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While the worst of the economic crisis might be over, Sri Lankans are still suffering its effects.

Sri Lanka is navigating an unparalleled economic crisis, and according to the Asian Development Bank, the country’s economy will continue to decline before starting to rebound in 2024. In 2022, the economy shrank by 7.8%, and it is expected to continue to shrink by 3% as it struggles with debt restructuring and balance of payments issues. The country’s efforts to stabilize the economy will be aided by reform measures including the rollback of tax cuts and the recent acceptance of a Extended Fund Facility arrangement with the International Monetary Fund. The speedy resolution of the debt issue and economic reforms are essential to Sri Lanka’s economic recovery.

However, due to policy mistakes, global economic shocks, rivalries among the big powers, and pre-pandemic economic vulnerabilities, Sri Lanka was already in a precarious position when the crisis began. In 2022, a lack of foreign currency caused a shortage of goods, as well as an acute energy crisis that resulted in protracted power outages and traffic jams in many cities. Many Sri Lankans fell into poverty as a result of rising inflation and declining living conditions.

Finally receiving approval from the IMF for a $3 billion rescue package, Sri Lanka may now restructure its debt and expect economic growth in 2024. The IMF’s decision will enable for the prompt disbursement of a $333 million loan over four years. According to Krishna Srinivasan, a senior official with the IMF, Sri Lanka has been “hit hard by a catastrophic economic and humanitarian crisis.” In an interview with CNBC, he said, “This you can trace back to…pre-existing vulnerabilities, policy mistakes, and [economic] shocks.”

Sri Lanka’s President Ranil Wickremesinghe tweeted that his nation is dedicated to a “reform agenda,” adding that the IMF program is “critical to achieving this vision.”

Sri Lanka’s biggest economic crisis since gaining independence is projected to gradually ease in the second half of this year. Sri Lanka’s central bank noted that the sharp acceleration of inflation that started in early 2022 had begun to ease in October. “The Sri Lankan economy, which is projected to register a real contraction of around 8% in 2022, is expected to record a gradual recovery in the second half of 2023 and sustain the growth momentum beyond.”

According to a recent study by the central bank, Sri Lanka’s GDP has increased by 3.6% in the first quarter of 2023. This development has been attributed to a variety of factors, including increasing industrial production and greater demand for exports. In particular, the manufacturing sector has experienced rapid growth, with production rising 6.9% in the first quarter of 2023. The agricultural sector has also done well, with considerable increases in tea and rubber exports. Additionally, there have been indications of a rebound in the tourism sector, as seen by a 29% rise in tourists in the first quarter of 2023. Given that the tourism sector has been one of the hardest hit by the pandemic, this is particularly good news.

However, since Sri Lanka’s government collapsed and the country’s near-bankruptcy last summer, there appears to be a return to calm. Fuel lines that once snaked for blocks have disappeared, and tourist areas are filling up. And while the country is far from a level of normalcy seen before the pandemic, Sri Lankans have come to terms with a depressing reality that includes fewer meals, smaller paychecks, and lower aspirations.

Meanwhile, instead of fixing the economy, a series of punitive tax hikes and subsidy reductions that further limited demand have brought about a semblance of stability. Although necessary, the actions are unpopular and provide fodder for the political opposition, increasing the likelihood that this administration or the one after will back off from them. Therefore, the economy is still running on a thin line.

Syed Raiyan Amir is a Research Associate at the Center for Bangladesh and Global Affairs. Syed was a Research Assistant at the United Nations Office on Drugs and Crime (UNODC) and the International Republican Institute (IRI). Syed holds undergraduate and graduate degrees in International Relations from Jahangirnagar University, Savar, Dhaka.