Sri Lanka: After the storm, a promising economic recovery

An island nation in the Indian Ocean, since 2019, Sri Lanka has been experiencing the most severe economic crisis in its post-independence history. The country was for a long time held up as an example of success in South Asia, but has suffered from a succession of shocks, coupled with a chaotic management of the economy by the ruling Rajapaksa clan, which has undermined the fundamentals of its development model. In the spring of 2022, and for the first time in its history, it ended up announcing that it was defaulting on its external public debt.
There has recently been a promising upturn in economic activity: inflation is under control, the rupee has appreciated, foreign exchange reserves are slowly being rebuilt, and economic growth reached 5.0% in 2024, well above expectations. This upturn is partly due to the implementation of a series of ambitious
measures, in the context of the IMF program (signed in March 2023). At the same time, discussions have been initiated with the country’s main creditors with a view to restructuring the public debt, and there has been solid progress in recent months. However, the crisis has left serious social consequences, and the country is not expected to recover its pre-crisis level of GDP per capita before 2028, raising fears of a “lost decade”.