Podcast
Questions and Answers
What trend is observed in the fiscal balance from 1990 to 2021?
What trend is observed in the fiscal balance from 1990 to 2021?
In what year did the current account balance first reach a value below -10% of GDP?
In what year did the current account balance first reach a value below -10% of GDP?
Which year showed the most significant decline in current account balance compared to the previous year?
Which year showed the most significant decline in current account balance compared to the previous year?
What was the fiscal balance percentage in 2021 as indicated by the available data?
What was the fiscal balance percentage in 2021 as indicated by the available data?
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What pattern does the current account balance exhibit over the years according to the provided data?
What pattern does the current account balance exhibit over the years according to the provided data?
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What was one potential consequence of implementing short-term economic measures?
What was one potential consequence of implementing short-term economic measures?
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Why might price controls be considered a temporary solution?
Why might price controls be considered a temporary solution?
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What element of economic policy might the new prime minister need to address?
What element of economic policy might the new prime minister need to address?
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Which type of imports had a significant percentage compared to total merchandise imports in the data provided?
Which type of imports had a significant percentage compared to total merchandise imports in the data provided?
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What risk is associated with reductions in government spending?
What risk is associated with reductions in government spending?
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What economic aspect is crucial for the new leadership to tackle?
What economic aspect is crucial for the new leadership to tackle?
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What is a likely implication of the economic measures mentioned?
What is a likely implication of the economic measures mentioned?
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In what year did fuel imports appear to start showing a notable percentage increase?
In what year did fuel imports appear to start showing a notable percentage increase?
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What percentage of Sri Lanka's total debt was estimated to be Chinese loans?
What percentage of Sri Lanka's total debt was estimated to be Chinese loans?
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Which of the following projects was NOT mentioned as being financed by Chinese loans?
Which of the following projects was NOT mentioned as being financed by Chinese loans?
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What led to Sri Lanka's imminent default status by 2022?
What led to Sri Lanka's imminent default status by 2022?
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When did Sri Lanka begin its involvement with the global sovereign bond markets?
When did Sri Lanka begin its involvement with the global sovereign bond markets?
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Which action by the Sri Lankan government in 2019 negatively affected tax revenues?
Which action by the Sri Lankan government in 2019 negatively affected tax revenues?
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What was a consequence of the reduction in non-resident remittances for Sri Lanka?
What was a consequence of the reduction in non-resident remittances for Sri Lanka?
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Which organization was responsible for downgrading Sri Lankan bonds to junk status?
Which organization was responsible for downgrading Sri Lankan bonds to junk status?
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What significant action did Sri Lanka take regarding its government debt since April 2022?
What significant action did Sri Lanka take regarding its government debt since April 2022?
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What was the total amount of assets reported for Sri Lanka as of March 31, 2022?
What was the total amount of assets reported for Sri Lanka as of March 31, 2022?
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Which category had the highest liabilities in Sri Lanka's net international investment position?
Which category had the highest liabilities in Sri Lanka's net international investment position?
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What is the total amount of liabilities reported for Sri Lanka as of March 31, 2022?
What is the total amount of liabilities reported for Sri Lanka as of March 31, 2022?
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As of March 31, 2022, what is the net international investment position for Sri Lanka?
As of March 31, 2022, what is the net international investment position for Sri Lanka?
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What amount was reported for direct investments in Sri Lanka?
What amount was reported for direct investments in Sri Lanka?
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Which of the following categories had a liability amount less than $7,000 million?
Which of the following categories had a liability amount less than $7,000 million?
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What was the amount for portfolio investment liabilities in Sri Lanka?
What was the amount for portfolio investment liabilities in Sri Lanka?
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How much was reported for reserve assets as of March 31, 2022?
How much was reported for reserve assets as of March 31, 2022?
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What is the main focus of the document authored by De Zilwa and Illanperuma?
What is the main focus of the document authored by De Zilwa and Illanperuma?
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Which of the following is NOT a factor discussed as influencing economic growth in the context provided?
Which of the following is NOT a factor discussed as influencing economic growth in the context provided?
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Who authored the article regarding the economic roots of political conflict in Sri Lanka?
Who authored the article regarding the economic roots of political conflict in Sri Lanka?
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In which publication did the article about the Rajapaksas appear?
In which publication did the article about the Rajapaksas appear?
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What year was the International Monetary Fund report on Sri Lanka published?
What year was the International Monetary Fund report on Sri Lanka published?
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Which article discusses Sri Lanka's macro-financial developments?
Which article discusses Sri Lanka's macro-financial developments?
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What main issue does the report by Weerasinghe address?
What main issue does the report by Weerasinghe address?
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Which of the following sources focuses specifically on the impact of foreign direct investment and remittances on economic growth?
Which of the following sources focuses specifically on the impact of foreign direct investment and remittances on economic growth?
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Study Notes
Sri Lanka's Debt Crisis
- Chinese loans accounted for a significant portion of Sri Lanka’s total debt, even though they represented only 10 to 15%.
- These loans were expensive and used to finance non-revenue yielding projects like the Hambantota International Port, Mattala Rajapaksa International Airport, and the Lotus Tower in Colombo.
- The Hambantota Port was eventually leased back to the Chinese for 99 years.
- Sri Lanka's reliance on loans, rather than foreign investment, was reflected in its Net International Investment Position (NIIP).
- Sri Lanka’s tryst with global sovereign bond markets started in 2009 after the civil war.
- The country actively borrowed billions from nations like China, Japan, and India, but had never defaulted until 2022.
- The default was a result of substantial income tax and value-added tax cuts implemented in 2019, leading to a high fiscal deficit and unsustainable government debt.
- This, combined with a decline in non-resident remittances and a widening trade deficit, pushed Sri Lanka into a current account deficit.
- Rating agencies downgraded Sri Lankan bonds to junk status, barring the country from the international debt market and making it difficult to meet payment obligations.
- Sri Lanka withheld payments on its government debt in April 2022, further decreasing the face value of its bonds and widening the gap between interest and growth rates.
- The world responded by providing aid to Sri Lanka, and short-term measures like price controls, restrictions on capital outflows and imports, and reduced government spending were implemented.
- The effectiveness of such measures is questionable as they could negatively impact the economy and its supply-and-demand dynamics.
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Description
Explore the details behind Sri Lanka's severe debt crisis, focusing on the impact of Chinese loans and other foreign financing. Discover how fiscal mismanagement and external economic factors led to the country's first default in 2022. This quiz delves into the key events and loan dynamics that have shaped Sri Lanka's financial landscape.
