Sri Lanka is in the middle of an economic crisis. Sri Lanka’s government has officially announced bankruptcy in a move that could see over $2 billion in debt owed to creditors. This announcement comes as the nation struggles to cope with an economic crisis that has seen inflation skyrocket and the value of the Sri Lankan Rupee plummet.
This announcement comes following months of protests from citizens who demanded that their concerns be addressed. This saw the government backtrack on a series of austerity plans and later announced that it would be doubling fuel prices.
Now, after weeks of unrest, the President has announced that he will seek to restructure the nation’s debt by making an application to the Supreme Court. This means Sri Lanka will likely seek an agreement with its creditors, reducing what it owes them to avoid bankruptcy.
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Although this is a possibility, analysts have cautioned that other options could be at play. Reuters reports: “The possibility that the government could seek bankruptcy protection to pay off its debts is not as far-fetched as it might at first appear,” Juanita Manuel, chief executive of the Sri Lanka Foundation, told Reuters. “The government doesn’t want to go down the route of being forced into bankruptcy, but I think it would like to avoid default and find a solution with those creditors. There are some hardliners in government who would like to see a fight with the creditors.”
The alternative to restructuring is a default, which would be far more damaging for the nation. Sri Lanka already has approximately $60 million in debt, but this figure will increase dramatically over the next few weeks. At the same time, interest payments on the outstanding debt will also rise sharply.
This announcement has sparked fears that Sri Lanka could become one of many nations to be declared bankrupt in recent years.
