Mr. Syed Imran Sardar is a Research Analyst at the Institute of Regional Studies, Islamabad.

DOI: http://DOI Number

Keywords: Sri Lankan economy, Debt trap, geopolitical constraints, Foreign Reserves, Default, IMF.


Sri Lanka’s economy has gone through several crises in its history but it has never gone bankrupt. In May 2022, the foreign reserves of Sri Lanka went down to just a few million US dollars which forced Sri Lanka to unilaterally stop making payments to international creditors, resultantly, the country was declared bankrupt. The existing literature on Sri Lanka’s downfall has highlighted several reasons. Those reasons, however, are presented either in isolation or in a generic form. This paper contextualizes Sri Lanka’s bankruptcy within five key causes; dependency on mega projects for economic prosperity, a super relaxed tax regime, the ill-thought-out organic experiment, delay in approaching the IMF, and the geopolitical constraints. Having discussed the above causes in detail, the study argues that Sri Lanka’s economy is not likely to improve in the near future or perhaps it may take years or so to bring the economy back on track. Geopolitical constraints, political instability, lingering structural reform process, and the Ukrainian crisis are negatively impacting Colombo’s tourism, agriculture exports, and the IMF settlements. The paper concludes that concerted efforts are needed to carry out structural reforms, improve governance, and enhance the quality of labor, without which the Sri Lankan economy could not make a breakthrough. The study carries important implications for the countries facing balance of payments issues.

First Published

June 25, 2022

How to Cite

Syed Imran Sardar, “How did Sri Lanka go Bankrupt? A Retrospective Analysis,” Regional Studies 40, no.1 (Summer 2022): 20-39,


Volume 40, Issue 1