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.
In the midst of a worldwide outbreak of COVID-19, Sri Lanka is facing a growing financial and humanitarian crisis, with predictions that it will declare bankruptcy in 2022 as inflation soars and food prices soar. According to The Guardian, the World Bank estimates that 500,000 people have fallen into poverty in the country since the outbreak began, equating to five years of progress in poverty reduction.
The government of Sri Lankan President Gotabaya Rajapaksa is collapsing due to the direct impact of the COVID-19 crisis, as well as a loss of tourism. Increased government spending and tax cuts, which are slowly destroying state revenues, massive debt repayments to China, and foreign exchange reserves at their lowest in a decade, are all contributing to the situation.
Sri Lankan inflation
In November 2021, inflation hit a new high of 11.1 percent, making it difficult for people who were previously well-off to feed their families, while basic necessities have become prohibitively expensive for many. Following Rajapaksa’s declaration of an economic emergency, the military was given authority to ensure that essential products, such as rice and sugar, were supplied at government-set rates, but this has done nothing to alleviate the suffering of the people.
According to the World Travel and Tourism Council, the loss of jobs and important foreign currency from tourists, who typically contribute more than 10% of the country’s GDP, has been significant, with over 200,000 people losing their jobs in the travel and tourism industries. When long lines have formed at the passport office of the young and educated who have expressed a desire to leave the country, the situation can be described as bad.
The massive foreign debt burden that Sri Lanka is saddled with
Sri Lanka’s massive foreign debt burden, particularly with China, is also one of the country’s most pressing concerns. According to The Guardian, the country owes China $5 billion in debt and took out a $1 billion additional loan from Beijing last year to deal with its severe financial difficulties, which is being paid back in instalments. Over the next 12 months, Sri Lanka will be required to repay an estimated $7.3 billion in domestic and international debts, including a $500 million foreign sovereign bond repayment in January 2022.
In addition, the Sri Lankan government has used temporary relief measures such as credit lines to import food, medicines, and fuel from its ally India. Sri Lanka has also done currency swaps with India, China, and Bangladesh, as well as loans to buy petroleum from Oman, in order to temporarily alleviate the problems and avoid potentially divisive policies. These loans, on the other hand, provide only a temporary reprieve and must be repaid quickly and at exorbitant interest rates, adding to Sri Lanka’s debt burden.