.
One significant challenge is the high government debt, which raises concerns
about debt sustainability and the ability to finance budget deficits. Additionally,
the country has experienced persistent balance of payment issues, with imports
consistently exceeding exports, leading to pressure on foreign exchange reserves
and potential difficulties in meeting external payment obligations. Political
instability and uncertainty have also posed challenges, as they can undermine
investor confidence, deter domestic and foreign investments, and hinder the
implementation of effective economic policies. These factors, coupled with
natural disasters, high inflation, corruption, and governance issues, have the
potential to disrupt economic stability and contribute to an economic crisis in Sri
Lanka.
Important Factors Affecting Economic Crisis In Sri Lanka
1.Political Instability: Political instability or uncertainty can create an unfavorable environment
for economic growth. Frequent changes in government, policy inconsistency, and political
unrest can discourage both domestic and foreign investments, hamper economic reforms, and
hinder long-term economic development.
2.Balance of Payments Issues: Persistent trade deficits and an imbalance between exports and
imports can put pressure on foreign exchange reserves and lead to a crisis. If a country relies
heavily on imports without a corresponding increase in exports, it becomes vulnerable to
external shocks and risks being unable to meet its international payment obligations.
3.Fiscal Mismanagement: Poor fiscal management, including high government spending,
inefficient tax collection, and unsustainable budget deficits, can lead to an economic crisis. It
puts strain on public finances, increases public debt, and limits the government's ability to
invest in crucial sectors and provide essential services.
4. Natural Disasters: Sri Lanka is prone to natural disasters such as floods, droughts, and
cyclones. These events can cause significant damage to infrastructure, disrupt agricultural
production, and negatively impact the economy. The costs of recovery and reconstruction can
strain public finances and impede economic growth of Sri Lanka
How Economic Crisis affected Sri Lanka
Declining Foreign Reserves

• Since the beginning of 2020 Sri Lanka’s demand for foreign currency
has increased while its ability to earn foreign currency – through
exports, loans and other capital inflows – has declined.
• This is reflected in the steady decline in official foreign reserves held
by the Central Bank of Sri Lanka, falling from about US$8 billion to
less than $U2 billion. The Sri Lankan currency is “closed”, meaning it
isn’t traded outside the country, so foreign exchange transactions have
to go through the central bank.
Why Sri Lanka foreign reserves depleted?

The immediate cause of the crisis is straightforward: Sri Lanka ran out of
foreign reserves, the currencies its government and citizens need to pay for
imports. How it got into this situation requires more explanation. It's a
story of fiscal imprudence, unsustainable exchange rate policy and chronic
mismanagement
Measure that can be taken to control Economic crisis
1.Fiscal Policy Reforms: The government can implement fiscal policy
reforms to manage its spending and revenue generation. This may
involve reducing unnecessary expenditures, increasing tax collection
efficiency, and addressing issues related to corruption and
mismanagement.
2.Monetary Policy : The central bank can adopt appropriate monetary
policies to stabilize the economy. This may include adjusting interest
rates, managing inflation, and regulating the money supply to control
liquidity in the market.
Recovery of the Sri Lanka Economy
• Infrastructure Development: Investing in infrastructure projects can
stimulate economic growth and create employment opportunities. Sri
Lanka can focus on developing transportation networks, energy
facilities, telecommunications systems, and other critical infrastructure
to attract investment and improve productivity.

• Improving governance and accountability mechanisms, such as

strengthening anticorruption legislation, building strong institutions,
and increasing transparency, will also be essential to address Sri
Lanka's economic vulnerability.
Some Graphs to Understand the Theory
easily
 Summary
Here we attempted to explain the basis of Financial
Crisis , Types of Financial Crisis and some examples of

Sri Lanka
Financial Crisis.

But as per our Topic “Financial Crisis in Sri Lanka” we

mainly focused on the Reasons of Financial Crisis in Sri
Lanka and Discussed the topic briefly

Later on we discussed the Measures that has been taken

by the Government and the Recovery of the Sri Lankan
Economy through images and Some Graphs

So From this presentation we can say that Sri Lanka too

has got affected from Crisis. As a conclusion, We can’t
completely avoid the Financial Crisis , but through the
continuous implementation of appropriate policies we
can avoid the adverse impacts.