Why Is Sri Lanka On The Verge Of Going Bankrupt This Year
It's certainly not been a ¡®happy¡¯ new year for Sri Lanka. The beautiful island nation is staring at bankruptcy this year. The reasons? Read on as we dig deeper to understand the possible reasons behind this crisis.
It's certainly not been a ¡®happy¡¯ new year for India¡¯s neighboring country Sri Lanka. The beautiful island nation is in the midst of a deepening financial and humanitarian crisis. Day by day, it¡¯s witnessing inflation scaling record highs, food prices zooming, and the Covid pandemic-induced disruptions driving its coffers dry.
And now, the country is staring at bankruptcy this year.
AFP photo
The Massive Loans
Sri Lanka needs to repay an estimated $7.3 billion in domestic and foreign loans in the next 12 months, as per a report by The Guardian. This massive amount includes a $500-million international sovereign bond repayment which is due in January. Whereas as of November 2021, the available foreign currency reserves with Sri Lanka were just $1.6 billion.
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Reasons Behind The Economic Meltdown
Apart from the immediate adverse impact of the Covid pandemic coupled with consequent loss of tourism, reasons such as high government spending, tax cuts leading to erosion of state revenues, huge debt repayments to China, and record low foreign exchange reserves have compounded this economic meltdown.
There¡¯s no doubt that the loss of jobs and foreign revenue from tourism, which generally contribute more than 10% of Sri Lanka¡¯s GDP, have been substantial. More than 2 lakh people have lost their livelihoods in the travel and tourism sectors, as per the World Travel and Tourism Council.
Even the World Bank has reportedly estimated that 5 lakh people have fallen below the poverty line (BPL) since the beginning of the pandemic, which is equivalent to 5 years¡¯ progress in fighting poverty.
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The Rising Inflation
In December 2021, a spurt in printing money to square off domestic loans as well as foreign bonds is what drove up the inflation to 12.1% from 9.9% a month back in November 2021.
Sri Lanka¡¯s central bank had announced that food price inflation in December 2021 soared to 22.1% from 17.5% a month before.
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The President¡¯s Message
In his New Year message, Sri Lanka President Rajapaksa expressed hope of reviving the cash-strapped economy. But the President failed to announce any measures to address its crippling foreign exchange crisis.
The dawn of the #NewYear2022 instinctively inspires us to look to the future with optimism & determination. Therefore, lets welcome this New Year with great enthusiasm & anticipation.
¡ª Gotabaya Rajapaksa (@GotabayaR) December 31, 2021
I wish you all a happy, healthy & spirited New Year. pic.twitter.com/fQkBH6CCe6
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