Sri Lanka economic crisis explained in 10 points

As the debt-heavy economy has led to shortages of food, fuel and medicines and prolonged power cuts, let's take a look at why Sri Lanka is facing its worst economic crisis in decades.

Protests against Sri Lankan President Gotabaya Rajapaksa's handling of a deepening economic crisis in the island nation continue to rage. In another setback for the administration, Finance Minister Ali Sabry resigned a day after his appointment and ahead of crucial talks scheduled with the International Monetary Fund for a loan programme.

The debt-heavy economy has led to shortages of food, fuel and medicines and prolonged power cuts. Let's take a look at why Sri Lanka is facing its worst economic crisis in decades.

1. A severe shortage of foreign currency has left Rajapaksa's government unable to pay for essential imports, including fuel, leading to debilitating power cuts lasting up to 13 hours, according to a Reuters report.

2. Ordinary Sri Lankans are also dealing with shortages and soaring inflation, after the country steeply devalued its currency last month ahead of talks with the International Monetary Fund (IMF) for a loan programme.

3. Critics say the roots of the crisis, the worst in several decades, lie in economic mismanagement by successive governments that created and sustained a twin deficit - a budget shortfall alongside a current account deficit.

4. "Sri Lanka is a classic twin deficits economy," said a 2019 Asian Development Bank working paper. "Twin deficits signal that a country's national expenditure exceeds its national income, and that its production of tradable goods and services is inadequate," the Reuters report said.

5. But the current crisis was accelerated by deep tax cuts promised by Rajapaksa during a 2019 election campaign that were enacted months before the Covid-19 pandemic, which wiped out parts of Sri Lanka's economy.