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    Sri Lanka declares bankruptcy, what happens next?

    Sri Lanka declares bankruptcy, what happens next?

    Sri Lanka declares bankruptcy, what happens next?
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    By CNBCTV18.com  IST (Published)

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    Sri Lanka’s economy, which has been faltering since 2020, is facing its worst economic crisis in over 70 years with inflation rising to record levels, food prices skyrocketing and government coffers running dry. While the government blamed the pandemic for the debilitating economic situation, many experts have said it was caused by political mismanagement and racking up debts with China.

    Amid deepening financial and humanitarian crisis in Sri Lanka, Prime Minister Ranil Wickremesinghe declared the island nation as ‘bankrupt’ on Tuesday.
    Sri Lanka’s economy, which has been faltering since 2020, is facing its worst economic crisis in over 70 years with inflation rising to record levels, food prices skyrocketing and government coffers running dry. While the government blamed the pandemic for the debilitating economic situation, experts have said it was caused by political mismanagement and racking up debts with China.
    The island nation first defaulted on its debts in May. On Sunday, Energy Minister Kanchana Wijesekera told BBC the country had only enough petrol left for less than a day under regular demand.
    What will happen now?
    To ease the suffering of the people, Sri Lanka has entered negotiations with the International Monetary Fund (IMF) to save the economy. IMF officials visited the capital Colombo between June 20 and 30 and held discussions with Sri Lankan officials on economic reforms and policies that could be supported by an IMF Extended Fund Facility arrangement.
    Acknowledging that the negotiations with the IMF to revive the country's ‘collapsed’ economy were ‘difficult,’ Wickremesinghe told Parliament the country was now in talks as a bankrupt nation, rather than a developing one, CNN reported. However, he said Sri Lanka will have to "face a more difficult and complicated situation than previous negotiations" now.
    “Due to the state of bankruptcy our country is in, we have to submit a plan on our debt sustainability to (the IMF) separately,” the PM said. Once the IMF is satisfied with the plan, an agreement will be drawn at the staff level, he said, adding that "this is not a straightforward process".
    The Prime Minister said he hoped to submit the report on debt restructuring and sustainability to the IMF by August. Once there is an agreement between IMF and Sri Lanka, a comprehensive loan assistance program would be prepared for a period of four years, the CNN report said quoting Wickremesinghe.
    Last week, the IMF had said more work was required to repair Sri Lanka’s runaway fiscal deficit before any agreement is worked out. Sri Lanka needs to address its balance of payments crisis before IMF agrees on a funding arrangement.
    Discussion with others
    Sri Lanka is in talks with India, Japan, and China to form an aid consortium amid ongoing talks with the IMF. Till now, India has provided around $3 billion worth of assistance to Sri Lanka, including a $400 million swap and credit lines totalling $1.5 billion.
    On Wednesday, Sri Lankan President Gotabaya Rajapaksa had tweeted that he had sought assistance from Russian President Vladimir Putin, asking him for an “offer of credit support to import fuel."
     
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