Sri Lanka’s debt meltdown
Sri Lanka is suffering its worst debt and economic crisis in decades, say Benjamin Parkin and Mahendra Ratnaweera in the Financial Times. A shortage of foreign exchange has left the government unable to pay off its loans or import basics such as food and medicine. The surge in global oil and gas prices, combined with a 60% drop in the rupee, has also led to shortages of petrol and cooking gas. The government has been forced to start talks on debt restructuring and assistance with the IMF, private creditors and countries such as India and China.
Sri Lanka was hit particularly hard by the pandemic, which caused an economic meltdown by sapping revenue from tourism and remittances, says Kai Schultz on Bloomberg. But the ruling Rajapaksa family must share the blame. They have controlled the country for 12 out of the last 20 years, and have borrowed heavily, particularly from China for infrastructure projects, while insisting on “sweeping tax cuts” despite warnings that the deficits would turn the country into “another Greece”. The government’s recent decision to ban imports of fertilisers to conserve foreignexchange reserves has also hit agriculture, which employs a third of the workforce.
The government may yet be able to stave off meltdown with the help of the World Bank, says Charu Lata Hogg in The Guardian. But in the longer run its future looks uncertain. The Rajapaksas will probably cling to power, despite the “unified resistance” that is on the streets in opposition, as they are still supported by the military and police. Aid or debt restructuring should therefore be made dependent on economic and political reform.