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‘Sri Lanka is flirting with default’ – The Economist

“Sri Lanka finds itself looking down the barrel of a gun,” wrote The Economist last week, as it highlighted the economic crisis on the island and the government’s opposition to intervention from the International Monetary Fund (IMF).

“The numbers are sobering,” said The Economist.

“Interest obligations on government debt in 2021 amounted to 72% of total revenues, while public-sector salaries and pensions came to 80%. Multiple downgrades have in effect locked it out of the international private-credit market.”

It noted that “years of heavy foreign debt and current-account deficits have taken a toll”.

“Foreign reserves have collapsed. Supplies of oil, cooking gas, milk, wheat and medicine are running short. A rapidly depreciating currency has helped the country’s exporters, including clothing manufacturers and tea growers. But it has made servicing foreign-denominated debt more costly and has stoked inflation, which jumped during 2021 to 12% and appears to be accelerating.”

The Economist continued to note that the current Rajapaksa-led regime “has vocally opposed IMF intervention, calling it an infringement of sovereignty.”

“Still, some kind of restructuring seems inevitable, either under the oversight of a multilateral agency or with a more comprehensive government plan that has yet to be presented. The alternative is default—and the risk of higher inflation, fewer imported goods and an end to the current recovery.”

Read the full piece here.

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