In 2022, Sri Lanka experienced a cascading series of crises — economic collapse, sovereign debt default, and unprecedented political upheaval — culminating in the resignation of President Gotabaya Rajapaksa. Now, in early 2023, the island nation stands at a crossroads. This article examines the drivers of Sri Lanka’s crisis, assesses the current state of recovery efforts, and explores the long-term implications for economic governance, democratic institutions, and international cooperation.
I. Introduction
Sri Lanka’s economic and political meltdown in 2022 marked the most profound national crisis since its civil war ended in 2009. The events were not spontaneous, but the result of compounding structural weaknesses, policy missteps, and global shocks. By February 2023, the country is showing signs of institutional stabilization, yet recovery remains fragile.
II. Anatomy of the Collapse
A. Economic Mismanagement and Debt Dependency
Sri Lanka’s path to default was driven by unsustainable foreign borrowing, particularly for infrastructure projects with limited returns. The nation's external debt reached $51 billion by early 2022, with servicing obligations outpacing foreign reserves. Tax cuts in 2019 further eroded state revenue, and an ill-timed shift to organic agriculture in 2021 disrupted food production, deepening inflation and supply insecurity.
B. Global and Domestic Shocks
The COVID-19 pandemic crippled tourism — a cornerstone of Sri Lanka’s economy — and remittances declined sharply. The war in Ukraine exacerbated global fuel and food price volatility, further straining Sri Lanka’s import-dependent economy. Inflation peaked at nearly 70%, with food inflation surpassing 90% by mid-2022.
III. Political Consequences and Civic Uprising
The economic collapse catalyzed the Aragalaya (The Struggle) movement, a non-partisan, youth-driven civic protest demanding accountability and systemic reform. By July 2022, mounting public pressure forced President Gotabaya Rajapaksa to flee and resign, ending the Rajapaksa family's long political dominance. Ranil Wickremesinghe, a veteran politician, was appointed president in a controversial parliamentary vote.
IV. Recovery and Reform in Early 2023
A. International Engagement
By January 2023, Sri Lanka was in advanced negotiations with the International Monetary Fund (IMF) for a $2.9 billion bailout package. Structural reforms — including tax restructuring, subsidy rationalization, and anti-corruption measures — are preconditions for IMF assistance.
B. Domestic Stabilization
While inflation has slowed marginally (now estimated around 54% in January), the cost of living remains prohibitive for much of the population. Poverty rates have more than doubled since 2021, and food insecurity persists in both urban and rural regions.
Public protests have decreased, but political skepticism remains high. While fuel and electricity availability have improved slightly, confidence in governance and institutions continues to erode.
V. Long-Term Implications
A. Debt and Development
Sri Lanka’s default has prompted a reevaluation of debt sustainability in Global South economies. It also highlights the risks of opaque bilateral loans, particularly those involving non-Paris Club creditors like China.
B. Democratic Resilience
The Aragalaya movement has reshaped civic discourse in Sri Lanka. It demonstrated the power of nonviolent protest and digital organizing in a post-conflict democracy. However, the current government’s repressive response to dissent — including arrests and surveillance — raises concerns about democratic backsliding.
C. Regional and Global Lessons
Sri Lanka’s crisis is a cautionary tale for other developing nations managing large debt portfolios and exposed to global supply chain shocks. It also underscores the need for debt transparency, diversified economies, and inclusive governance models.
VI. Conclusion
Sri Lanka’s future remains uncertain. While the island has taken early steps toward stabilization, 2023 will be a defining year. Rebuilding trust — in currency, institutions, and leadership — is essential for long-term resilience. The international community must balance urgency with equity, ensuring that the burden of reform does not fall disproportionately on the most vulnerable.
Sri Lanka is not merely a case study in collapse — it is a real-time laboratory of recovery, resistance, and reinvention.
References
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Central Bank of Sri Lanka Reports, 2022
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International Monetary Fund: Staff Reports on Sri Lanka, 2022–2023
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Human Rights Watch, “Crackdown on Protesters in Sri Lanka,” Nov. 2022
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Verité Research, “Sri Lanka's Economic Crisis: Political Roots and Global Ramifications,” Oct. 2022
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The World Bank, “Poverty and Equity Brief: Sri Lanka,” Jan. 2023
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