Source: The post Sri Lanka’s recovery and ongoing economic challenges has been created, based on the article “Navigating growth challenges in Sri Lanka” published in “The Hindu” on 28th January 2025
UPSC Syllabus Topic: GS Paper2- International Relations-Effect of policies and politics of developed and developing countries on India’s interests
Context: The article discusses Sri Lanka’s economic recovery after its worst crisis, supported by IMF aid, Indian assistance, and tourism growth. It highlights challenges like brain drain, inexperienced Parliament, fiscal instability, and geopolitical tensions while urging bold policies for sustainable growth.
For detailed information on Sri Lanka’s efforts to improve its economy read this article here
What is the current economic situation in Sri Lanka?
- Sri Lanka’s economy is stabilizing after its worst economic crisis in 2022-23. It defaulted on external debt in April 2022.
- Prudent policies by the Central Bank, a $3 billion IMF program, and $4 billion in Indian aid helped stabilize the economy.
- Debt restructuring worth $17.5 billion with private bondholders and China provided relief.
- Tourism is recovering, with over 2 million visitors in 2024, boosting foreign exchange reserves.
What challenges does Sri Lanka face internally?
- Brain Drain: Over 300,000 skilled professionals left Sri Lanka in 2024, creating a talent gap in sectors like IT, banking, and healthcare. This affects business growth and governance.
- Inexperienced Parliament: Out of 225 MPs, 150 are first-time representatives from the NPP, raising concerns about legislative and policymaking capacity.
- Tourism Imbalance: Despite a 38% rise in tourists (2 million in 2024), benefits remain concentrated in Colombo. Regions like the north and east need promotion.
- Fiscal Strain: Loss-making SOEs, like SriLankan Airlines and Ceylon Petroleum Corporation, drain public funds. Effective restructuring is required.
What are the external factors affecting Sri Lanka?
- Geopolitical Challenges:
- Geopolitical Tensions: The re-election of President Donald Trump in the U.S. impacts regional dynamics, with Sri Lanka needing to navigate its strategic relationships carefully.
- India is crucial to Sri Lanka’s economic growth, but relations must balance economic ties with security concerns.
- President Dissanayake has promised non-interference in India’s concerns, such as halting visits from Chinese spy ships.
- Debt Repayments:
- Debt repayment risks will rise by mid-2027.
- Sri Lanka must rely on trade-led growth and partnerships with the IMF, World Bank, and India to avoid another crisis.
What steps can the government take?
The government should focus on:
- Improving public sector services.
- Promoting sustainable tourism.
- Rationalizing spending and restructuring SOEs.
- Strengthening ties with India through energy projects, digital identity systems, and trade agreements.
- Presenting a bold and practical National Budget in February 2025 to address these issues effectively.
Question for practice:
Discuss the internal and external challenges Sri Lanka faces in its economic recovery and the steps the government can take to address them.
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