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A month ago, Sri Lanka defaulted on a debt payment and was given a month’s grace to come up with the money. The situation only got worse. Now they have officially declared a “provisional bankruptcy,” which means they can pay for a few smaller items but not the big debts.
Sri Lanka failed to repay some of its debts for the first time in its history. The country is therefore heading towards bankruptcy. Countries can go bankrupt if they can no longer pay their debts. Sri Lanka is currently in the grip of its worst economic crisis in 70 years.
The country had to pay 78 million dollars (74 million euros) in interest a month ago and was granted a month’s delay. This proved insufficient, so the country is now officially a defaulter. According to the governor of the national bank, the country is in “provisional bankruptcy”.
By this he means that Sri Lanka can still repay part of its debts, but only if, for example, it is given more time or if part of the debts are cancelled. “Some will call this bankruptcy, but it’s a technical discussion,” the governor added.
Sri Lanka had depended upon tourism for its foreign cash reserves, since they have little land and very few exports. They were already having problems in 2019, and then the so-called “pandemic” brought tourism to a complete halt. The country’s currency crashed in value in March after Russia sent troops to Ukraine. Fuel prices doubled, and food prices followed suit.
On May 16 it was reported that Sri Lanka was down to its last day of petrol and have no money to purchase more.
The same goes for food. A year ago the government banned all chemical fertilizers and pesticides on the grounds that these were polluting the rivers and ground water. This dropped production in half just as fuel prices were doubling.
I believe in organic farming, but chemical fertilizers are like soil drugs. It takes time to wean soil off those drugs. Perhaps they should have started subsidizing just a few farmers at a time to go organic. This would have allowed the soil to recover its strength without causing food shortages.
Sri Lanka is now $50 billion in debt with no end in sight. The country is in turmoil, and rioters have beaten to death at least one MP and his bodyguard. Rioters have burned the houses of government officials.
We have to wonder who are Sri Lanka’s creditors. How will this affect foreign banks and other countries? Will this have a cascading effect? It’s something to watch carefully, given the precarious situation in the world banking system today.