Sri Lanka is on the verge of bankruptcy. Because of the huge debt with China?
Date 11 Jan 2022 time 17:20
Sri Lanka is facing a severe financial crisis that could soon be bankrupt as inflation hit record highs. food prices soar The money is running out of stock
Sri Lanka was on the brink of collapse until President Kota Baya Rajapaksa had to speak to Chinese Foreign Minister Wang Yi during a visit to Sri Lanka. Ask China to restructure its debt to extend the repayment time to Sri Lanka to avoid further marginal financial crisis.
Wang Yi’s visit came after a global credit rating agency warned that The Sri Lankan government risks defaulting on its debts.
What happened to Sri Lanka, which was once the strongest economy in South Asia?
1. Sri Lanka faces many economic problems. Both the lack of revenue from the tourism sector, which accounts for 10% of GDP and the country’s third-largest source of foreign currency, plus high government spending. until creating foreign debt that is higher than the country’s ability to pay and tax cuts, which make the state less money.
2. Sri Lanka still has to bear the burden of debt repayment, especially with China. Meanwhile, international reserves are depleted to a 10-year low, and inflation is fueled by the government’s printing of banknotes to pay off both domestic debt and foreign bonds.
3. And then Sri Lanka reached its most critical point in 73 years when President Rajapaksa had to declare a state of emergency on August 30, 2021 after the Sri Lankan rupee’s value plunged, causing commodity prices. consumption increases
4. After the declaration of an emergency The government controlled goods by sending soldiers to control the trading of essential commodities such as rice and sugar in accordance with the prices set by the government and suppressing further inflation. But not many problems can be solved.
5. During that time, the government also announced that it will move forward. The “100% organic farm” banned fertilizers and pesticides in June, ignoring warnings that the policy could derail farming and hurt the country’s revenue-generating tea industry. substantial
6. The results showed that in the month Sept. The country’s agricultural output dropped by 50%, leading to a food crisis. The situation for the tea industry is a crisis. Farmers who farm organically have to increase costs tenfold while crops are cut in half. Therefore, some farmers did not dare to invest further because they were afraid of losses.
7. And when the country’s ability to earn money is affected Sri Lanka also lacked foreign currency to settle debts. including to spend to buy imported products When money is in short supply, the government has to borrow money.
Since 2014, Sri Lanka’s foreign debt has continued to rise sharply. By 2019, it accounted for 42.9% of GDP, or about $33 billion. which increases the heavy burden of finding money to pay back the debt
The global recession from the Covid-19 outbreak has worsened Sri Lanka’s economic situation, with Sri Lanka’s foreign debt reaching 101% of GDP by 2021, causing its economy to collapse.
10. China is Sri Lanka’s fourth largest creditor after the International Monetary Fund (IMF), Asian Development Bank (ADB) and Japan, and Sri Lankan government data show that as of April 2021, China’s debt ratio at 10% of Sri Lanka’s 35 billion USD total foreign debt
11. Over the past decade, Sri Lanka has relied mainly on low-interest loans from China. China has loaned more than $5 billion to Sri Lanka to develop infrastructure such as roads, airports, ports and coal plants. Which analysts see as an investment that is not worthwhile for Sri Lanka.
12. Last year, Sri Lanka borrowed an additional $1 billion from China to solve the economic crisis, which must be repaid in installments.
13. In the next 12 months In both the government and private sectors, Sri Lanka has a debt burden of about 7.3 billion US dollars. It starts with $500 million in government bonds due Jan. 18 and another $1 billion in July.
14. But until the month Nov last year Sri Lanka’s international reserves are only about 1.6 billion USD. And this amount is enough to import essential products for only 1 month.
15. It is estimated that Sri Lanka’s international reserves will run out by this month. And the government may have to borrow an additional $437 million to cover essentials.
16. Harsha de Silva, an economist and member of the opposition council, even said at the council meeting that “The country will be completely bankrupt.”
17. Sri Lanka previously failed to repay a $1.4 billion loan for the Hambantota port in the south of the country to the Chinese government. In 2017, China was forced to lease the port to Chinese companies for 99 years.
18. And last month, the Sri Lankan government also said it would clear $251 million of its former oil imports from Iran with tea, a famous commodity. It sends $5 million worth of tea leaves to Iran every month until complete. And the choice to send tea leaves instead is to save money in foreign currencies that are scarce.
19. And since last Friday (Jan. 7), Sri Lanka has reached the point of allocation of electricity. After insufficient foreign currency will be imported fuel energy.
Photo by ISHARA S. KODIKARA / AFP
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