Our economy is fucked. But why? And how? Our resident economist explains how we ended up tilting headlong into this crisis.

February 1, 2022

Read this article in සිංහල | தமிழ்


Story and analysis by Umesh Moramudali. Data and visualizations by Yudhanjaya Wijeratne Edited by Aisha Nazim.

Frustration spikes as there’s yet another powercut, leading to a flurry of complaints (and expletives) via social media and group chats across the country. The hashtag, #PowercutLK trends, along with outspoken worry about the Sri Lankan economy as prices of essential goods increase exponentially – all while there are massive shortages in others. The lack of food, gas, and fuel has made everyone feel that the economy ‘isn’t doing too well’.

These day-to-day struggles and economic issues are the consequences of a number of economic policies. Understanding the roots of these requires a little digging as to what happened to the Sri Lankan economy over the last decade. Consider this a background story for the frequently asked question:

How did we get here and how did things get so out of hand? We compiled data from the CBSL to understand the situation.

A brief look at Sri Lanka’s economy and growth

Soon after the three-decade long conflict which ended in 2009, Sri Lanka recorded high economic growth rates. This means, goods and services produced in the country expanded at a substantial rate. In 2010, the Sri Lankan economy grew by 8.0%. This growth followed 2011 and 2012, as the country recorded growth rates of 8.4% and 9.1% respectively.

GDP per capita.png

However, this was largely a result of an expansion of domestic economic activities such as construction and retail trade. The growth in construction was due to both government and private sector infrastructure development; such as expressways, airport and ports, plus the high-rise buildings in Colombo.

<aside> 💡 Gross Domestic Product (GDP) - This indicates the monetary value of goods and services produced within a country during a given year. GDP estimates do not include unpaid work such as housework and black market activities.


For a bit of context, the first part  of the Southern Expressway was constructed at a cost of approximately USD 740 million, and was declared open in 2011. Our second expressway – the Colombo-Katunayake one – was declared open in 2013. Clocking in at a cost of USD 292 million, this was made possible thanks to a loan from China EXIM Banks. This continued as successive Sri Lakan governments extended the Southern Expressway, constructed the Outer Circulation Highway (OCH), and started on the construction of Central Expressway in 2015 as well.

Economists identify these sectors as non-tradable sectors; because goods and services related to these sectors cannot be traded internationally. Thus, growth from these sectors are constrained by the size of the country’s population and purchasing power (which is the average person’s ability to buy things). Therefore, any country’s economic growth driven by such non-tradable sectors is often short-lived. This is more relevant to a country like Sri Lanka which has a population of only 22 million.

<aside> 💡 Per Capita Income - This is used to assess the average income level of a country. [GDP per capita is Gross Domestic Product (GDP) divided by midyear population. Generally GDP reflects the total income of a country.](https://databank.worldbank.org/metadataglossary/world-development-indicators/series/NY.GDP.PCAP.KN#:~:text=GDP per capita (constant LCU,the value of the products.) Therefore, GDP per capita reflects the average income of the country. This indicator does not capture the income inequality of a country.


2013 onwards: a steady decline

In 2013, Sri Lanka’s economic growth rate began to decline from 3.4%. This downward spiral continued and eventually hit 2.3% in 2019. This is the lowest recorded economic growth rate since 2001. This can be pinned down to two main reasons: not being able to expand sectors like retail and construction, due to Sri Lanka’s small population; and the failure to increase exports.