Sri Lanka is in crisis, unable to pay foreign debt

Sri Lanka default on foreign debt in the context of this island nation struggling with the Economic Crisis worst in history and widespread protests demanded the government’s resignation.

Severe shortages of food and fuel, along with power cut The long daily grind has plagued the country’s 22 million people during the worst recession since Sri Lanka’s independence in 1948.

The anger of Sri Lankans has flared in recent weeks, as crowds tried to break into the homes of government leaders and security forces had to disperse protesters with tear gas and high-caliber bullets. su.

Sri Lanka’s Finance Ministry said the country had failed to pay all its external obligations, including those borrowed from foreign governments, before receiving an International Monetary Fund bailout.

“The government has only adopted the emergency measure as a last resort to prevent the worsening financial situation,” a statement from the Sri Lankan Finance Ministry said.

The Sri Lankan Finance Ministry added that creditors are free to avail of any interest payments due or choose to payback in Sri Lankan Rupees.

Sri Lankans suffer from severe fuel shortages, resulting in prolonged daily power cuts. (Photo: AP)

Sri Lanka’s economic crisis began with the inability to import essential goods, after the COVID-19 pandemic slashed key revenue from tourism and remittances.

The Sri Lankan government has imposed an extensive import ban to preserve the country’s foreign currency reserves and use them to pay off debts (now aborted). default).

Economists say the crisis is made worse by mismanagement by the Sri Lankan government, years of accumulated debt and ineffective tax cuts.

Public frustration with the Sri Lankan government is widespread, with long lines lining the island nation every day to buy scarce petrol, gas and kerosene for everyday cooking.

Thousands of people camped outside President Gotabaya Rajapaksa’s office in the capital Colombo for a fourth straight day of protests calling for his resignation.

International rating agencies have also downgraded Sri Lanka in 2021, effectively blocking the country’s access to foreign capital markets to raise new loans and meet demand for food and fuel.

Sri Lanka has sought forgiveness from India and China, but both countries have instead offered more lines of credit for Sri Lanka to purchase their goods.

Official figures show that China and Japan are two bilateral government creditors holding about 10% of each of Sri Lanka’s external debt, while India’s share is less than 5%.

Just under half of Sri Lanka’s debt is market loans through international government bonds and other similar instruments.

Estimates suggest that Sri Lanka needs $7 billion to repay its debt this year, compared with just $1.9 billion in reserves at the end of March.

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