Sri Lanka is facing a growing financial and humanitarian crisis, with predictions that it will declare bankruptcy in 2022 as a result of the COVID-19 outbreak.
Sri Lanka is experiencing a growing financial and humanitarian crisis in the midst of a worldwide outbreak of COVID-19, with projections that it would declare bankruptcy in 2022 as inflation and food prices rise. The World Bank estimates that 500,000 people have fallen into poverty in the country since the outbreak began, comparable to five years of poverty reduction progress, according to The Guardian.
Due to the immediate consequence of the COVID-19 issue, as well as a loss of tourism, Sri Lankan President Gotabaya Rajapaksa’s government is disintegrating. Increased government spending and tax cuts, which are eroding state revenues, enormous loan repayments to China, and foreign exchange reserves at their lowest in a decade are all contributing to the crisis.
Sri Lankan inflation
In November 2021, inflation reached a new all-time high of 11.1 percent, making it impossible for previously well-off people to feed their families, while basic needs have become unreasonably expensive for many. Following Rajapaksa’s declaration of an economic emergency, the military was granted authority to ensure that vital goods like rice and sugar were provided at government-determined prices, although this has done nothing to alleviate the people’s suffering.
The loss of jobs and critical foreign money from tourists, who generally contribute more than 10% of the country’s GDP, has been significant, according to the World Travel and Tourism Council, with over 200,000 people losing their jobs in the travel and tourism industry. The situation can be defined as dire when long lines form at the passport office of the young and educated who have stated a wish to leave the nation.
The massive foreign debt burden that Sri Lanka is saddled with
One of Sri Lanka’s most serious worries is the country’s large foreign debt burden, notably with China. The country owes China $5 billion in debt, according to The Guardian, and took out a $1 billion further loan from Beijing last year to deal with its serious financial troubles, which is being repaid in instalments. Sri Lanka will be needed to repay $7.3 billion in domestic and international debts over the next 12 months, including a $500 million foreign sovereign bond repayment in January 2022.
Furthermore, the Sri Lankan government has employed temporary relief measures like as credit lines to import food, medicines, and fuel from India, which is a close friend. In order to temporarily alleviate the problems and avoid potentially divisive actions, Sri Lanka has done currency swaps with India, China, and Bangladesh, as well as loans to buy petroleum from Oman. These loans, on the other hand, only provide a momentary relief and must be repaid promptly and at excessive interest rates, hence increasing Sri Lanka’s debt burden.