Sri Lanka Bankrupted

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Suffering from lowest ever bank reserves, a collapsing currency and a collapsing economy; Sri Lanka is facing fatal bankruptcy. Never ending power outages and agonizing negotiations with the IMF for a rescue, these bleak aspects of Sri Lanka’s existential catastrophe sound frighteningly identical to Pakistan and many other developing countries in comparable situations. To make matters worse, Sri Lanka’s prime minister warned parliament on Tuesday that the government was bankrupt and that the economic crisis would linger until next year. The pain is severe for the residents of the island nation. Fuel lines are serpentine, and people have to stand in line for days. There have also been protests around petrol stations, forcing troops to intervene.

Furthermore, the UN reports that 80 percent of the population is skipping meals owing to food shortages and exorbitant prices, with inflation skyrocketing.

What brought Sri Lanka here? There are no easy answers, but a mix of circumstances appears to be to blame for the island’s disastrous state. Low tourist inflows as a result of the Covid-19 outbreak, failed harvests as a result of a fertiliser prohibition, one-family rule, corruption, and a mountain of debt have all contributed to the Sri Lankan state’s demise. However, the island cannot be abandoned, and the entire community must demonstrate solidarity by assisting the people of Sri Lanka in rebuilding their country. The focus should be on providing enough finances to Colombo to allow regular life to function, rather than predatory concerns about how they will get their money back. This is especially true for rich states and multilateral lenders. The fact is that many countries in the Global South are facing catastrophic debt crises, and there is an urgent need to overhaul the “morally bankrupt global financial system,” as the UN Secretary General has characterized it. While it is necessary to introduce domestic reforms, developing countries should be allowed debt relief to assist them in dealing with the severe headwinds that are currently pounding the global economy.

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