Attachments
Description of the crisis
Sri Lanka had been facing a complex emergency characterized by high inflation, a deteriorating currency, food insecurity, shortages of fuel, essential healthcare services, threatened livelihoods, reduced public services, and rising protection concerns.
The crisis had been exacerbated by a reduction in domestic agricultural production due to a failed organic farming transition, imposed ban on agrochemicals by the previous Government during 2021. The crisis had led to increased vulnerability, poverty, and destitution among a significant portion of the population. In 2021, 2.4 million people fell below the international poverty line for lower-middle-income countries, with more poor households losing over half of their income. This resulted in people selling assets, becoming indebted, and cutting down on food, and their children were less likely to attend school. An estimated 5.7 million people were in need of humanitarian assistance, with at least 4.9 million were being food insecure.3 The crisis had disproportionately affected vulnerable populations, including children, pregnant women, people with disabilities, female-headed households, migrants, refugees, and marginalized ethnic and religious groups.
The Central Bank was unable to defend the currency due to insufficient international reserves, leading to the government defaulting on debt payments in May 2022. Inflation rates rose sharply since the government could not import essential commodities, including fuel, which further increased shortages and inflation. Inflation rates slowly dropped, with food inflation (Year-over-year) decreasing from 30.6 per cent in April 2023 to 21.5 per cent in May 2023, while non-food inflation (Year-over-year) decreased from 37.6 per cent in April 2023 to 27.0 per cent in May 2023.4
The emerging crisis led to country-wide civil unrest. Following mass protests, which started in March 2022, a new government was installed in May, and the country’s president was replaced in July. To help ensure support from the International Monetary Fund (IMF), the new government raised taxes to offset the external debt, adding to the economic burden, including that faced by the most vulnerable. On 20 March 2023, the IMF Board approved a 48month extended arrangement under the Extended Fund Facility of SDR 2.286 billion (about USD 3 billion) to support Sri Lanka’s economic policies and reforms. The fiscal macroeconomic crisis resulted in a humanitarian emergency during the fourth quarter of the year 2022, causing millions of people to face widespread and chronic food, fuel, cooking gas and health services shortages. Unprecedented food inflation increased food insecurity, particularly among children under five, pregnant women, and lactating mothers. The poverty rate accelerated since the crisis began, with food inflation reaching a record high of 94.9 per cent in September 2022. Sri Lanka was ranked as having the world's sixth-highest food inflation.5
Humanitarian support for these groups decreased, making them even more vulnerable. Food insecurity had also made them vulnerable, including informal wage earners, minimum wage earners, single female-headed households, families with multiple children, low-income households, chronic illnesses, and disadvantaged farmers. Outbound migration is increasing still, affecting skilled labor retention, and putting children of absent parents at risk of neglect.
By 2024, Sri Lanka had made notable progress in stabilizing its economy and reform process, with economic growth beginning to recover after two years of contraction. Despite these gains, the overall recovery remains uneven. Many households, particularly those already vulnerable, continue to face heightened hardships, with poverty still nearly double pre-crisis levels, food insecurity persisting, and ongoing concerns around malnutrition, limited livelihood opportunities, and reduced access to essential services6.