Enhancing Confidence in the Sri Lankan Economy

The government of Sri Lanka introduced a number of bold macroeconomic stabilization measures in February/March 2012. These were necessary as the country was on a trajectory to a very destructive balance of payments crisis. It is still too early to determine whether enough has been done to stabilize the balance of payments, particularly the trade deficit. As the Pathfinder Foundation has pointed out in several previous articles, the trade deficit doubled last year, despite a 22% increase in exports. The current account deficit deteriorated from 2.8% of GDP in 2010 to 6.8% in 2011. The overall balance of payments was in deficit to the tune of $1 billion. The deterioration in the external account led to pressure on the currency and a hemorrhaging of reserves.