Table of Contents

Title Page
Table of Contents
Abstract

1.0 Introduction to economic crisis – Srilanka 1

1.1 Economic Crisis – Overview 1

1.2 History 1/2

1.3 Global Economic Crisis in Sri Lanka 2-4

1.4 Root causes for economic crisis 4

1.5 Causes and consequences of financial crises 5-6

1.6 Impact on macro economic variable in Srilanka 6

1.6.1 Unemployment 7
1.6.2 Inflation in 2008 – during the economic crisis’s initial period 8
1.6.3 Sri Lanka inflation rate lowest ever in June 2009 9
1.6.4 Sri Lanka economic growth 9-10
1.6.5 Export 10
1.6.6 Import 11

1.7 How does Srilanka responded these issues? 11-12

1.8 Conclusions 12

1.9 Recommendations 13

References 14

Appendixes
Abstract

The emerging economic and financial globalization in recent years has been much more
rapid that our understanding of all ingredients associated with this phenomenon of
globalization. As a result, the impact that the current crisis may have on the global
economy is still uncertain, since an adequate theoretical framework for globalization is
still missing.

In Srilanka, this crisis has been raised too much and it attacked many variables of macro
economic such as unemployment, inflation, Economic growth, export, and import.

Any evaluation of the possible impact on developing economies should consider the
exiting conditions in the banking sector; the situation in the non-bank intermediation; the
tendencies on foreign exchange markets.

The best strategy to cope with such events is to use the optimal combination of policy
ingredients that will minimize the undesirable effects on the economy. In parallel, the
government needs to be prepared for quick reactions to any new situation. In the financial
sector, creation of government deposit guarantees might be very useful, together with the
suspension of deposits convertibility, and the adoption of an effective deposit insurance
system. Investment plans should be reanalyzed carefully and priorities should be revised;
a revised strategy for attracting FDIs is absolutely necessary. Budget deficit must be
reduced considerably, and efforts for passing to a surplus of the state budget are more
than welcome. Measures to reduce the adverse impact of financial system distress on the
real economy may need the adoption of corporate restructuring programs and debt relief
for households.

More than the implementation of the right policies, what it really matters is the speed of
reaction of the government. Time for excessively long consultations is gone; a Crisis
Council may be constituted, entrusted with full power of decision.