Sri Lanka defaults on its $51 billion external debt

[DVlog]

Colombo: Crisis-stricken Sri Lanka defaulted on its $51 billion external debt on Tuesday, calling the move a "last resort" after running out of foreign exchange to import desperately needed goods.

The island nation is grappling with its worst economic downturn since independence, with regular blackouts and acute shortages of food and fuel.

Sri Lanka's finance ministry said in a statement that creditors, including foreign governments, were free to capitalise any interest payments due to them from Tuesday or opt for payback in Sri Lankan rupees.

"The government is taking the emergency measure only as a last resort in order to prevent further deterioration of the republic's financial position," the statement said.

It added that the immediate debt default was to ensure "fair and equitable treatment of all creditors" ahead of an International Monetary Fund assisted recovery programme for the South Asian nation.

The crisis has caused widespread misery for Sri Lanka's 22 million people and led to weeks of anti-government protests.

International rating agencies had downgraded Sri Lanka last year, effectively blocking the country from accessing foreign capital markets to raise much-needed loans to finance imports.

Sri Lanka had sought debt relief from India and China, but both countries instead offered more credit lines to buy commodities from them.

First Lebanon now Srilanka declared themself bankruptcy. After the covid-19 break out some countries(especially those whose source of income was from tourism) face severe consequences. Another source of income was exporting quality tea which was also reduced significantly. Srilankan tea brand is infamous in the world. Besides that, some bad decisions from the govt like forbidding tp importation of fertilizer to produce organic foods create food shortages in the country. Mostly covid and govt is to blame for this current situation in Sri Lanka.

Note: Neputism is very common in srilanka and most of the important ministry is occupied by brother and relatives of current PM.

[jackg]

I don't know if going into default is actually too bad for some countries. It sounds like their assets were being handled badly anyway if investors or their banks couldn't write off the interest payments through covid and take a break from paying it until they were back to a fully operational economy (I think almost every country overleveraged themselves to cope with the pandemic though).

Most countries should be able to survive and run themselves well without taking on debt as they'll have economies to fall back on. Sri Lanka is quite good at producing and extracting raw materials afaik so they've likely still got that part of their economy they can keep running to help build themselves back.

[Fortify]

First Lebanon now Srilanka declared themself bankruptcy. After the covid-19 break out some countries(especially those whose source of income was from tourism) face severe consequences. Another source of income was exporting quality tea which was also reduced significantly. Srilankan tea brand is infamous in the world. Besides that, some bad decisions from the govt like forbidding tp importation of fertilizer to produce organic foods create food shortages in the country. Mostly covid and govt is to blame for this current situation in Sri Lanka.

Note: Neputism is very common in srilanka and most of the important ministry is occupied by brother and relatives of current PM.

It is a shame that the world is ruled by a rich elite class who consolidate power and play citizens against each other. It is incredibly easy for democracy to be undermined and looted for the benefit of the few - instead of them allowing many people to live comfortably, some hoard enough wealth to live a thousand lifetimes in extravagance. As you said, often instead of deserving it through hard work or intelligence, it is simply because you were born into a specific family. We put a lot of trust into politicians at the top and have to be on guard constantly, they only have to make a few tweaks in the right conditions before independent institutions which can take them down are gone. It's a sad state of affairs, hopefully Sri Lanka can rid themselves of the scourge of nepotism.

[TheCoinGrabber]

Besides that, some bad decisions from the govt like forbidding tp importation of fertilizer to produce organic foods create food shortages in the country. Mostly covid and govt is to blame for this current situation in Sri Lanka.

Wow that's the epitome of government mismanagement. What stuff do Sri Lanka export en masse that need to be certified as organic anyway? Even if that is the incentive, then just keep the organic fertilizers for those and allow the farmers to use what fertilizer they want for the other crops.

[avikz]

I wonder why OP didn't mention about Chinese debt. 10% of their entire debt is along with China. Sri Lanka has already lost control of Goadar Port to China owing to the debt and now they have declared bankruptcy. Read more here,

https://timesofindia.indiatimes.com/business/international-business/explained-how-sri-lanka-fell-into-debt-trap-defaulted-on-foreign-payments/articleshow/90805938.cms

It is definitely a prime example of government mismanagement. Also their main source of income was tourism which got hit by Covid very seriously. We are seeing the cumulative effect now.

[istiak2277]

Besides that, some bad decisions from the govt like forbidding tp importation of fertilizer to produce organic foods create food shortages in the country. Mostly covid and govt is to blame for this current situation in Sri Lanka.

Wow that's the epitome of government mismanagement. What stuff do Sri Lanka export en masse that need to be certified as organic anyway? Even if that is the incentive, then just keep the organic fertilizers for those and allow the farmers to use what fertilizer they want for the other crops.

The funny thing is that their Prime Minister is a big fan of organic food which is why he has forced the farmers of his country to produce organic food. His government stopped fertilizer import without considering alternative food sources or checking their plans, which halved crop production. As a result, the government has to spend a large portion of its foreign reserves on food, which has further weakened its economy. A total mismanagement from the government.

[Freeesta]

The government hoped that tourism revenue would replenish the country's treasury, but because of the virus, the flow of tourists ended and the country lost profits. During the years of the civil war on the territory of this country, the government tried to regulate the economy, but apparently payments on external debt became too much of a burden for the country. Of course, covid was a big blow!

[DVlog]

I wonder why OP didn't mention about Chinese debt. 10% of their entire debt is along with China.

The amount of Sri Lankan debt from various foreign donor agencies and countries is around $12.55 billion.

• Asian Development Bank 13%
• Japan 10%

• China 10%

• World Bank 9%

• India 2%.

They recently borrowed $250 million from Bangladesh. China accounts for 30% of total foreign investment in China. Large projects such as the port of Hambantota, the port city of Colombo, and the Lakavijaya Thermal Power Plant have direct Chinese investments. China has invested $11 billion in about 50 projects in Sri Lanka.

Sri Lanka has already lost control of Goadar Port to China owing to the debt and now they have declared bankruptcy.

Goadar port is actually located in Pakistan. I think you are talking about Hambantota port which was a joint project with China. The port has so far failed to make any profit as the dividend is much lower than the cost to the port of Hambantota. The Sri Lankan government failed to repay the loan for the construction of the port. As a result, in 2017, the Prime Minister of Sri Lanka gave lease of 99 years to China.[/list]

[so98nn]

Though their families were running the nation I dont think the situation should have been this worst. Well we have living example of Queen Elizabeth United Kingdom, floursihing way amazing than before and prospering each year. They also have kingly family running the whole nation. They have properly sat up all the ministries and full control over every movement in the nation. Could not give more sweeter example than UK.

Srilankan's, actually got into trouble due to that very decision of banning the fertilizer. You can not risk your nation with the most basic stuff needed to survive -food! Thats what they did and fail into trap. Definitely tourism also gone from Srilanka now and worsening the whole situation further. $51 billion is lot of money for small country like Srilanka.

[fiulpro]

What does the world bank and the rich countries expect? Sri Lanka is not honestly in a corner around since they are already struggling with the Pandemic, have anyone seen the news where Sri Lankan Doctors are right now begging the world for supplies since the government is not able to bear with the burden of the pandemic along with the waves of the war as well. The prices are rising and the inflation is making it harder ofcourse.

The government needs to understand that every country has its own plus points for Sri Lanka would be right next to the ocean - they need to facilitate the tourism industry and at the same time the country has to make sure to produce enough food and crops. The government needs to change how they are working at the moment because they are just going downhill.

[Hydrogen]

I think nepal is also on the verge of default.

Nepal Restricts Imports To Save Cash, Suspends Cenbank Governor

KATHMANDU (Reuters) -Nepal is tightening imports of cars, gold and cosmetics as its foreign exchange reserves have fallen, a central bank official said on Monday, after the government suspended the central bank governor and named his deputy the interim chief.

The Himalayan country’s foreign reserves have been hit by a slump in tourism in Asia during the pandemic, a problem that has also hit Sri Lanka which is going through a crippling economic crisis due to a shortage of tourist revenue and other funds.

https://www.shorenewsnetwork.com/2022/04/11/nepal-restricts-imports-to/

Statistics for disposable income have a tendency to shrink considerably during eras of economic concern. As disposable income is lost, hospitability and tourism sectors are hit the hardest. Naturally places like sri lanka and nepal which rely heavily on tourism would be affected. COVID travel restrictions may also have played a role in declining visitors.

People have criticized me for thinking crypto can solve many problems faced by society. But I can't see a good opportunity for crypto to improve circumstances here. Nepal and sri lanka NFTs? They have beautiful natural wildlife which could be photographed to make NFT art. But if the issue is shrinking disposable income, then art investment would also be on the decline.

[sunsilk]

There's an explanatory video that I've watched that Sri Lanka was one of the victims of the debt trap made by China. If it's true that they've been relieved from that debt trap.

Then there go the other consequences that they have to face. This pandemic really has caused a lot of countries to fall down and can no longer sustain their economy on their own. This country should be one of the countries getting focused by those rich countries in giving aid and help not just through the pandemic but as well as the guidance of financial recovery.

On the side of their government, there's probably a need to have an amendment since you've said nepotism is popular there.

[jrrsparkles]

Another country fell into the China's debt trap, yes I too saw some articles about Sri Lankans locals protesting against the current ruling party which is about asking them to step down from the power because literally people were ran out of food, fuel, electricity even people who have money can't buy things due to shortages.Still no sign of development from the government or accepted their loss and stepping down from power.

[DVlog]

There's an explanatory video that I've watched that Sri Lanka was one of the victims of the debt trap made by China. If it's true that they've been relieved from that debt trap.

Another country fell into the China's debt trap

I don't think it's right to blame China alone for Sri Lanka's debt. Sri Lanka's debt from China is 10% while Sri Lanka's debt from Japan is the same. In 2017, Sri Lanka leased the port of Hambantota to China after failing to repay its 8 billion dollar loan from China. China has long been using that seaport to collect money for debt payments. Right now the loans that Sri Lanka is referring to as the failure of their credit council are probably loans from the Asian Development Bank, Japan, and India. Not only that, but Sri Lanka also borrowed 250 million from another neighboring country, Bangladesh through the currency swap system. Without repaying the loan, they again asked for another 250 million in loan assistance from Bangladesh which the Bangladesh government refused to pay.

The shortsightedness and mismanagement of their government are to blame for Sri Lanka's plight. The Sri Lankan government is also believed to have been involved in horrific corruption as a result of the Prime Minister's appointment of his own family members to all important government posts.

[mindrust]

Rising interest rates are a huge problem for the developing countries. Even the developed countries are in danger imo. In this capitalist financial system, every country is connected. If enough of those smaller countries keep defaulting on their debt, soon the pain will be felt in the developed countries as well. This is only the beginning. It will get a lot worse than this.

[Captain Corporate]

Everyone discusses if its a good thing or a bad thing, but the reality is that its a forced thing. I mean they had absolutely no other choice, which means that they just had to default, if there was an alternative to it then they would have done it, but they had none so their hand was forced to fold. This will result with either a good future or a bad future, but even if it results with a bad future, like never getting any debt ever again which cripples the economy, this doesn't mean that they didn't consider the risks, they did consider it most probably and they still defaulted because.. well you guessed it right, they had no other choice. Managing a nation is a tough job, sometimes politicians fail (most of the time) and this is just another example.

[hugeblack]

I have read many reports to understand what is happening in Sri Lanka, but some tried to blame China, but I should have created a full failure of the government in the management of monetary policy since 2005.
Generally, the state is not significant and estimates indicate that they need about $ 7 billion to serve debt this year and the reserves account for about 2 billion dollars, a much better number from many countries such as Lebanon, Venezuela and Burkina Faso.

So I do not think the crisis in Sri Lanka will be as bad as Lebanon, especially if the government has manage it well, but again, it seems that the essence of the crisis is more external interventions or an increase in Chinese influence.

[DU18]

Colombo: Crisis-stricken Sri Lanka defaulted on its $51 billion external debt on Tuesday, calling the move a "last resort" after running out of foreign exchange to import desperately needed goods.

The island nation is grappling with its worst economic downturn since independence, with regular blackouts and acute shortages of food and fuel.

Sri Lanka's finance ministry said in a statement that creditors, including foreign governments, were free to capitalise any interest payments due to them from Tuesday or opt for payback in Sri Lankan rupees.

"The government is taking the emergency measure only as a last resort in order to prevent further deterioration of the republic's financial position," the statement said.

It added that the immediate debt default was to ensure "fair and equitable treatment of all creditors" ahead of an International Monetary Fund assisted recovery programme for the South Asian nation.

The crisis has caused widespread misery for Sri Lanka's 22 million people and led to weeks of anti-government protests.

International rating agencies had downgraded Sri Lanka last year, effectively blocking the country from accessing foreign capital markets to raise much-needed loans to finance imports.

Sri Lanka had sought debt relief from India and China, but both countries instead offered more credit lines to buy commodities from them.

First Lebanon now Srilanka declared themself bankruptcy. After the covid-19 break out some countries(especially those whose source of income was from tourism) face severe consequences. Another source of income was exporting quality tea which was also reduced significantly. Srilankan tea brand is infamous in the world. Besides that, some bad decisions from the govt like forbidding tp importation of fertilizer to produce organic foods create food shortages in the country. Mostly covid and govt is to blame for this current situation in Sri Lanka.

Note: Neputism is very common in srilanka and most of the important ministry is occupied by brother and relatives of current PM.

One country after another is starting to feel the impact of debt loans from China, indeed China has often offered assistance to poor and developing countries such as Sri langka, The increase in commodity prices in the global market has caused prices of goods and services to rise and made Sri Langka suffer a severe economic crisis, especially Sri Lanka has always been highly dependent on imported commodities from other countries so far, I think Sri Lanka is not the only country that has to lose important assets because it is unable to pay its debts to China, many other countries also have an impact due to high debt, such as Zimbabwe, Nigeria, and Uganda.

[jrrsparkles]

Another country fell into the China's debt trap

I don't think it's right to blame China alone for Sri Lanka's debt. Sri Lanka's debt from China is 10% while Sri Lanka's debt from Japan is the same. In 2017, Sri Lanka leased the port of Hambantota to China after failing to repay its 8 billion dollar loan from China. China has long been using that seaport to collect money for debt payments. Right now the loans that Sri Lanka is referring to as the failure of their credit council are probably loans from the Asian Development Bank, Japan, and India. Not only that, but Sri Lanka also borrowed 250 million from another neighboring country, Bangladesh through the currency swap system. Without repaying the loan, they again asked for another 250 million in loan assistance from Bangladesh which the Bangladesh government refused to pay.

The shortsightedness and mismanagement of their government are to blame for Sri Lanka's plight. The Sri Lankan government is also believed to have been involved in horrific corruption as a result of the Prime Minister's appointment of his own family members to all important government posts.

Not really blaming the China, they just gave the opportunity to political leaders to fall and the leaders actually fell by taking loans and investing on useless things which has no hope of giving returns. Literally China is trying to take over countries in the modern way and legally so called influencing then leasing. Again the governments are trying to find the short term solution by taking more loan and pay back the default money but at one stage no one is going to give the loan if there is no hope of the government ability to pay it back.

[alexeyneu]

that's  right after they've commited sanctions over russia. It was a nice move