Sri Lanka faces the worst economic crisis in history

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“We can no longer repay”, Nandaral Willasinge, Governor of the Central Bank of Sri Lanka, announced: “This is a preventative and negotiated default. We announced to creditors.” The islands of the Indian Ocean face the worst economic crisis in history and declared a $ 51 billion external debt default on Tuesday (April 12).

The Treasury said the default will cover all external debt, including loans from foreign governments, in anticipation of a bailout by the International Monetary Fund (IMF), which Colombo wants to get about $ 3 billion in support over three years. Clarified that it is related. “The government is only taking this emergency measure as a last resort to avoid further deterioration of the financial situation.” According to a press release from the province of the country. “”

Sri Lanka will temporarily suspend repayments while waiting for an orderly restructuring. “, Treasury Secretary Mahinda Siriwaldena told reporters. He added that creditors are free to capitalize their interest or repay in Sri Lankan rupees.

Rapid reduction and shortage

Sri Lanka has faced the worst recession since its independence in 1948, and weeks of power outages and severe shortages of food, fuel and medicine have left many of the country’s 22 million people in dire straits.

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According to economists, the crisis was due to a Covid-19 pandemic that robbed the country of tourists, exacerbated by a series of bad political decisions. The government has severely banned imports in order to maintain foreign exchange reserves and use them for debt repayment.

This month in April 2022, people’s frustration with the government spread, and the island is now in a long line to buy supplies that are short of gasoline, gas, and kerosene.

On Sunday, April 10, Sri Lankan doctors warned that there were few life-saving drugs, adding that the economic crisis was more likely to cause more casualties on the island than a coronavirus pandemic. Some facilities have already stopped their daily operations since last month due to a shortage of anesthetics. Medical associations have pointed out that even emergency surgery may soon be impossible.

Public anger at the resignation of the president

The measures announced by the government and the resignation of the majority of government members on Sunday night have so far failed to alleviate public anger. On Tuesday, April 12, thousands of people camped outside the office of President Gotabaya Rajapaksa in Colombo, demonstrating for his resignation for four consecutive days.

In 2021, international rating agencies downgraded Sri Lanka’s rating, effectively giving Sri Lanka access to foreign capital markets to obtain the loans needed to finance imports of food, fuel and medicines. I stopped it.

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Sri Lanka has requested India and China for debt relief. However, these two countries preferred to offer him more credit lines to purchase basic products. China and Japan each hold about 10% of Sri Lanka’s external debt, but India’s share is less than 5%, with the largest share of 47% being the market for international sovereign debt and other similar means. It is a loan.

Foreign Ministry spokesman Zhao Lijian said in Beijing that the default would not discourage China from making new loans to Sri Lanka.

China has always done its best to support the economic and social development of Sri Lanka. We will continue to do so in the future. – Zhao Lijian, spokesperson for the Ministry of Foreign Affairs

Sri Lanka’s debt repayment in 2022 was estimated at just under $ 7 billion, with reserves of only $ 1.9 billion at the end of March. The government is seeking relief from the IMF as the local currency has lost one-third of its value in the past month.

Last week, Treasury officials told AFP that the government would propose negotiated restructuring to creditors to avoid debt restructuring. “Hard payment default”..

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