On July 9th and 10th local time, Sri Lanka many major leaders, including the Prime Minister, President, Minister of Investment Promotion, and Minister of Agriculture, announced their resignations. The Prime Minister of Sri Lanka said: "The country is bankrupt and this unprecedented economic crisis will last until at least the end of 2023."
Currently, Sri Lanka uses US dollars to pay for basic imported goods including food, medicine and fuel. The foreign currency has been exhausted. The country’s 22 million people have been living without oil, electricity, food, and medicine for several months. On July 9, local time, large-scale protests broke out in Colombo, the capital of Sri Lanka.
Sri Lanka will not be the last country to go bankrupt due to a default on its foreign debt. According to reports, the United Nations stated that more than 70 countries around the world will follow Sri Lanka's footsteps and face the risk of debt default.
Sri Lankan protesters rushed into the Presidential Palace, picture source CNN
Protesters rushed into the swimming pool of the Presidential Palace, picture source see watermark
Since the epidemic, the crisis has become increasingly prominent, and the conflict between Russia and Ukraine has accelerated the outbreak of the crisis in Sri Lanka
At the beginning of this year, Yunqunar has reported on Sri Lanka of currency depreciation and reminded foreign trade companies of related risks. In April this year, the country announced it would stop paying its foreign debt because it needed foreign exchange reserves to pay for imports. In May, it reluctantly announced a debt default. According to reports, Sri Lanka currently owes a total of about 51 billion US dollars in foreign debt.
Picture source network, Sri Lanka needs to repay the amount of foreign debt, yellow represents foreign bonds, blue represents other foreign debt (unit: million U.S. dollars)
Since the epidemic, this South Asian island country that relies on tourism has suffered huge losses - its income has been greatly reduced, and its foreign exchange is almost exhausted. This year's conflict between Russia and Ukraine has caused energy, food and other prices to rise. Almost all pillar industries in Sri Lanka are related to the situation between Russia and Ukraine and have been directly affected.
More than 40% of Sri Lanka's food imports come from Ukraine ; energy imports rely heavily on Russia and Iran ; in terms of tourism, 30% of inbound tourists come from Belarus and Poland . Coupled with the impact of the epidemic, exports, which account for 70% of the country's foreign exchange, continue to decline, and the tourism industry, which contributes 10% of GDP revenue, is on the verge of collapse. Therefore, Sri Lanka became the first country to “fall” under the influence of the Russia-Ukraine conflict.
Currently, public services in Sri Lanka have been basically interrupted, schools are closed, the bus system is suspended, and people are banned from selling gasoline and asked to work from home.
The United Nations World Food Program (WFP) said on the 6th, “According to the State of Food Security and Nutrition in the World assessment report, in the face of record food price inflation, soaring fuel costs and commodity shortages, approximately 6.26 million Sri Lankans People, that is, 30% of the country's households do not have enough to eat. "
Trains in Sri Lanka's tea gardens
Sharp interest rate hikes + import ban, policies to deal with inflation have not worked
Data show that Sri Lanka's inflation in June The rate rose to a record 54.6%, and Sri Lanka's prime minister said the economy could shrink by as much as 7.0%.
Milk powder, sugar, lentils and other key supplies have been rationed in supermarkets for months, and car imports have been banned. In addition, the country once tried to ban the import of international fertilizers in the name of "going natural" until a sharp decline in agricultural production forced it to relax the control.
html In early June, Sri Lanka’s Ministry of Finance issued a special communiqué to increase tax rates on imported goods. Starting from June 1, Sri Lanka will impose restrictions on imported dairy products (yoghurt, butter, cheese), dates, oranges, grapes, apples, processed foods, alcohol, cosmetics, rubber, leather products, home appliances, furniture, etc. A variety of commodities are subject to high import additional tariffs , which are valid for 6 months.
On July 7, Sri Lanka's central bank raised interest rates by 100 basis points. Since the beginning of this year, the country's central bank has raised interest rates by 850 basis points. Officials from the Central Bank of Sri Lanka said that the purpose of raising interest rates is to control out-of-control prices and reduce accumulated demand pressure in the economy. The national inflation rate will reach as high as 80%, and the economy will fall into a "painful recession."
Colombo Port, Sri Lanka
How should foreign trade companies respond?
This year, high inflation has swept the world. Coupled with the impact of the United States' continuous interest rate hikes, emerging market countries are under great pressure to depreciate their currencies. Prices of imported goods have risen. Developing countries are facing heavy debt burdens, weak incomes, and insufficient cash reserves. Many difficulties.
According to a report in the " Wall Street Journal " in May, the United Nations has said that the food, fuel and financial crises caused or exacerbated by the Russia-Ukraine conflict may destabilize poorer countries and lead more than 70 countries to follow Sri Lanka's Subsequently, there is a risk of debt default. For example, since March, Turkey, Egypt, Tunisia and other countries have experienced high inflation, exchange rates plummeting, and are facing debt defaults; in early April, Lebanon announced the bankruptcy of its central bank and central government .
Foreign trade companies exporting to countries with foreign exchange shortages like Sri Lanka should beware of buyers abandoning goods, foreign exchange collection risks, etc., to avoid losses. Please refer to the following for specific response measures:
Maintain close contact with foreign customers
Keep abreast of customer operating conditions, personnel safety and other information, follow up on customer performance arrangements, and speed up the planning of emergency plans .
At the same time, pay attention to retaining written evidence of dealings with foreign customers. All communications with customers, including emails, faxes, confirmation letters, etc., should be retained to effectively safeguard their own rights and interests.
Prudently prevent and control the risk of foreign exchange collection
In the case of serious shortage of foreign exchange in the importing country, it is not recommended to use letter of credit payment in transactions.
For orders that have not yet been shipped, it is recommended to "pre-TT", that is, the buyer is required to pay 100% of the payment before shipment, and ensures that payment is received before shipment. If the payment for goods has not been paid in full but the goods have been shipped, the foreign party should be urged to fulfill its payment obligations in a timely manner.
For situations where payment cannot be collected after the letter of credit is accepted , it is recommended that enterprises actively negotiate with overseas buyers and try to reduce losses through other channels.
Ensure the safety and controllability of goods
For orders that have not yet been arranged for shipment, communicate with overseas buyers and logistics companies in a timely manner and carefully arrange the shipment of goods.
For goods that have been shipped, it is recommended to closely track the flow of goods, control the rights to the goods as much as possible, and release the goods as agreed in the contract on the premise of confirming that the buyer is willing and able to pick up the goods; when the carrier or buyer clearly indicates that the goods cannot be transported to the port When the goods cannot be picked up or cannot be picked up, the seller should promptly carry out transshipment, resale, etc. to reduce losses.
The above information comes from Jiangsu Trade Promotion, 21st Century Business Herald, Economic and Commercial Office in Sri Lanka, etc.
