Sri Lanka’s ‘bankruptcy’ warning

   After months of deep economic and social crisis, Sri Lanka began to enter a “power vacuum”. On July 10, hours after President Rajapaksa and Prime Minister Wickremesinghe announced their resignation or willingness to resign, Chief of Defense Staff Shavindra Silva issued a brief statement emphasizing a peaceful solution to the current political crisis The opportunity has arisen to call on the Sri Lankan people to support the armed forces and police to ensure peace is maintained in the country. How Sri Lanka, which has “national bankruptcy” and a serious political crisis, is still a huge question mark to be solved.
   More than three months ago, Sri Lanka had already experienced a round of major social unrest. At that time, demonstrations spread from Colombo to several cities, and protesters demanded the immediate resignation of President Rajapaksa. At the end of April and the beginning of May, two consecutive nationwide strikes broke out in Sri Lanka. During this period, civil unrest in Sri Lanka continued, and the government sought help from the outside world, and also implemented internal policies, but the effect was limited. Inflation hit a new high of 54.6% in June. An ongoing study at the University of Peradeniya in Sri Lanka found that between March 2020 and March 2022, the percentage of Sri Lankans who could not afford a basic nutritious diet soared from 11% to 33%. Jayasandara used to do some part-time jobs in his spare time, earning about 30,000 rupees (about 587 yuan) per month. In the past, this money was enough for his monthly living expenses, but now with the rapid inflation, With the money in his hand, it is difficult to buy the same products as before. “The price of rice alone has tripled, and filling the stomach has become a problem.” Jayasandara can’t remember how long ago was the last time he ate meat. With the rise in prices, the hardships of ordinary people in Sri Lanka can be imagined. What is even more frightening is that all this has yet to see any momentum of relief. Seeing that, the Sri Lankan economy continues to decline. So much so that Sri Lankan Prime Minister Wickremesinghe announced on July 6 that “the country has gone bankrupt”, and, he believes, this unprecedented economic crisis “will last at least until the end of 2023.”
   When talking about the crisis in Sri Lanka, most analysts attribute it to the new crown pneumonia epidemic, the conflict between Russia and Ukraine, the disruption of global supply chains, soaring energy prices, and the Federal Reserve’s continuous interest rate hikes, etc. Heavy losses, a sharp decline in overseas remittance income, and a slump in foundry companies. In fact, these are just incentives. The deeper reasons are Sri Lanka’s high external debt and chronic trade and current account deficits. It is a typical “twin deficit country”.
   Some experts have analyzed that the economic crisis in Sri Lanka reflects the mismatch between the country’s development strategy and development capabilities, and the mismatch between long-term goals and reality. In the final analysis, the ideas of some elites are seriously out of touch with reality. Even more worrying is that Sri Lanka is likely not to be an isolated case of “national bankruptcy”. If a country has a high external debt debt ratio, rapid currency depreciation, and high dependence on imports for energy and food, they are likely to follow Sri Lanka’s footsteps and break out into a major crisis.