From the 1970s to the present, the Sri Lankan economy has been buffeted by over extended fiscal positions and weak trade deficits. The prevalence of twin (or double) deficits implies fundamental economic imbalances; they signal that a country’s national expenditure exceeds its national income, and that its production of tradable goods and services is inadequate. Such economies can be beset by high levels of debt, a heavy reliance on foreign capital inflows, a steady depreciation of its currency and high interest rates. This study examines the underlying causes of the twin deficit phenomenon in Sri Lanka, the policy responses adopted, and the challenges yet to be overcome if the country is to place its economy on a more sustainable growth path.
Sri Lanka’s Macroeconomic Challenges from Perspective of Twin Deficits, 1970-2016