Sri Lanka's Debt Crisis Overview
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Sri Lanka's Debt Crisis Overview

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Questions and Answers

What trend is observed in the fiscal balance from 1990 to 2021?

  • It consistently improved year over year.
  • It fluctuated but showed a general decline. (correct)
  • It exhibited a pattern of rapid improvement in the early 2000s.
  • It remained constant throughout the years.

    • In what year did the current account balance first reach a value below -10% of GDP?

  • 2008
  • 1996 (correct)
  • 1995
  • 2002

    • Which year showed the most significant decline in current account balance compared to the previous year?

  • 2001
  • 1997
  • 2009 (correct)
  • 2012

    • What was the fiscal balance percentage in 2021 as indicated by the available data?

    <p>Data is unavailable.</p> Signup and view all the answers

    What pattern does the current account balance exhibit over the years according to the provided data?

    <p>It fluctuates but does not exhibit a clear long-term trend.</p> Signup and view all the answers

    What was one potential consequence of implementing short-term economic measures?

    <p>Risk of economic regression</p> Signup and view all the answers

    Why might price controls be considered a temporary solution?

    <p>They do not alter underlying economic inefficiencies.</p> Signup and view all the answers

    What element of economic policy might the new prime minister need to address?

    <p>Restructuring to improve investor confidence</p> Signup and view all the answers

    Which type of imports had a significant percentage compared to total merchandise imports in the data provided?

    <p>Fuel</p> Signup and view all the answers

    What risk is associated with reductions in government spending?

    <p>Unemployment increase</p> Signup and view all the answers

    What economic aspect is crucial for the new leadership to tackle?

    <p>Restoration of investor trust</p> Signup and view all the answers

    What is a likely implication of the economic measures mentioned?

    <p>Influence on supply and demand</p> Signup and view all the answers

    In what year did fuel imports appear to start showing a notable percentage increase?

    <p>2014</p> Signup and view all the answers

    What percentage of Sri Lanka's total debt was estimated to be Chinese loans?

    <p>10 to 15 per cent</p> Signup and view all the answers

    Which of the following projects was NOT mentioned as being financed by Chinese loans?

    <p>Colombo-Kandy Highway</p> Signup and view all the answers

    What led to Sri Lanka's imminent default status by 2022?

    <p>High fiscal deficit and unsustainable government debt</p> Signup and view all the answers

    When did Sri Lanka begin its involvement with the global sovereign bond markets?

    <p>2009</p> Signup and view all the answers

    Which action by the Sri Lankan government in 2019 negatively affected tax revenues?

    <p>Implementing tax cuts</p> Signup and view all the answers

    What was a consequence of the reduction in non-resident remittances for Sri Lanka?

    <p>Widening trade deficit</p> Signup and view all the answers

    Which organization was responsible for downgrading Sri Lankan bonds to junk status?

    <p>Rating agencies</p> Signup and view all the answers

    What significant action did Sri Lanka take regarding its government debt since April 2022?

    <p>Stopped payments on its government debt</p> Signup and view all the answers

    What was the total amount of assets reported for Sri Lanka as of March 31, 2022?

    <p>$8,061 million</p> Signup and view all the answers

    Which category had the highest liabilities in Sri Lanka's net international investment position?

    <p>Loans</p> Signup and view all the answers

    What is the total amount of liabilities reported for Sri Lanka as of March 31, 2022?

    <p>$60,042 million</p> Signup and view all the answers

    As of March 31, 2022, what is the net international investment position for Sri Lanka?

    <p>$-51,981 million</p> Signup and view all the answers

    What amount was reported for direct investments in Sri Lanka?

    <p>$1,525 million</p> Signup and view all the answers

    Which of the following categories had a liability amount less than $7,000 million?

    <p>Currency and deposits</p> Signup and view all the answers

    What was the amount for portfolio investment liabilities in Sri Lanka?

    <p>$6,261 million</p> Signup and view all the answers

    How much was reported for reserve assets as of March 31, 2022?

    <p>$1,917 million</p> Signup and view all the answers

    What is the main focus of the document authored by De Zilwa and Illanperuma?

    <p>Debt sustainability and management in Sri Lanka</p> Signup and view all the answers

    Which of the following is NOT a factor discussed as influencing economic growth in the context provided?

    <p>Environmental policies</p> Signup and view all the answers

    Who authored the article regarding the economic roots of political conflict in Sri Lanka?

    <p>Sirimal Abeyratne</p> Signup and view all the answers

    In which publication did the article about the Rajapaksas appear?

    <p>Nikkei Asia</p> Signup and view all the answers

    What year was the International Monetary Fund report on Sri Lanka published?

    <p>2018</p> Signup and view all the answers

    Which article discusses Sri Lanka's macro-financial developments?

    <p>Sri Lanka’s Macroeconomic Challenges</p> Signup and view all the answers

    What main issue does the report by Weerasinghe address?

    <p>Macro-financial developments in Sri Lanka</p> Signup and view all the answers

    Which of the following sources focuses specifically on the impact of foreign direct investment and remittances on economic growth?

    <p>Aurolipsa Das and Narayan Sethi</p> Signup and view all the answers

    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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    Related Documents

    Sri Lanka's Macroeconomic Crisis: Case Study PDF

    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.

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