Causes of the Financial Meltdown in 2022
Sri Lanka faced a severe budget and trade deficit, exacerbated by poor fiscal management.
President Gotabaya Rajapaksa implemented significant tax cuts and abruptly banned chemical fertilizers, worsening agricultural output.
The government defaulted on foreign loans in April 2022 due to dwindling reserves and rising debt obligations.
The resulting shortages of fuel, food, and medicine led to widespread protests, ultimately forcing Rajapaksa to resign.
International Monetary Fund (IMF) Package
In March 2023, Sri Lanka secured a $3 billion Extended Fund Facility (EFF) to stabilize the economy and restructure debt.
The package includes restoring taxes, increasing the Value Added Tax (VAT), and market-pricing fuel and energy.
The IMF emphasized the need for comprehensive anti-corruption reforms as part of the recovery plan.
Impact of Austerity Measures on Ordinary People
Austerity measures have led to significant hikes in utility bills, making essential services unaffordable for many.
Many families have been disconnected from electricity due to inability to pay bills, affecting daily life.
The population faces high food prices and inflation, with essentials costing three to four times more than before 2022.
Many households are in debt, with poverty rates and food insecurity increasing significantly.
Extent of Economic Recovery
The economy shows signs of recovery with state revenue increasing and inflation dropping from 70% to around 5.9%.
Economic growth is expected to be around 2-3% in 2024 after a severe contraction in previous years.
The tourism sector is rebounding, with visitor numbers and revenue significantly increasing.
Despite positive indicators, many citizens continue to struggle with high living costs, job losses, and reduced incomes, revealing a disparity in recovery experiences.
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