Status: 04/12/2022 2:53 p.m
The island state of Sri Lanka, which is plagued by a severe economic crisis, cannot repay its foreign debt. All interest and repayments have been suspended for the time being.
The Asian island state of Sri Lanka can no longer repay its high loan debts abroad and has consequently stopped making repayments and paying interest for the time being. Central Bank Governor Nandalal Weerasinghe warned today that the island nation, which is plagued by a severe economic crisis, is on the verge of default.
According to the central bank, the country has debts of more than 50 billion US dollars, but hardly has any foreign currency left. It is estimated that Sri Lanka will need $7 billion this year alone to pay off its outstanding debt, with reserves of just $1.9 billion at the end of March.
Sri Lanka now wants to negotiate with lenders to restructure its debt, the Ministry of Finance said. This is the last resort to prevent the financial situation from deteriorating further. Asian countries, including China and Japan, are also among the lenders. They each account for ten percent of the debt, followed by India with five percent. The Chinese Foreign Ministry said today that the admitted insolvency does not change the fact that Beijing will continue to support the island state in its “economic and social development”.
Worst economic crisis since 1948
Sri Lanka is going through the worst economic crisis since independence in 1948. The 22 million people suffer from food, fuel and medicine shortages, power cuts and immense inflation. In addition, the country lacks US dollars to import corresponding goods from abroad.
Most recently, Sri Lanka had taken out more and more loans and also asked the International Monetary Fund (IMF) for help. Talks are to be held in Washington next week. Sri Lanka wants a cash injection of $3 billion over the next three years to prop up the economy. According to the Ministry of Finance, a restructuring of the debt is in progress in accordance with economic programs of the IMF.
Protests shake the country
According to economists, the situation has been made worse by government mismanagement, years of credit accumulation and improper tax policies. In addition, the slump in tourism due to the corona pandemic is causing problems for the country – the sector is an important pillar of the economy.
The past few weeks have been marked by violent protests against the government. The protesters are demanding the resignation of President Gotabaya Rajapaksa and his brother and Prime Minister Mahinda Rajapaksa as they do not expect any solution to the crisis from either of them.