News
What’s happening in Sri Lanka and how did the economic crisis start?
By R Ramakumar, Professor of Economics, Tata Institute of Social Sciences
The island nation of Sri Lanka is in the midst of one of the worst economic crises it’s ever seen. It has just defaulted on its foreign debts for the first time since its independence, and the country’s 22 million people are facing crippling 12-hour power cuts, and an extreme scarcity of food, fuel and other essential items such as medicines.
Inflation is at an all-time high of 17.5%, with prices of food items such as a kilogram of rice soaring to 500 Sri Lankan rupees when it would normally cost around 80 rupees. Amid shortages, one 400g packet of milk powder is reported to cost over 250 rupees, when it usually costs around 60 rupees.
On April 1, President Gotabaya Rajpaksa declared a state of emergency. In less than a week, he withdrew it following massive protests by angry citizens over the government’s handling of the crisis.
The country relies on the import of many essential items including petrol, food items and medicines. Most countries will keep foreign currencies on hand in order to trade for these items, but a shortage of foreign exchange in Sri Lanka is being blamed for the sky-high prices.
Many believe Sri Lanka’s economic relations with China are a main driver behind the crisis. The United States has called this phenomenon debt-trap diplomacy . This is where a creditor country or institution extends debt to a borrowing nation to increase the lender’s political leverage if the borrower extends itself and cannot pay the money back, they are at the creditor’s mercy.
However, loans from China accounted for only about 10% of Sri Lanka’s total foreign debt in 2020. The largest portion about 30% can be attributed to international sovereign bonds. Japan actually accounts for a higher proportion of their foreign debt, at 11%.
Defaults over China’s infrastructure-related loans to Sri Lanka, especially the financing of the Hambantota port, are being cited as factors contributing to the crisis.
But these facts don’t add up. The construction of the Hambantota port was financed by the Chinese Exim Bank. The port was running losses, so Sri Lanka leased out the port for 99 years to the Chinese Merchant’s Group, which paid Sri Lanka US 1.12 billion.
So the Hambantota port fiasco did not lead to a balance of payments crisis (where more money or exports are going out than coming in), it actually bolstered Sri Lanka’s foreign exchange reserves by US 1.12 billion.
Post-independence from the British in 1948, Sri Lanka’s agriculture was dominated by export-oriented crops such as tea, coffee, rubber and spices. A large share of its gross domestic product came from the foreign exchange earned from exporting these crops. That money was used to import essential food items.
Over the years, the country also began exporting garments, and earning foreign exchange from tourism and remittances (money sent into Sri Lanka from abroad, perhaps by family members). Any decline in exports would come as an economic shock, and put foreign exchange reserves under strain.
For this reason, Sri Lanka frequently encountered balance of payments crises. From 1965 onwards, it obtained 16 loans from the International Monetary Fund (IMF). Each of these loans came with conditions including that once Sri Lanka received the loan they had to reduce their budget deficit, maintain a tight monetary policy, cut government subsidies for food for the people of Sri Lanka, and depreciate the currency (so exports would become more viable).
But usually in periods of economic downturns, good fiscal policy dictates governments should spend more to inject stimulus into the economy. This becomes impossible with the IMF conditions. Despite this situation, the IMF loans kept coming, and a beleaguered economy soaked up more and more debt.
The last IMF loan to Sri Lanka was in 2016. The country received US 1.5 billion for three years from 2016 to 2019. The conditions were familiar, and the economy’s health nosedived over this period. Growth, investments, savings and revenues fell, while the debt burden rose.
A bad situation turned worse with two economic shocks in 2019. First, there was a series of bomb blasts in churches and luxury hotels in Colombo in April 2019. The blasts led to a steep decline in tourist arrivals with some reports stating up to an 80% drop and drained foreign exchange reserves. Second, the new government under President Gotabaya Rajapaksa irrationally cut taxes.
Value-added tax rates (akin to some nations’ goods and services taxes) were cut from 15% to 8%. Other indirect taxes such as the nation building tax, the pay-as-you-earn tax and economic service charges were abolished. Corporate tax rates were reduced from 28% to 24%. About 2% of the gross domestic product was lost in revenues because of these tax cuts.
In March 2020, the COVID-19 pandemic struck. In April 2021, the Rajapaksa government made another fatal mistake. To prevent the drain of foreign exchange reserves, all fertiliser imports were completely banned. Sri Lanka was declared a 100% organic farming nation. This policy, which was withdrawn in November 2021, led to a drastic fall in agricultural production and more imports became necessary.
But foreign exchange reserves remained under strain. A fall in the productivity of tea and rubber due to the ban on fertiliser also led to lower export incomes. Due to lower export incomes, there was less money available to import food and food shortages arose.
Because there is less food and other items to buy, but no decrease in demand, the prices for these goods rise. In February 2022, inflation rose to 17.5%.
n all probability, Sri Lanka will now obtain a 17th IMF loan to tide over the present crisis, which will come with fresh conditions.
A deflationary fiscal policy will be followed, which will further limit the prospects of economic revival and exacerbate the sufferings of the Sri Lankan people. (PTI)
News
No child should be deprived of vocational or higher education due to poverty – PM
Prime Minister Dr. Harini Amarasuriya stated that all government strategic plans must be formulated in a manner that ensures no child in the country is deprived of vocational education or any other educational opportunity due to economic hardship.
The Prime Minister made these remarks while addressing a workshop on budget formulation and strategic planning of institutions affiliated with the vocational education sector, held on 29th and 30th of January 2026 at the Grand Monarch.
The workshop was organized with the participation of heads and senior officials of nine institutions, including two universities affiliated with the vocational education sector.
The Prime Minister pointed out that it is essential to align the development plans of key institutions and the affiliated institutions with the National Economic Development Plan.
The Prime Minister stated that while educational institutions produce individuals with vocational knowledge, reforms must also nurture compassion, empathy, care for others, and ethical values. The Prime Minister noted that the objective of this initiative is to nurture professionals enriched by humanity.
She further emphasized that it is the responsibility of the government to further expand pathways for children who are experiencing economical disadvantages to access vocational education and secure their future.
Attention was also drawn to the sectors of AI revolution and the future of vocational education. The Prime Minister observed that there is still no comprehensive global understanding of the changes taking place in the world of work and vocational fields due to artificial intelligence (AI). She stressed that integrating vocational education into the mainstream education process through educational reforms is an urgent necessity at this time.
The revolution brought about by AI technology is often driven by profit. Just as we were exploited during past industrial revolutions, we must ensure that we are not left behind or marginalized in this revolution. We must not merely confine ourselves to a data center.
The Prime Minister highlighted that while teaching and learning activities can be carried out online, the impact of technology is limited in professions involving human care and compassion, such as childcare and caregiving services underscoring the importance of developing soft skills and adopting a human-centered approach.
It was discussed that the flexible pathways should be created to enable a student to progress continuously through vocational education up to doctoral level, as well as to re-enter education while being employed (lateral entry). While ensuring such flexibility in the system, maintaining high standards and quality in education was highlighted as essential to ensuring credibility.
The event was attended by the Deputy Minister of Education and Higher Education Dr. Madhura Senevirathna, Deputy Minister of Vocational Education Nalin Hewage, Secretary to the Ministry of Education Nalaka Kaluwewa, Vice Chancellor of the University of Vocational Technology Professor Prasanna Premadasa, Vice Chancellor of the Ocean University Professor Nalin Rathnayake, Chairman of NIBM Dr. G. Thantirigama, Director General D.M.A. Kulasooriya, and several other officials.

(Prime Minister’s Media Division)
News
National Assessment and Policy Review: The impact of social media on children
Deputy Minister of Digital Economy, Eranga Weeraratne, stated that the Ministry of Education, the Ministry of Women and Child Affairs and the Ministry of Digital Economy are planning to initiate a national assessment and policy review on the impact of social media on children.
The Deputy Minister emphasized that the initiative is expected to be advanced by giving due consideration to the insights of experts across all relevant fields, including child protection, education, health, mental health, cyber security, law and research, as well as by listening to the voices of civil society and youth.
Full statement made by Deputy Minister, Eranga Weeraratne.
“Many parents in Sri Lanka today face the challenge of understanding the impact of social media on their children and determining what measures they should take to ensure their safety. The solution is not to restrict children’s access to technology. Social media offers numerous benefits, including educational opportunities, the development of creative skills and improved communication. However, there is also a reality we must acknowledge. The online environment can often be unsafe, overwhelming and psychologically stressful for children. The resulting harm can negatively affect a child’s sleep, education, friendships and overall mental well-being. In some cases, excessive engagement with social media becomes difficult to control. Attempts to prevent such overuse may sometimes lead to conflicts, anger, or harsh disciplinary measures, which further impact learning and mental health. Consequently, children may experience stress, diminished self-confidence and emotional distress.
Online cyber bullying is another major concern. Additionally, children are often exposed to age-inappropriate content, including violent, sexual, or otherwise harmful material. There have been cases where children repeatedly engage with such harmful content, becoming increasingly absorbed in it. Some online games also present situations that encourage children to engage in disruptive or unsafe behaviour.
In extreme cases, such engagement has even led children to put their lives at risk. For this reason, ensuring the online safety of children has become a national priority in many countries. Our approach, likewise, must be guided by three fundamental principles.
First, the safety of children is paramount. This remains a non-negotiable policy of the government. Second, our actions must be based on evidence and research. We never proceed based on assumptions. Third, while safeguarding rights and privacy, our goal is to minimize excessive surveillance. Striking a balance between rights, safety and innovation is our primary objective.
Many countries around the world are already taking measures in this regard. It has become a timely necessity for us to carefully study these experiences, adapt them to our context and develop a comprehensive programme to protect our children. As a first step, we hope to initiate a national assessment and policy review on the impact of social media on children, in consultation with the Ministry of Education and the Ministry of Women and Child Affairs.”
Experts in fields such as child protection, education, health, mental health, cyber security, law and research, along with the voices of civil society and youth, must be engaged in this effort. This is not a challenge that the government can address alone. Parents, teachers and children themselves all need to participate collaboratively. Through this approach, we can create an environment where our children can make full use of technology safely and responsibly.
News
Public officials must clearly understand public expectations against corruption and fraud – Secretary to the President
In line with the Government’s programme to build a clean, transparent and corruption-free public service, a workshop to brief heads of 250 state institutions that have been instructed to establish Internal Affairs Units was held on Thursday (29) at the auditorium of the Sri Lanka Foundation Institute, under the patronage of Secretary to the President, Dr. Nandika Sanath Kumanayake.
As the first phase of this programme, Internal Affairs Units were previously established in 106 state institutions and the relevant officers were trained accordingly. As part of the second phase, instructions have been issued to establish Internal Affairs Units in an additional 250 state institutions. Accordingly, this workshop was organised by Presidential Secretariat, with the assistance of the Clean Sri Lanka Programme.
Although Sri Lanka continues to maintain relatively high rankings in sectors such as education and healthcare, Secretary to the President, Dr. Nandika Sanath Kumanayake noted that the country is ranked 121st in the 2024 Corruption Perceptions Index, a position that could adversely affect its overall standing in other key sectors.
Addressing the gathering, the Secretary to the President stated that while the primary slogan of the recent public uprising was against the corrupt politics, the allegations were directed not only at corrupt politicians but also at corrupt public officials. He emphasised that the public uprising occurred at a time when the country had become economically bankrupt and its adverse consequences were being directly felt by the people.
He further observed that such public uprisings are not sudden events, but rather the culmination of a prolonged and systematic process, driven by public frustration and the erosion of trust in governance.
Further addressing the workshop, Secretary to the President emphasised that public uprisings should not be underestimated, noting that they represent a powerful expression of public will.
He stated that it is essential for public officials, as well as politicians, to have a clear understanding of public aspirations and public sentiment. As public servants, he stressed, there is an obligation to deliver a clean, transparent and accountable public service to the people.
Accordingly, he explained that a structured programme has been initiated to strengthen the integrity of public service delivery. The establishment of Internal Affairs Units forms a key component of this initiative, aimed at ensuring greater transparency and accountability within state institutions.
Dr. Kumanayake further noted that public officials must remain mindful of upholding ethical standards while performing their duties, as strengthening individual integrity can contribute to transforming the broader culture of corruption within the public sector.
He highlighted that Internal Affairs Units can be viewed both as a mechanism for fostering a culture of integrity within the public service and as a platform that enables the public to raise concerns regarding the conduct of public officials, thereby strengthening accountability and public trust.
At the event, Additional Secretary to the President, Ms. Chandima Wickramasinghe and Senior Lecturer at the University of Kelaniya, Tharindu Dhananjaya Weerasinghe delivered keynote presentations.
-
Business7 days agoComBank, UnionPay launch SplendorPlus Card for travelers to China
-
Business4 days agoClimate risks, poverty, and recovery financing in focus at CEPA policy panel
-
Opinion3 days agoSri Lanka, the Stars,and statesmen
-
Business2 days agoHayleys Mobility ushering in a new era of premium sustainable mobility
-
Opinion7 days agoLuck knocks at your door every day
-
Business2 days agoAdvice Lab unveils new 13,000+ sqft office, marking major expansion in financial services BPO to Australia
-
Business2 days agoArpico NextGen Mattress gains recognition for innovation
-
Business21 hours agoAltair issues over 100+ title deeds post ownership change
