Sri Lanka and its financial crisis

Sri Lanka is facing financial crisis and soon will be facing bankruptcy. Sri Lanka is known for tourism. Something that makes Sri Lanka outstanding is its tropical climate and beaches and also for its food.

A great place for water sport, wildlife enthusiasts and haven for history buff. But because of pandemic Sri Lanka faced the huge loss but this is not the actual reason for financial crisis.Earlier on 20th of August 2021, the Government of Sri Lanka announced the national financial crisis.

Low growth rate is the main reason for the financial crisis. The cumulative foreign debt of the country was estimated at USD 33 billion in 2019, which have put the burden on the country. The external reserve dropped to 1.6 billion in November 2021 but it all started back in 2014 as foreign debt are rising since then.

The foreign debt rose to 42.6 per cent of GDP in 2019 and 2020 pandemic gave it a spike. The deadline for repaying the loan is this year itself which means Sri Lanka might be left with no dollars to import essentials.

Also, the nation cannot acquire funds through International Sovereign Bonds (IBSs), as several credit rating agencies including standard and poor’s, moody’s and Fitch downgraded Sri Lanka’s credit rating from B to C, according to Guptil.

The government have to repay on estimated USD 7.3 billion in domestic and foreign loans including a USD 500 trillion international sovereign bond repayment in January 2022, but the available foreign currency reserve were just USD $1.6 billion. It also owes China more than USD 5 billion in debt and also took loan last year of USD 1 billion from Beijing to tackle the financial crisis. Inflation has risen to 11.1 percent in November and the price rise left people to struggle to feed their families.

Updated by Shraddha Nagwekar