Sri Lanka’s path to default stemmed from a combination of overborrowing and under-taxing. Tourism, already suffering after hundreds were killed in a series of bomb explosions in April 2019, collapsed with the onset of the pandemic. Remittance inflows also suffered.
As foreign exchange reserves started declining rapidly, the government banned chemical fertilizer imports ostensibly to encourage organic farming. Agricultural output subsequently collapsed, making the country dependent on imports it cannot afford. Russia’s invasion of Ukraine – which hiked fuel and food prices – was the final straw for Sri Lanka.
What is less clear-cut is what happens next. Few countries have defaulted in recent years. Lebanon – the most likely template – offers a stark warning. Like Lebanon, Sri Lanka has a history of division: Tamils vs Sinhalese, and more recently Buddhists vs Muslims. Will these divisions be intensified, or does the crisis offer an opportunity for Sri Lankans to come together, as has been seen in recent protests?
Having defaulted on its external debts, Sri Lanka faces simultaneous economic and political crises amid widespread shortages of food, fuel and medicine. The webinar brings a group of experts to share their observations, insights and analysis of what the future holds for Sri Lanka, and to assess the regional and global reaction to events in the country. What can, and what could, the West, along with regional powers – notably India and China – do to support Sri Lanka?
The webinar will be open to the public and recorded for publication on the Chatham House website at a later stage.
