Sri Lankan economic crisis explained in five charts

The $81 billion Sri Lankan economy is on the verge of collapse. India Today explains the economic crisis with the help of five charts.

The 81-billion-dollar Sri Lankan economy is on the verge of collapse. The country is set to default on its debts now that it has to repay more than three times the amount it holds as foreign reserves. From debt trap to inflation, many things contributed to the ongoing crisis.

Here are five charts explaining how Sri Lanka came under such massive debt and what the current situation is:

Sri Lanka has foreign-currency reserves of around USD two billion, while the total debt repayment target in the year 2022 is USD seven billion. Of this, USD 1 billion worth of bonds are maturing as early as July 2022.

External debt in Sri Lanka has been on a steep rise since 2005. From USD 11.3 billion in 2005, it rose to USD 21.7 billion in 2010, USD 43.9 billion in 2015, and USD 56.3 billion in 2020 during the Covid pandemic. China accounted for ten per cent of the loans while India constituted two per cent as of April 2021.

The trouble was that the country’s external debt rose quicker than the GDP. The external debt to GDP ratio rose from 31.6 per cent in 2010 to 32.4 per cent in 2015, and further to 40.4 per cent in 2020.

The rise in total debt, along with their interest rates together forced the central bank to push policy rates to check inflation. However, the currency tumbled against the dollar and the central bank drained foreign reserves to hold the exchange rate in place. However, these factors backfired and pushed the Sri Lankan economy into a vicious cycle.

The foreign reserves in Sri Lanka in 2018 were near USD ten billion. This nosedived to under USD two billion in 2021.