Sri Lanka Crisis: How Country’s Balance Of Payments Problem Played A Major Role In Toppling Its Economy

Sri Lanka has been in the news such a lot lately that its current woes are the things of popular knowledge. Everyone can see the intense deprivation caused to its people thanks to the absence of their staple food at an inexpensive price within the market and therefore the shortage of petrol at the pump.

Those with even a modicum of data on economics can trace it back to the dwindling interchange reserves which are needed not only to import food but also to service external debt.

The Sri Lankan economy has been facing a crisis due to a heavy Balance of Payments (BoP) problem.

Its exchange reserves are depleting rapidly and it’s becoming increasingly difficult for the country to import essential consumer goods.

The current Sri Lankan financial condition is the product of the historical imbalances within the economic structure, the International fund (IMF)’s loan-related conditionalities and also the misguided policies of authoritarian rulers.

But Sri Lanka’s interchange crisis is barely the symptom of a bigger malaise which has to be understood. Thus, there’s a necessity for ambitious fiscal consolidation supported by high-quality revenue measures, raising revenue enhancement and VAT rates and minimizing exemptions, complemented with revenue administration reform.

Overall, the state requires immediate economic reforms to own stable economic health within the long term.