Economics and Development: Sri Lanka and the Global Economy
Economics and Development tests both theory and Sri Lanka's own record: the 2022 crisis, the recovery programme, and the structural questions of an open, import-dependent economy.
Structural facts
Services contribute the largest share of GDP, industry comes next, and agriculture is small in output but large in employment. Exports are concentrated in apparel, tea, rubber and coconut, while foreign exchange depends heavily on remittances and tourism alongside exports. That combination makes the current account and the exchange rate sensitive to external shocks.
The 2022 crisis and after
Reserves fell, external payments were suspended in April 2022, inflation peaked near 70 per cent and output contracted sharply. The IMF Extended Fund Facility of about USD 3 billion over 48 months was approved in March 2023, tied to revenue measures, cost-reflective utility pricing, state enterprise reform and a debt sustainability path. Debt treatment ran on three tracks: domestic debt optimisation, the Official Creditor Committee co-chaired by India, France and Japan, and commercial bondholders, while the Central Bank moved towards a single policy rate.
Concepts to hold
Primary balance (revenue minus expenditure excluding interest), fiscal versus current account deficit, nominal versus real values, Dutch disease, the middle-income trap, and debt stock versus debt service.
Worked example
Revenue is 12 per cent of GDP, total expenditure 22 per cent, and interest payments 7 per cent. The overall deficit is 10 per cent of GDP; the primary deficit is 10 minus 7, that is 3 per cent. A programme target of a primary surplus of 1 per cent therefore requires a swing of 4 percentage points, achieved through revenue or non-interest spending, not through interest relief alone.
Traps
Using nominal growth to claim real improvement; quoting reserves without saying gross or net; confusing the fiscal deficit with the trade deficit; repeating crisis figures long after revision.