Sri Lanka facing a mounting debt crisis after Russia’s invasion of Ukraine

Monday, March 7, 2022

Sri Lanka is facing a mounting debt crisis after Russia’s invasion of Ukraine largely affected two of its largest tourist markets.Market analysts havewarned that the economic outcome of the conflict has increased the chance of default.

The South Asian Islandhasfought with power cuts and shortages for months, as its exhausted foreign exchange reserves have left it struggling with import oil and other essentials. Sri Lanka has an estimated $7bn in overseas debt and interest repayments payable this year.

President GotabayaRajapaksa’s government has maintained that a tourism and exports revival would help Sri Lanka replenish foreign currency reserves and sail through the crisis. Two countries are important for this strategy: Russia and Ukraine, the first and third-largest tourist markets this year, respectively. Russia is also the second-largest market for Sri Lankan tea, which is the country’s chief goods export. Trouble in trade and tourism, along with increase in global oil prices, has created a huge impacton this strategy, said Murtaza, chair of the Advocata Institute think-tank.

Jafferjeesaid, “The economic crisis was already full blown leading into this [war]. This has now extinguished all hope”.

Sri Lanka owes about $45bn in long-term debt and several ratings downgrades, after tax cuts and downfall of tourism due to Covid-19, left it incapable to refinance. The country is nowstands a threat of joining countries like Zambia and Belize in defaulting during the pandemic. Around 20,000 Russians and Ukrainians visited Sri Lanka in January, accounting for more than a quarter of visitors, said the Sri Lanka Tourism Development Authority.

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