Designing an Economic Scenario Generator for Financial Risk Management of Low-Income Households in Sri Lanka: A Review

Abstract

Low-income households in Sri Lanka face increasing financial vulnerabilities driven by unstable income, high dependence on essential goods, and exposure to inflation and external shocks. Economic Scenario Generators (ESGs), widely used in institutional risk management, offer a structured way to model uncertainty but have rarely been adapted for household-level applications. This review synthesizes literature on ESG methodologies, household financial risk in developing economies, and Sri Lanka’s socio-economic realities. It highlights the need for a household-oriented ESG framework that integrates macroeconomic shocks with micro-level financial behavior to support budgeting, debt avoidance, and policy interventions.