Case Study: The Sri Lankan Economic Crisis, A Sovereign Debt Case Study

A step-by-step case study for investors and finance professionals who want the macro context behind the first sovereign default in South Asia in decades. In April 2022 Sri Lanka suspended payments on its external debt after its usable foreign exchange reserves ran almost dry, leaving the country short of fuel, medicine and food. Start with the structural weaknesses: a chronic twin deficit, a narrow tax base and a growing pile of international sovereign bonds. Then follow the shocks that turned weakness into crisis: the 2019 tax cuts, rating downgrades that shut the country out of bond markets, the pandemic hit to tourism and remittances, money printing and the overnight ban on chemical fertiliser. Trace the collapse of reserves, the rupee float, the default itself and the street protests that forced a president out. Work through the IMF programme, the domestic and external debt restructuring and the debate over Chinese lending. Close by comparing Sri Lanka's numbers with India's, revisiting India's own 1991 balance of payments crisis, and building a checklist for spotting sovereign stress in any country you invest in or near.