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<p>Sri Lanka’s bankruptcy declaration on July 6, 2022, exposed deep structural weaknesses in its economic governance and external debt management. Dominant narratives often attribute the crisis to a “Chinese debt trap”; however, this study challenges these claims through a multi-perspective analysis using the ‘Why–What’ framework. The findings reveal that Sri Lanka’s economic collapse was not driven solely by Chinese financing or the Belt and Road Initiative (BRI) but rather by a combination of domestic policy failures—for instance, unsustainable tax cuts, flawed agricultural reforms, and excessive external borrowing—alongside external shocks, including the COVID-19 pandemic and the Russia–Ukraine war. In contrast to geopolitical narratives, empirical evidence demonstrates that Sri Lanka’s debt burden is distributed among multiple creditors, including multilateral institutions and other bilateral lenders. This study contributes to the discourse on sovereign debt by reframing Sri Lanka’s crisis as an outcome of governance and policy failures rather than a result of external debt entrapment. Based on these findings, key policy recommendations include strengthening fiscal and monetary stability, restructuring and diversifying debt obligations, promoting economic diversification, enhancing governance and institutional transparency, and establishing expert-driven economic policymaking. These measures are crucial for rebuilding investor confidence, enhancing economic resilience, and fostering sustainable growth. This study highlights the importance of sound fiscal policies, diversified economic strategies, and transparent governance in mitigating financial vulnerabilities in an increasingly interconnected global financial system. This study argues that the “debt-trap diplomacy” narrative oversimplifies Sri Lanka’s crisis and calls for a more evidence-based, structural analysis.</p>

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Sri Lanka’s economic crisis: facts and fiction

  • 期刊论文

  • 发表日期：

    2025年9月1日

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  • Syeda Nasrin Akter,
  • Md Nazirul Islam Sarker,
  • Arifur Rahman

摘要

Sri Lanka’s bankruptcy declaration on July 6, 2022, exposed deep structural weaknesses in its economic governance and external debt management. Dominant narratives often attribute the crisis to a “Chinese debt trap”; however, this study challenges these claims through a multi-perspective analysis using the ‘Why–What’ framework. The findings reveal that Sri Lanka’s economic collapse was not driven solely by Chinese financing or the Belt and Road Initiative (BRI) but rather by a combination of domestic policy failures—for instance, unsustainable tax cuts, flawed agricultural reforms, and excessive external borrowing—alongside external shocks, including the COVID-19 pandemic and the Russia–Ukraine war. In contrast to geopolitical narratives, empirical evidence demonstrates that Sri Lanka’s debt burden is distributed among multiple creditors, including multilateral institutions and other bilateral lenders. This study contributes to the discourse on sovereign debt by reframing Sri Lanka’s crisis as an outcome of governance and policy failures rather than a result of external debt entrapment. Based on these findings, key policy recommendations include strengthening fiscal and monetary stability, restructuring and diversifying debt obligations, promoting economic diversification, enhancing governance and institutional transparency, and establishing expert-driven economic policymaking. These measures are crucial for rebuilding investor confidence, enhancing economic resilience, and fostering sustainable growth. This study highlights the importance of sound fiscal policies, diversified economic strategies, and transparent governance in mitigating financial vulnerabilities in an increasingly interconnected global financial system. This study argues that the “debt-trap diplomacy” narrative oversimplifies Sri Lanka’s crisis and calls for a more evidence-based, structural analysis.