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Sri Lanka Declares Bankruptcy, What Happened?

After months of galloping inflation and brownouts.
by Agence France Presse
Jul 6, 2022
Photo/s: Agence France-Presse
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COLOMBO -- Sri Lanka is bankrupt and the acute pain of its unprecedented economic crisis will drag on through the end of next year, Prime Minister Ranil Wickremesinghe told parliament Tuesday.

The island nation's 22 million people have endured months of galloping inflation and lengthy power cuts after the government ran out of foreign currency to import vital goods, with economists blaming mismanagement for the worsening economic woes.

Wickremesinghe said the once-prosperous country would go into deep recession this year and acute shortages of food, fuel and medicine would continue.

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"We will have to face difficulties in 2023 as well," the premier said. "This is the truth. This is the reality."

He said Sri Lanka's ongoing bailout talks with the International Monetary Fund depended on finalising a debt restructuring plan with creditors by August. 

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"We are now participating in the negotiations as a bankrupt country," Wickremesinghe said.

"Due to the state of bankruptcy our country is in, we have to submit a plan on our debt sustainability to them separately. Only when (the IMF) are satisfied with that plan can we reach an agreement."

The IMF last week said more work was needed to set the nation's finances right and repair its runaway fiscal deficit before a deal could be struck on a funding arrangement to address its balance of payments crisis.

It has also told authorities to do more to fight corruption and bring an end to costly energy subsidies that had long been a drain on the government budget.

Dying for petroleum

Sri Lanka is almost entirely without petrol and the government has shut down non-essential public services in an effort to conserve fuel.

There have been clashes outside the few petrol stations still selling fuel, with tens of thousands lining up for the slim chance of securing limited supplies and no fresh stocks expected for at least two weeks. 

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Police said a 60-year-old motorist was found dead in his car on Tuesday after waiting for days to fill up at a petrol station in the capital.

There have been over a dozen similar deaths of drivers waiting in long fuel queues over the past two months.

The United Nations estimates that about 80% of the public are skipping meals to cope with food shortages and record prices.

Within hours of Wickremesinghe’s remarks on Tuesday, the head of the country's small but influential Catholic church added his voice to the chorus of calls for President Gotabaya Rajapaksa to bear full responsibility for the crisis and resign.

Insisting Rajapaksa and his family had no moral authority to govern, Cardinal Malcolm Ranjith said in a statement: "The biggest obstacle to liberating the country from this sad situation is the fact that the Rajapaksa family continues to stay in power."

Wickremesinghe on Tuesday said the IMF expected Sri Lanka's economy to shrink by seven percent this year, even worse than the dire forecasts issued by the country's central bank. 

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He said inflation could climb above 60 percent, and rapid currency depreciation over the past few months had wiped out the value of savings by half.

"Think about how this situation affects our senior citizens," the 73-year-old premier said. "Poverty is spreading among all of them."

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