🇱🇰 Sri Lanka

Sri Lanka is an island nation of 22 million off India's southern tip with a GDP of about $75 billion — though it experienced a spectacular economic collapse in 2022, defaulting on its foreign debt for the first time and running out of fuel, food, and medicine. Protesters stormed the presidential palace and the president fled the country. The crisis was triggered by a combination of tax cuts, organic farming mandates that crashed agricultural output, COVID tourism losses, and unsustainable Chinese-financed infrastructure projects. Before the crisis, Sri Lanka had the highest human development indicators in South Asia. The country's 26-year civil war between the government and Tamil Tigers ended in 2009.

Garments, tea (Sri Lanka is the world's fourth-largest producer and the largest exporter of orthodox tea), rubber, and tourism are the main sectors. Remittances from about 2 million Sri Lankans working in the Gulf are critical. The IMF approved a $2.9 billion bailout in 2023. China, India, and the US are the main trade partners. The Hambantota Port, built with Chinese loans and then leased to China for 99 years when Sri Lanka couldn't repay, became the poster child for "debt trap diplomacy." The rupee lost about 80% of its value during the crisis.

Sri Lanka has the highest biodiversity density in Asia — more species per square kilometer than anywhere else on the continent. The country's Sigiriya rock fortress, a 5th-century palace built atop a 200-meter rock column, is one of the most dramatic archaeological sites in the world. Sri Lanka's cinnamon (true cinnamon, not cassia) is the world's finest — the country produces about 90% of the global supply.

Sri Lanka's crisis was self-inflicted and devastating, but the IMF program and debt restructuring provide a path to recovery. The country has the human capital and geographic advantages to bounce back — if the political class doesn't repeat the same mistakes.