Sri Lanka is facing a serious crisis for the first time since independence. It has defaulted on foreign debt and has now declared bankruptcy for the first time. In Sri Lanka, which was once one of the most prosperous countries in Asia, people are now unable to afford even basic necessities. The outraged public ransacked the President’s House, causing him to flee the country.
When is a country declared bankrupt?
A country is declared bankrupt when the government is unable to repay the debt it has borrowed from other countries or international organizations on time. Sri Lanka has been given a deadline of May 2022 to repay the $708 million loan. Even after several extensions of the deadline, Sri Lanka was unable to repay the money and was eventually declared bankrupt.
Sri Lanka caught in China’s trap
Sri Lanka’s current situation did not happen suddenly. Its seeds were sown 10 years ago. Proximity with China and unaccounted debt worsened Sri Lanka’s situation. Today the country has no foreign exchange reserves and essential commodities like petrol and diesel. Sri Lanka’s foreign exchange reserves at the end of 2019 stood at $7.6 billion. This amount was enough for five months of imports in 2020. Bad policies and high levels of indebtedness have left Sri Lanka with insufficient cash reserves to service foreign loans and other foreign exchange.
Demonstrations in many cities of Sri Lanka
The Sri Lankan Rupee has been under pressure since the beginning of 2020. Sri Lanka’s foreign exchange reserves reached $5.7 billion at the end of 2020 and stood at $1.6 billion in November 2021. Although the seeds for Sri Lanka’s present situation date back 10 years, in the last three years, misguided policies and severe debt pressures have worsened the situation.
Bankrupt Argentina
It is not the first time in history that a country has gone bankrupt. Many countries have gone bankrupt before. A similar situation arose in Argentina in 2001. At that time, the Argentine government threw up its hands saying that they did not have the money to pay off the debt. As unemployment and inflation peaked in Argentina, people took to the streets to protest.
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In 1991, India’s situation almost reached bankruptcy. In such a situation, after the then finance minister Manmohan Singh implemented economic liberalization policies and reforms, the country’s economy breathed a sigh of relief. However, there was widespread opposition to the implementation of liberalization in India.
Pakistan in Bankruptcy
Pakistan has experienced bankruptcy many times before. But every time it comes to China or Saudi Arabia’s rescue. Now Pakistan’s economy is again in a bad state. Due to the political instability prevailing in the country, the economic crisis is intensifying. Prices of cooking gas, electricity, fuel and essential medicines in Pakistan have reached their peak. Malls in Karachi close at 10 am to save money.
Former Prime Minister Imran Khan tried to borrow heavily from Russia in the last days of his tenure. Now Pakistan’s only hope is China. Pakistan hopes China will help it avoid bankruptcy.
Read more | People besieged the President’s House; Fugitive Gotabaya Rajapakse
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