According to reports from the Associated Press, Deutsche Welle and other media, Sri Lanka is experiencing the worst economic crisis in history. Fuel shortages have brought the country to a standstill, with debts exceeding US$50 billion. The Prime Minister of Sri Lanka declared th

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I believe you have heard of corporate and personal bankruptcy , but have you heard of a country declaring bankruptcy?

" The Pearl of the Indian Ocean " Sri Lanka has admitted "national bankruptcy".

According to Associated Press , "Deutsche Welle" and other media reports, Sri Lanka is suffering from the most serious economic crisis in history. Fuel shortages have brought the country to a standstill, with debts exceeding 50 billion US dollars. The Prime Minister of Sri Lanka declared the country bankrupt on the 6th.

The country is bankrupt, foreign exchange is depleted, inflation is off the charts, and there is an extreme shortage of fuel and medicine... 70% of households have reduced their meals from three meals a day to two, and fuel stocks are less than a day. Thousands of Sri Lankans have tried to immigrate illegally, taking boats to Australia, India and Africa.

Sri Lanka is experiencing its worst economic crisis since independence.

The president and the prime minister both resigned and fled

According to Reuters report, on July 9, thousands of protesters in Colombo , the capital of Sri Lanka, rushed into the presidential residence to oppose Sri Lankan President Rajapaksa and demand his resignation.

It is reported that a large number of protesters rushed into the Presidential Palace, and the Sri Lankan army fired shots in the air to prevent the protesters from occupying the Presidential Palace until Rajapaksa safely evacuated. At least 21 people were injured and hospitalized during the protests, including two police officers. There is a swimming pool in the

mansion, and some protesters entered the pool to swim.

Sri Lanka Speaker Abeywardena said in a televised statement on the evening of the 9th that President Rajapaksa had informed him that he "decided to resign on July 13 to ensure a peaceful transfer of power." At the same time, there is news that Sri Lankan President Gotabaya Rajapaksa has left the capital Colombo.

↑Sri Lankan President Gotabaya Rajapaksa Data Map

On the same day, the Prime Minister's Office of Sri Lanka announced that Prime Minister Ranil Wickremesinghe had informed the leaders of all parties that he was willing to resign as prime minister.

↑ Sri Lankan Prime Minister Ranil Wickremesinghe

BBC10 reported that after a day of anger and violence, the news that the president and the prime minister agreed to step down triggered cheers and fireworks in Colombo celebrations. However, the protesters do not intend to stop there. "The struggle will not end until he (Rajapaksa) actually leaves," protester Weerasekela told AFP .

In addition, according to Sri Lankan media reports on July 10, local time, many ministers including the Minister of Investment Promotion and the Minister of Agriculture in Sri Lanka have announced their resignations. A large number of Sri Lankan officials fled by plane.

National bankruptcy and people displaced

Economist Xu Donghua said:

"National bankruptcy refers to the economic situation of a country in a certain period of time. First, there is a large fiscal deficit and foreign trade deficit; secondly, there is a large fiscal deficit and foreign trade deficit; secondly, there is a A large amount of foreign debt; finally, the country has no ability to repay the foreign debt, and there is no way to improve the domestic economic situation. In this case, we can say that the country is going bankrupt. "

This is the situation in Sri Lanka.

In this case, "national bankruptcy" is more of an adjective used to describe a country's economy that has deteriorated to the extreme.

For Sri Lankans, this means their lives are dark.

Power outages have become a common occurrence, and can last up to 16 hours a day.

All imported products, fuel, natural gas , coal and other energy and medicines are all in short supply. Even the lucky ones need to queue for hours to buy what they want.

Long-term inflation and material scarcity have further pushed up commodity prices. The prices of some commodities have tripled since the beginning of the year, which is also squeezing the already poor people of Sri Lanka.

Countless people have lost their jobs, become homeless, and even died in poverty and chaos.

People queue up to buy kerosene at a fuel distribution station in Gampora, Sri Lanka. Image source: Nikkei Asia

This is the most common scene when a country goes bankrupt.

Once "national bankruptcy" occurs, countless citizens will fall into the abyss, regardless of whether they were once poor or rich.

Sri Lanka, why are you here?

For many years, Sri Lanka has lacked a normal environment for economic development. The Sinhalese of Sri Lanka account for about 75% of the population, and the Sri Lankan Tamils ​​and Indian Tamils ​​account for about 15%. Before 2009, Sri Lanka was locked in a 26-year civil war between the Sinhalese-dominated government and the Liberation Tigers of Tamil Eelam.

Sri Lanka’s economy relies on primary industries—mainly the garment industry, tourism, tea, and rubber, among which tourism and tea are the bulk of profits.

After Gotabaya Rajapaksa came to power in 2019, he launched a series of economic reform policies, mainly including reducing the value-added tax from 15% to 8% to stimulate enterprise development; implementing an organic agriculture reform plan to promote the realization of the entire country's agriculture "Green planting" to increase the added value of agricultural products and prevent the outflow of foreign exchange.

Facts have proved that this series of reform policies are too advanced for Sri Lanka’s economy.

Sri Lanka’s Ministry of Finance estimates that tax cuts have resulted in a loss of more than US$1.4 billion in government revenue – at the end of 2019, Sri Lanka’s foreign exchange reserves were only US$7.6 billion. The ban on the import of chemical fertilizers led to widespread crop failure, causing Sri Lanka to lose its ability to be self-sufficient in rice. Sri Lanka has to import food from abroad, leading to an even greater shortage of foreign exchange. As of recently, the Sri Lankan government has only US$50 million in foreign exchange reserves available, while Sri Lanka’s external debt is US$51 billion.

On May 19, Sri Lanka defaulted on its sovereign debt for the first time since independence. Unable to pay interest on maturing debt of US$78 million, triggering sovereign debt crisis .

The lack of foreign exchange imports has led to increasingly serious problems such as fuel shortages, power outages, lack of medicines, and rising food prices in Sri Lanka in recent months. At present, Sri Lanka's public services have been basically interrupted, schools have been closed, the bus system has been suspended, and people are banned from selling gasoline and asked to work from home. About 70% of residents cannot guarantee three meals a day.

Since the outbreak of the epidemic, Sri Lanka’s most profitable tourism industry has suffered a heavy blow. This industry, which accounts for 12% of Sri Lanka's GDP and 14% of its foreign exchange earnings, can only operate partially.

html The remittances of 42 million Sri Lankan expatriates working overseas were originally an effective supplement to funds, but the epidemic has caused a rapid decline in remittances. According to data from the Central Bank of Sri Lanka, overseas remittances totaled US$2.8 billion in the first half of last year, but only US$1.3 billion in the same period this year. On the contrary, many powerful Sri Lankan residents are now trying their best to flee abroad.

In addition, few people could have expected that Sri Lanka would be one of the countries most affected by the conflict between Russia and Ukraine, which is thousands of miles away.

More than 40% of Sri Lanka's food imports come from Ukraine , and energy imports rely heavily on Russia and Iran . In the tourism industry, 30% of inbound tourists come from Belarus and Poland . It can be said that almost all pillar industries in Sri Lanka are related to the situation in Russia and Ukraine.

The conflict between Russia and Ukraine has led to Sri Lanka having to find new import alternatives. But what makes matters worse is that due to the sovereign debt crisis, Sri Lanka's credit has been downgraded, making it even more difficult to negotiate import business.At present, there has been some progress in reaching an agreement with Iran to exchange tea for oil, but the trade volume is not large.

The superposition of the two risks of the epidemic and the Russia-Ukraine conflict has further amplified the risk of Sri Lanka's economic decision-making errors.