Why Sri Lanka Went Bankrupt and How It Recovered

Declaration of Banruptcy by Sri Lanka in 2022 was not a sudden event but was a result of economic crisis built up over many years. The government spent more money than it collected and borrowed heavily. At the same time, the country earned too little foreign currency to pay for its imports and foreign debts.

The main cause of the crisis was corruption and over-spending by the government on it’s overhead luxuries. The crisis became much worse after the 2019 Easter attacks, which badly affected tourism. Then COVID-19 almost stopped tourism, one of Sri Lanka’s main sources of foreign currency.

By 2022, the country had run dangerously low on foreign currency and could no longer pay some of its foreign debts. The Sri Lankan Rupee plumetted from from LKR 200 per USD to LKR 369 per USD in Sep 2022. today the LKR has recovered to

The result was a severe shortage of fuel, food, medicine and electricity. Inflation soared and public anger forced President Gotabaya Rajapaksa to leave office.Rs 369

Sri Lanka then sought help from the IMF and other international lenders. It also reached agreements with creditors to restructure its huge debt. The government was forced to reduce it’s overhead spendings, raised prices of electricity and other services. These measures were painful for ordinary people, but they helped restore government finances.

Tourism gradually recovered, exports improved and foreign-currency reserves began to rise. Inflation also fell sharply.

Sri Lanka has not simply erased its debts or become rich again. Recovery is still continuing. But the country moved from a severe economic collapse toward greater stability. .. CN report, 10 Sep 2026