How Sri Lanka's economy tanked: A simple explainer
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Worst economic crisis
Sri Lanka is suffering its worst economic crisis since its independence from Britain in 1948. Here, AFP reviews the origins of the snowballing economic calamity
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White elephants
Sri Lanka has spent big on questionable infrastructure projects backed by Chinese loans that added to its already unsustainable debt. The projects were pushed by the Rajapaksa family, who have dominated Sri Lanka's politics for much of the past two decades.
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Unsustainable tax cuts
When Mahinda Rajapaksa returned to power in 2019, he unveiled the biggest tax cuts in Sri Lanka's history. This further worsened chronic budget deficits. Ratings agencies soon downgraded the country out of concern that the public debt was spiraling out of control. And it became harder for the government to secure new loans.
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Pandemic lockdown
A few months after the tax cuts, lockdowns due to Covid happened. International tourist arrivals dropped to zero. Remittances from Sri Lankans working abroad dried up. The administration then started using its foreign exchange reserves to make loan repayments.
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Fertiliser ban
With foreign reserves dwindling fast, authorities banned several imports in 2021, including fertiliser and agricultural chemicals. About a third of the country's agricultural fields were left fallow by farmers. It hit the production of tea, a vital export earner.
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Shortage of food and fuel
When reserves had shrunk by late 2021, traders began struggling to source foreign currency to buy imported goods. Rice, lentils, sugar and milk powder began disappearing from shelves, forcing supermarkets to ration them. Then gas stations started running out of petrol and kerosene.
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Debt and default
In April, Sri Lanka announced it would default on its $51 billion foreign debt to save money for essential imports. The move failed to shore up Sri Lanka's deteriorating finances. The country is now in negotiations for an International Monetary Fund bailout.