A note on Sri Lanka's Economic Crisis

Sri Lanka is having debt of $35B and only $1.6B to pay it.

Why they faced an economic crisis?

Pandemic has hit really hard to them which has caused all the trouble for them

- Tourism which contributes 10% of GDP was completely stopped due to the lockdown

- Food inflation has hit 21.5% which lead to the majority of the population pushing below the poverty line.

- External debt repayment will exhaust their foreign exchange reserve

The debt repayment due this year is more than $6B whereas the foreign reverse is only $1.6B

The majority of due is from China and other international sovereign bonds

The Sri Lankan government would be left with no money to import essentials like food, medical supplies or fuel.

500,000 people have fallen below the poverty line which is equivalent to 5 years of efforts fighting against poverty.

The embassy from 3 countries has been called back due to no money to fund their expenses.

What can be the government response?

- Bailout package from IMF where IMF strict conditions has to be fulfilled by them for debt reconstruction.

- Approach China for providing concessional terms for the loan.

- Seek financial assistance from countries with friendly relations.

Their govt. is not in favour to go with a bailout package from IMF due to its conditions regarding transparency.

They are currently in talk with the Chinese government to overcome this.

Sri Lanka has also asked India for a debt freeze, emergency line of credit or currency swap.

Let's see how this issue is handled by the country and who comes to help them.