Sri Lanka on the brink of being declared a ‘Bankrupt country’

Increase in the price of petrol due to the war inflation high in Sri Lanka

Editorial comments

  • To prevent this from happening in India, prompt steps should be taken to become self-sufficient in the context of oil and natural gas.
  • It will not be a surprise if China takes advantage of Sri Lanka’s financial situation and traps it.
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Colombo (Sri Lanka) – The effect of the Russia – Ukraine war can be seen in various countries. An increase in petrol prices in Sri Lanka has resulted in inflation in many sectors. While the country is fighting hard to survive, the ongoing crisis in war-hit Ukraine has made things go bad to worse. Added to this, there is a danger of shortage in the food grains supply. The country has had to face a severe financial crunch because of the coronavirus pandemic. Milk has become costlier than gold. The price of cooking gas rocketed sky-high. It has led to nearly a thousand bakeries shut down. A loaf of bread costs 150 rupees. Hence, the price hike has brought Sri Lanka on the threshold of being declared a ‘bankrupt nation’.

Sri Lanka needs nearly $7 billion to service its foreign debt this year, but the country’s external reserves at the end of January were just over $2 billion — enough to finance one month of imports. International rating agencies have downgraded Sri Lanka over expectations it may not be able to repay its borrowings, though the Government insists it will. As tourism from most of the Western countries’ was already shut off due to Covid in the last two years or so, Russia and Ukraine had become an increasingly important source of foreign currency for Sri Lanka.

Now, this Russia-Ukraine war has threatened to turn off that revenue tap as well. And with key bond repayments set to be due soon, Sri Lanka is staring at a possible default.

 

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