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Sri Lanka’s Macroeconomic Challenges: A Tale of Two Deficits

Publication | March 2019
Sri Lanka’s Macroeconomic Challenges: A Tale of Two Deficits

This paper provides a narrative of Sri Lanka’s history of twin fiscal and current account deficits. It examines the macroeconomic outcomes and policies to deal with the imbalances.

Fiscal dominance has been a persistent feature of Sri Lanka’s macroeconomic landscape. This has manifested itself in high macroeconomic volatility and the country has seen frequent balance-of-payments crises. The paper makes policy recommendations to deal with these issues.

Contents 

  • Introduction
  • Growth Performance and Sri Lanka's Policy Regimes
  • Sri Lanka's Twin Deficits: Causes and Challenges
  • Empirical Analysis
  • Policy Recommendations for Macroeconomic Stability