Economy: Burdened with massive debt, Sri Lanka on brink of bankruptcy
Virendra Pandit
New Delhi: India’s neighbor Sri Lanka, burdened with a debt of a whopping USD 26 billion—it has to pay USD 7.3 billion this year—is sinking into an abyss of deepening financial and humanitarian crisis, the media reported on Monday.
As the dollar crisis worsened, Sri Lanka announced last month the closure of three overseas diplomatic missions as part of a restructuring bid to save the country’s much-needed foreign currency reserves and minimize expenditure in the wake of grave economic challenges posed by the pandemic, the media reported on Monday.
Sri Lanka shut down on December 31, 2021, its High Commissions in Abuja, Nigeria, and the Consulates- General in Frankfurt, Germany, and in Nicosia, Cyprus.
The island nation, whose major source of revenue is tourism, is struggling with a runaway inflation scaling record highs, rising food prices, and pandemic-induced economic disruptions driving its coffers dry, is the latest country feared to go bankrupt in 2022.
Colombo is constrained to repay about USD 7.3 billion in domestic and foreign loans by year-end, according to the British newspaper, Guardian.
This includes a USD 500-million international sovereign bond repayment due in January. As of November 2021, the available foreign currency reserves were barely USD 1.6 billion, the reports said.
Besides the immediate impact of the Covid-19 pandemic and consequent loss of tourism, high government spending and tax cuts eroding state revenues, vast debt repayments to China, and record low foreign exchange reserves compounded the economic meltdown now faces the President Gotabhaya Rajapaksa-led government.
Colombo printed extra currency to ‘neutralize’ domestic loans and foreign bonds, but it increased inflation from 9.9 percent in November to 12.1 percent in December.
In December alone, food price inflation soared from 17.5 percent to 22.1 percent compared to November, the Central Bank of Sri Lanka stated.
According to the World Bank, about 500,000 people slipped below the poverty line since the beginning of the pandemic in early 2020. This is equivalent to five years’ progress in fighting poverty, the report said.
An enormous loss of jobs and vital foreign revenue from tourism, which often contributes over 10 percent of the country’s GDP, has been substantial. Over 200,000 people lost their livelihoods in the travel and tourism sectors alone, according to the World Travel and Tourism Council.
In his New Year message, President Rajapaksa expressed the hope of reviving the cash-strapped economy but announced no measures to address its crippling foreign exchange crisis.
“I am confident that the New Year will provide an opportunity to further the steps taken by the government to pursue and overcome challenges and strengthen the people-centric economy,” he said.
International rating agencies have downgraded the island nation and raised concerns about its ability to service its debt of USD 26 billion, the reports added.
