Sri Lanka’s 2022 crisis is one of the strongest case studies for students because it combines economics and finance in one dramatic scenario. The country faced a severe balance-of-payments crisis, high debt, foreign currency shortages, inflation and social unrest. The World Bank described the situation as a combination of unsustainable debt and balance-of-payments challenges.

The phrase “No Dollars Left” captures the central problem. A country can have local currency, but if it needs dollars to pay for fuel, medicine, food imports or foreign debt, a shortage of foreign currency becomes a national emergency.

Sri Lanka depended on imported essentials. When foreign reserves fell, the country struggled to pay for imports. Fuel shortages disrupted transport and production. Medicine shortages affected households. Inflation rose. Public frustration increased.

This case teaches students that macroeconomics is not abstract. A fall in reserves can become a shortage at the gas station. Debt service can compete with medicine imports. Exchange rate pressure can raise food prices. Financial decisions become social decisions.

A crisis simulation based on Sri Lanka should force players to choose between painful options.

Decision 1: Pay foreign debt or preserve dollars for imports?

Continuing debt payments protects reputation but drains reserves. Suspending payments preserves dollars for essentials but damages investor confidence.

Decision 2: Defend the currency or let it float?

Defending the currency may slow depreciation but uses scarce reserves. Floating saves reserves but can increase import prices and inflation.

Decision 3: Accept external support or maintain policy independence?

External support may restore confidence and provide financing, but usually requires reforms. Rejecting support may preserve political flexibility but leave the country without enough funding.

Decision 4: Protect households or reduce the deficit?

Subsidies protect vulnerable people but cost money. Austerity improves the budget but can deepen hardship.

The important lesson is that every option is costly. In a normal classroom, students may think policy is about choosing the “correct” answer. In a real crisis, policy is about choosing the least damaging path.

Sri Lanka’s crisis also shows the importance of resilience before the crisis begins:

  • sustainable debt;
  • diversified exports;
  • adequate reserves;
  • credible fiscal policy;
  • effective taxation;
  • transparent institutions;
  • careful external borrowing.

In Phronesia, this case can become an advanced scenario. Players start with low reserves, high inflation, falling confidence and social unrest. Their goal is not to create a perfect economy. Their goal is to prevent collapse while rebuilding trust.

The key lesson: a financial crisis is not one problem. It is many connected problems moving at the same time.