2022 Year in Review

After the civil war, then President Mahinda Rajyapaksha took out foreign loans
from both western institutions and China to increase economic growth and
attract investors through infrastructure projects. In 2019, Mahinda’s younger
brother, Gotabaya Rajyapaksha, was elected President. Under his rule, he cut
taxes and banned the use of chemical fertilisers, which affected Sri Lanka’s
textile and tea production industries. Furthermore, the 2019 Easter bombings
followed by the COVID-19 pandemic hit the tourism industry, which had served
as Sri Lanka’s main source of foreign exchange reserves. The Ukraine-Russia war
caused a shortage in food and fuel supply, which acted as the last blow to the
already crumbling Sri Lankan economy.
As of May 2022, Sri Lanka’s debt was
USD 51 billion after all foreign exchange
reserves dried up. In July, inflation rose
to an all-time record high of 54.6 per
cent while food inflation rose 81 per
cent. Sri Lanka’s sovereign debt is
mainly held by China, commercial
institutes, India and Japan. In 2019, 56
per cent of the country’s debt was held
by commercial lenders and private
banks such as the World Bank and the
Asian Development Bank. China
individually holds about 10 per cent of
the total country’s debt. On top of this,
more debt is held by Chinese banks
including the EXIM Bank of China and
the China Development Bank, which
brings Sri Lanka’s total debt to China to
around 26 per cent.
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