Sri Lanka has not been able to repay its debt, due to which it is now bankrupt. In the event of bankruptcy, Sri Lanka’s condition will be worse because it will have more difficulties in getting loans in the international market. The reputation of the country will also suffer a lot due to bankruptcy.
India’s neighboring country Sri Lanka has gone bankrupt for the first time in its history. This country, which is facing the worst economic crisis of more than 70 years, has not been able to repay its debt. Sri Lanka was given a grace period of 30 days to repay the loan of $ 708 million. This period also ended on Wednesday and Sri Lanka could not repay its debt.
At the same time, the governor of the central bank of Sri Lanka has said that his country is not repaying the loan to avoid the economic crisis, that is, it is a primitive default.
A country is declared bankrupt when its government is unable to repay the loan or installments taken from other countries or international organizations on time. This situation causes great damage to the reputation of any country. When a country goes bankrupt, it becomes very difficult to take money from the international market. This causes a lot of damage to the country’s currency and the image of its economy.
According to a report in BBC World, when Sri Lanka’s central bank governor P Nandalal Weerasinghe was asked if his country had gone bankrupt, he replied, ‘Our position is very clear. We had already said that unless the debt is restructured, we will not be able to pay any country. So you can call it a preemptive default.
He further said, ‘Bankruptcy may have technical definitions… people may consider it as the bankruptcy situation of Sri Lanka but our position is very clear. Unless the loan is restructured, we will not be able to make the payment.
How did this condition of Sri Lanka happen?
The economy of Sri Lanka has been badly affected by the Corona epidemic, rising energy prices and tax exemptions to please the people. There is a shortage of foreign exchange in the country for the last several years and the foreign exchange reserves of the country have been exhausted.
Due to shortage of foreign exchange and rising inflation, there has been a severe shortage of medicines, fuel and all essential commodities in Sri Lanka. Petroleum has been completely exhausted in the country, due to which people are not getting even a drop of petrol, diesel.
The anger of the people of the country has erupted over this state of economic plight. Large demonstrations have been taking place in the country for the last several days. People involved in these demonstrations were seen raising slogans against President Gotabaya Rajapaksa and his family. Their demand is that the ruling Rajapaksa family should leave power.
Violence has also been seen in these demonstrations. Last week, President Rajapaksa’s elder brother Mahinda Rajapaksa had to resign as prime minister following a violent demonstration. Nine people were killed and more than 300 were injured in clashes between the protesters and supporters of the government.
Sri Lanka has now appointed Ranil Wickremesinghe as the new Prime Minister. On Friday, Wickremesinghe said in an interview with the BBC that his country’s economic situation will get worse before it gets better.
He said that he promised to ensure that all Sri Lankan families would not be deprived of three meals a day. Appealing for more financial help from the countries of the world, he said that the situation of starvation will not arise in Sri Lanka.
Here, Sri Lanka is already in talks with the International Monetary Fund (IMF) on a bailout package. He is also trying to restructure foreign debts so that he can get some relief in repaying the debt.
The government of Sri Lanka has said that it needs four billion dollars to run the country this year.
Inflation will increase further
Governor Weerasinghe has warned that Sri Lanka’s already very high inflation rate is likely to increase further. “Inflation is clearly around 30%,” he said. Inflation will increase further. It will be around 40% in the next few months.
Last month, the credit rating agencies had warned of bankruptcy
Last month, two of the world’s largest credit rating agencies warned that Sri Lanka would not be able to repay its debts.
Fitch Ratings had said that the process of bankruptcy of Sri Lanka has started. S&P Global Ratings made a similar announcement and said that Sri Lanka was sure to be a defaulter.
These credit rating agencies issue a rating to countries with the aim of helping investors understand the level of risk they face.
