Sri Lanka Macroeconomic Knowledge Flashcards
What is the current state of Sri Lanka’s trade balance and key exports?
Trade deficit: $3.4bn in 2023
Exports: $12.2bn | Imports: $15.6bn
Main exports: Textiles, garments, tea, rubber, coconut products
Deficit due to: Fuel/machinery import costs, dependency on imported essentials
Strong demand for garments/tea supports exports
What’s happened to inflation in Sri Lanka since 2022?
2022 peak: 49.72% inflation
Caused by: Fuel/food shortages, rupee depreciation, FX reserve crisis
March 2025: -2.6% deflation due to falling tariffs, fuel prices, stronger rupee
CBSL forecast: Inflation to return mid-2025 at around 5%
How has Sri Lanka’s GDP growth evolved post-crisis?
2022: Major contraction | 2023: +3.3% growth
Recovery aided by tourism, remittances
Obstacles: Political instability, energy shortages, inflation
Infrastructure investment (roads, ports, energy) key for future growth
What are the challenges Sri Lanka faces with employment?
2023 unemployment rate: 5.8%
Youth unemployment: Over 25%
Causes: Poor education, low job creation
Informal employment high – agriculture, small businesses
Gov. focus: National Employment Policy & service sector jobs
How unequal is Sri Lanka and how is the government addressing it?
Gini coefficient: 0.40 (2023)
Rural areas hit hardest by inequality
Inflation & crisis disproportionately hit low-income households
Gov support: Samurdhi welfare transfers, but access to services is limited
What are Sri Lanka’s major environmental concerns and green efforts?
Emissions low, but coal use & deforestation are issues
Transition: Investing in wind/solar energy
Signed int’l deals to boost renewables
Barriers: Political instability, balancing growth with green goals
How has Sri Lanka used interest rates post-crisis?
2023: Interest rate hiked to 15% to fight hyperinflation
2024: CBSL held rate at 15% to stabilise rupee & inflation
Lower rates = ↑AD via cheaper borrowing, but inflation risk remains
What fiscal policies has Sri Lanka used in 2025?
VAT hike: 8% → 15% to raise revenue & reduce deficit
Risk: Higher inflation, but supports infrastructure funding
Social support: Cash transfers + food subsidies to support demand
What market-based policies through tax reforms and privatisations have been used?
VAT ↑ to 12% in 2023 → IMF deal condition, improve revenue
Privatisation: Loss-making SOEs (e.g. Sri Lankan Airlines)
Aims: Efficiency + lower fiscal burden
Risks: Inflation + public sector job losses
What interventionist policies are being used in Sri Lanka?
Interest rate cuts (2023): Stimulate borrowing & investment
Renewable energy projects: Major solar power investment
Goals: Reduce fuel imports, improve energy stability
Risks: Inflation & debt undermine impact
What are Sri Lanka’s major areas of specialisation?
Agriculture: Tea, rubber, coconut → $2.5bn in exports (2023)
Textiles & Garments: $5.5bn exports (~45% of total exports)
Key for rural jobs + female employment
How have global trends impacted Sri Lanka’s terms of trade?
Rising import prices → fuel & food = TOT deterioration
Sri Lanka vulnerable to oil/gas price swings
Impact: ↓ purchasing power, ↑ inflation
What trading blocs and agreements help Sri Lanka?
SAFTA: Reduces tariffs, boosts trade with India/Pakistan
Indo-Lanka FTA: Helps boost garment & tea exports
How has the rupee’s performance affected the economy?
2022: ~10% depreciation → ↓ import affordability, ↑ inflation
2024–25: Rupee strengthening (↑11.5%)
Due to FX purchases, interest rate ↑ to attract FDI
Weaker rupee → ↑ exports but ↑ cost of imports
How globally competitive is Sri Lanka?
IMD 2023 Rank: 89th
Strong sectors: Textiles, tea, agriculture
Weaknesses: Infrastructure, bureaucracy, skill shortages
What are the current poverty levels in Sri Lanka?
Relative poverty: ~25% live below the national poverty line
Absolute poverty: ~10% in extreme poverty
Urban-rural divide → rural areas worse off
Gov aid: Food assistance, social welfare
What FDI trends are shaping Sri Lanka?
2023: $1.5bn FDI inflow
Sectors: Textiles, tourism, agriculture
Impact: Job creation + infra development
Risk: Vulnerable to global conditions
Where is Sri Lanka spending, and what are the limits?
2023: Public spending = 23.1% of GDP
Focus: Infrastructure, healthcare, education
Barriers: High debt + poverty limit impact
What are the key features of Sri Lanka’s tax system?
Corporate tax: 24%
Progressive income tax → 24% for top earners
VAT: Initially 8% (2023), later increased to 12% and then 15% in 2025
What is Sri Lanka’s debt situation?
End of 2023: Central gov debt = 103.9% of GDP
Causes: Foreign loans (China, India, bondholders), COVID, political crisis
Debt crisis triggered default → IMF restructuring deal
