A ‘project’ economy

Economists ascribe Sri Lanka’s recent financial problems to a severe decline in tourism and remittances, as well as a substantial tax cut, but poor governance is atop the list of the factors that played havoc with the island nation’s economy, which relied heavily on tourism and remittances. Both these sources were hit badly by the Covid pandemic as the workers were laid off on a mass scale. Pakistan’s land area, population and GDP are 12 times, 10 times and four times higher than Sri Lanka’s, respectively. However, Pakistan’s per capita GDP is half of the island nation. Despite these differences, a significant decline in Pakistan’s foreign exchange reserves and a persistent political crisis have given the international community the impression that the country is following in Sri Lanka’s footsteps. Sri Lanka was the first South Asian nation to liberalise its economy through open economy reforms in the late 1970s. However, it is currently a state in crisis after defaulting on a $78 million payment in debt interest in May 2022 for the first time in its history.