It collapsed because it never built the foundations to stand on its own.
By Kithmi Gunaratne
When Sri Lanka defaulted on its debt in 2022, the explanation came quickly: mismanagement,
poor policy, a government that got it wrong.
It’s a neat story. It’s also the wrong one.
Sri Lanka’s crisis was not the result of too much engagement with the global economy. In today’s world, trade, foreign capital and international finance are not optional,they are structural realities. The failure was not opening outward, but doing so without building an economy
capable of sustaining itself within that openness.
What collapsed in 2022 was not simply policy. It was a model.
For decades, Sri Lanka appeared to defy expectations. It combined relatively low income with strong social outcomes: literacy rates above 92%, universal healthcare, and human development indicators that outperformed many richer countries. It looked, from the outside, like a quiet success story, a country progressing steadily despite its constraints.
But this progress was more fragile than it appeared.
By early 2022, foreign reserves had fallen to just $1.93bn barely enough to cover a month of imports. At the same time, debt servicing consumed around 92% of government revenue.
These are not the numbers of an economy experiencing a temporary shock. They are the symptoms of a system that could no longer sustain itself.
Sri Lanka was not simply developing. It was depending.
Its economic structure remained narrow and exposed. Exports were concentrated in low-value
sectors such as tea and garments, while imports,fuel, machinery and industrial inputs were essential and expensive. The result was a persistent trade deficit, reaching $8.1bn in 2021, close to 10% of GDP.
This imbalance was not incidental. It was structural.
An economy that must import what it cannot produce, and export what earns comparatively less, will inevitably rely on external financing to survive. In Sri Lanka’s case, that reliance took the form of sustained borrowing. By the time of the crisis, external debt had reached $51bn.
At this point, the argument often shifts: that foreign loans, infrastructure projects or global integration are themselves the problem. But this is a misdiagnosis.
Foreign capital is not inherently destabilising. For countries with limited domestic resources, it is often indispensable.
The issue is not whether Sri Lanka engaged with the world; it had to. The issue is that this engagement did not translate into a more self-sustaining economic structure.
Growth occurred, but without transformation.
The country became more connected to global markets, but not more secure within them.
External inflows from tourism, remittances and borrowing became necessary to sustain everyday economic functioning. Development was maintained, rather than internally generated. This is what made the system so fragile.
When the pandemic disrupted global flows, Sri Lanka’s economy did not simply slow, it destabilised. Tourism collapsed, foreign exchange earnings shrank, and global price increases made essential imports more expensive. In an economy built on external dependence, these were not manageable shocks. They were systemic pressures.
Policy decisions in this context, some ill-timed, others deeply flawed accelerated the crisis. But they did not create its foundations. The deeper issue was that Sri Lanka had very little room to respond. Its export base was too narrow, its import dependence too entrenched, and its fiscal space too constrained.
Even the turn to international financial institutions reflects this reality. When reserves are exhausted and obligations mount, external support becomes unavoidable. The challenge is not whether to engage globally ; that question has already been answered – but whether such engagement reinforces vulnerability or builds resilience.
For Sri Lanka, it too often did the former.
There is also a deeper problem in how development itself was understood. Progress was
measured through visible indicators, growth, infrastructure, expansion rather than through the slower, less visible work of building economic resilience.
Diversifying exports, strengthening domestic production, and reducing structural imbalances do not deliver immediate political rewards. But without them, development remains exposed.
Sri Lanka’s experience makes this clear.
The crisis of 2022 was not a sudden collapse of an otherwise stable system. It was the moment
when a long-standing imbalance could no longer be sustained. The protests that followed reflected not only economic hardship, but a broader recognition that the model itself had reached its limits.
The lesson is not that globalisation fails, or that foreign involvement should be rejected. That
would be both unrealistic and counterproductive. The lesson is more difficult.Engagement without internal capacity creates dependence. Dependence, over time, becomes vulnerability. And vulnerability, when exposed, becomes a crisis.
Sri Lanka cannot step outside the global economy. But it can engage with it differently.
The task now is not to retreat, but to rebuild, to ensure that external partnerships strengthen
domestic capacity rather than replace it; that borrowing supports productive transformation rather than short-term stability; and that development is measured not just by growth, but by the ability of an economy to sustain itself through disruption.
Because Sri Lanka did not collapse simply because it opened up.
It collapsed because it never built the foundations to stand on its own.
(The author is a published poet and student of International Affairs)
