Title page
Contents
Acknowledgements 3
Acronyms 12
Executive summary 15
1. Introduction: overview and policy proposals 17
Part 1: Debt and shocks 28
2. The evolution of Sri Lanka's sovereign debt crisis: lessons for better borrowing 29
3. Lessons from bondholder restructurings 38
4. Debt-for-nature swaps in Sri Lanka 53
5. Insolvency reforms for growth in Sri Lanka 61
Part 2: Monetary and fiscal policy 68
6. Disinflating an economy in crisis: the case of Sri Lanka 69
7. Navigating fiscal challenges in Sri Lanka: key issues and policy recommendations 77
8. A first look at fiscal policies and multiplier effects in Sri Lanka 86
Part 3: Trade and foreign direct investment 95
9. Sri Lanka's FTAs and the pathway to RCEP 96
10. The impact of tariff removal in proposed FTAs for Sri Lanka 110
11. Trade and FDI facilitation in Sri Lanka 124
12. Economic diplomacy for transformation in Sri Lanka 131
Part 4: Key reform priorities and implementation lessons 143
13. Consolidating IMF-style stabilisation and priorities for growth in Sri Lanka 144
14. Accountability: the key to sustained and inclusive growth in Sri Lanka 152
15. An overview of Greece's financial crisis and its implications 160
Table 1.1. From indebtedness towards transformative growth: key transitions 19
Table 1.2. A typology of public actions to promote economic transformation 22
Table 1.3. Policy proposals for transforming's Sri Lanka path from debt to growth 25
Table 3.1. Case studies of recent bondholder restructurings 39
Table 3.2. Recent debt-for-nature swaps, key indicators 49
Table 4.1. Recent debt-for-nature swaps 54
Table 9.1. Economies of ASEAN and RCEP, 2022 103
Table 9.2. Sri Lanka's merchandise trade with RCEP countries, 2022 104
Table 10.1. Sri Lanka's import tariffs in the model by FTA partner 112
Table 10.2. Tariffs imposed on Sri Lankan exports by FTA partner 113
Table 10.3. Impacts on Sri Lanka's trade by broad sectors 116
Table 10.4. Impacts on output by sector 119
Table 10.5. Impacts on unskilled employment by sector 120
Table 11.1. Key trade, investment and facilitation indicators for Sri Lanka and selected Asian countries 124
Figure 2.1. Evolving sovereign debt stock (% of GDP) 30
Figure 2.2. Real GDP growth 30
Figure 2.3. Net foreign borrowing: all creditors 32
Figure 2.4. Public debt interest payments (% of revenue) 33
Figure 3.1. Creditor composition of external debt eligible for restructuring 43
Figure 3.2. Zambia's bond payments (principle and interest): base and upside scenarios 48
Figure 4.1. Belize debt-for-nature swap 55
Figure 5.1. Share of NPLs in gross loans 61
Figure 6.1. Headline inflation: food and non-food (CCPI, year on year), 2010-2024 70
Figure 6.2. Movements of gross official reserves and exchange rate, 2019-2024 72
Figure 6.3. Central Bank's financing to the government, 2018-2024 73
Figure 6.4. Movements of policy interest rates and market interest rates, 2019-2024 74
Figure 7.1. Trends in key fiscal indicators, 2009-2028 (% of GDP) 77
Figure 8.1. Fiscal multiplier scenarios: growth impact of fiscal policy options 91
Figure 9.1. Sri Lanka's exports as share of GDP, 2000-2022 105
Figure 10.1. Sri Lanka goods exports and imports to selected countries 111
Figure 10.2. Impacts on the volume of merchandise export and imports in the model 115
Figure 10.3. Impact in terms of change in Sri Lanka's real GDP 118
Figure 11.1. FDI inflows in Sri Lanka, 1978-2022 125
Figure 14.1. GDP per capita in Sri Lanka, 1950-2018 153
Figure 14.2. Kernel density estimates of the log of gross output per acre, by crop 155
Figure 14.3. Crop productivity (gross value of output/acre in rupees), 2006-2016 155
Boxes
Box 3.1. Sequencing of debt negotiations 41
Box 10.1. Model specification 114