ECONOMYNEXT – In 2024 Sri Lanka started to recover from a currency crisis triggered by rate cuts four years ago and the leaders who carried out the corrective policies with tax hikes were ousted in an election in September.
Sri Lanka’s first stabilization crisis after rates were controlled with printed money took place in 1954, which saw the ouster of a government which brought the budget into surplus.
That year also saw the rise of nationalism. Ironically the nationalists were wiped out in the 2024 elections.
The 2022 currency crisis, triggered by extreme macro-economic policy carried out using liquidity injections made including through statistcal models developed with International Monetary Fund technical advice according some critics (potential output/flexible inflation targeting/data driven monetary policy) ended in default.
Sri Lanka’s IMF programs, also seem to have high public acceptance (other than income tax hikes), partly due to currency appreciation by the central bank which reduced some prices absolutely.
In 2024 Sri Lanka successfully restructured debt, though warnings have been issued that the central bank has made initial moves to push up excess liquidity with domestic operations.
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