Sri Lanka is sinking into the abyss of deepening financial and humanitarian crisis. With record highs of inflation, soaring food prices, and pandemic-induced disruptions drying up its coffers, the island nation is expected to go bankrupt this year.
A report in the British newspaper Guardian said the country needs to repay an estimated $7.3 billion in domestic and foreign debt over the next 12 months. This includes international sovereign bond repayments of $500 million, due in January. As of November, the available forex reserves were just $1.6 billion, it said.
In addition to the immediate impact of the COVID-19 pandemic and the consequent loss of tourism, high government spending and tax-cuts slashing state revenues, huge debt repayments to China, and record low foreign exchange reserves exacerbated the economic slowdown faced by Gotabaya Rajapaksa. Diya – led the government.
A spurt in printing money to pay off domestic debt and foreign bonds pushed inflation to 12.1 per cent in December from 9.9 per cent a month ago. Monthly inflation, as measured by the Colombo Consumer Price Index, was driven by monthly increases in prices of both food and non-food items.
December food price inflation rose to 22.1 per cent from 17.5 per cent a month ago, the country’s central bank announced.
The World Bank estimates that 500,000 people have fallen below the poverty line since the start of the pandemic, the equivalent of five years of progress in fighting poverty, the report said.
According to the World Travel and Tourism Council, the loss of jobs and significant foreign revenue from tourism, which typically contributes more than 10 percent of the country’s GDP, with the travel and tourism sectors losing livelihoods of more than 200,000 people , has been enough.
President Rajapaksa in his New Year’s message hoped to revive the cash-strapped economy but did not announce measures to address its severe foreign exchange crisis. “I am confident that the new year will provide an opportunity to take forward and overcome the challenges and take forward the steps taken by the government to strengthen the people-centric economy,” he said.
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