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What led to Sri Lanka's default on its debt

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Sri Lanka's default on its debt was caused by a combination of factors, including economic mismanagement, deep-rooted vulnerabilities, and a massive foreign loan repayment burden. Tax cuts by the newly elected government headed by Gotabaya Rajapaksa in November 2019 led to a reduction in revenue, which was compensated for by issuing International Sovereign Bonds (ISBs) to repay the massive amount of capital market borrowings obtained during the last decade. Starting from 2019, Sri Lanka had an ISB maturing in every year up to 2030, imposing a massive foreign loan repayment burden. Additionally, the country has been struggling with an economic and political crisis triggered by global shock waves from the pandemic and the war in Ukraine. An inflation rate spiraling towards 40%, shortages of food, fuel, and medicines, and rolling power blackouts have led to nationwide protests and a plunging currency. The country is seeking a bailout from the International Monetary Fund (IMF) and needs to restructure debts of more than $50bn it owes to foreign creditors to make it more manageable to repay


Who should be blamed for the economic crisis in Sri Lanka?


The economic crisis in Sri Lanka has been attributed to several factors, and there is no single entity that can be solely blamed for the crisis. Some of the factors that have contributed to the crisis include:
Economic mismanagement: Many experts say economic mismanagement is to blame for the crisis

Sri Lanka has had economic trouble for the greater part of the last decade, and it received a bailout from the International Monetary Fund (IMF) in 2009 and again in 2016, on the condition that it would control its debt and reduce it to 5 percent of its GDP by 2021. However, the situation worsened due to the twin impacts of the 2019 Easter bombings and Covid-19 on tourism, one of Sri Lanka’s main industries, accounting for approximately 10 percent of its GDP Debt: Sri Lanka's external debt stands at more than USD 55 billion, and its debt-to-GDP ratio has ballooned to almost 120 percent today. The country has debt obligations of USD 6 billion in 2022 alone

Covid pandemic: The government has blamed the Covid pandemic, which badly affected Sri Lanka's tourist trade - one of its biggest foreign currency earners

Inefficient state-owned enterprises: According to one reading, the present crisis is a result of the Sri Lankan government racking up debts via inefficient state-owned enterprises

Structural causes: Very few analyses have examined the structural causes for that collapse, but the few that do fall on failure to industrialize

U.S. dollar: The central bank running dangerously low on foreign currency reserves is also a contributing factor

Overspill from crises in the country's surroundings: The country's financial situation and overspill from crises in the country's surroundings have also contributed to the crisis

Overall, while there are many factors that have contributed to the economic crisis in Sri Lanka, economic mismanagement, debt, and structural causes are some of the main factors that have been identified as contributing to the crisis.

Is Nivard Cabraal former governor responsible for the economic crisis in Sri Lanka?

The responsibility for the economic crisis in Sri Lanka cannot be attributed to a single individual. While some have blamed Nivard Cabraal, the former governor of the Central Bank of Sri Lanka, for the crisis, others have pointed out that the crisis has been caused by a combination of factors, including economic mismanagement, debt, and structural causes. Cabraal himself has denied sole responsibility for the crisis

The Sri Lankan government has also been blamed for the crisis, with many experts pointing out that government corruption has contributed to the crisis

The crisis has driven millions of people into poverty, jeopardizing their rights to health, education, and an adequate standard of living

Overall, while there are many factors that have contributed to the economic crisis in Sri Lanka, it is difficult to attribute sole responsibility to any one individual or entity.

Nivard Cabraal during his tenure as governor of the Central Bank of Sri Lanka

During his tenure as governor of the Central Bank of Sri Lanka, Ajith Nivard Cabraal implemented several policies to address economic challenges faced by the country. Some of these policies include:

Pragmatic strategies: Cabraal implemented certain pragmatic strategies that challenged conventional wisdom to deal with economic challenges faced by Sri Lanka.

Containing monetary expansion: Cabraal contained excessive monetary expansion through unconventional monetary policies.

Bold policy initiatives: Sri Lanka responded to the economic challenges by introducing several bold policy initiatives across several fronts.

Sound and stable financial system: Cabraal helped to maintain a sound and stable financial system in Sri Lanka during his tenure as governor of the Central Bank.

Overall, while specific policies implemented by Cabraal during his tenure as governor of the Central Bank of Sri Lanka are not extensively documented, it is clear that he implemented pragmatic strategies, contained monetary expansion, and introduced bold policy initiatives to address economic challenges faced by the country.

How did Nivard Cabraal's policies impact the Sri Lankan economy during his tenure as governor

During his tenure as governor of the Central Bank of Sri Lanka, Ajith Nivard Cabraal's policies impacted the Sri Lankan economy in several ways:

Sound and stable macro-economic fundamentals: Under Cabraal's guidance, Sri Lanka was able to maintain sound and stable macro-economic fundamentals, with inflation being contained at low levels, and financial system stability being achieved in a time of severe global uncertainties and turmoil

Transformation of the Sri Lankan economy: During his first term as governor, Cabraal transformed the Sri Lankan economy from a GDP of USD 24 billion to USD 79 billion, and to being a safe, stable and fast-growing middle-income emerging market nation

Over-subscribed International Sovereign Bond issues: Cabraal provided leadership to several heavily over-subscribed International Sovereign Bond issues

Pragmatic strategies: Cabraal implemented certain pragmatic strategies that challenged conventional wisdom to deal with economic challenges faced by Sri Lanka

Overall, Cabraal's policies impacted the Sri Lankan economy positively during his tenure as governor of the Central Bank of Sri Lanka. He maintained sound and stable macro-economic fundamentals, transformed the Sri Lankan economy, provided leadership to over-subscribed International Sovereign Bond issues, and implemented pragmatic strategies to deal with economic challenges faced by the country.

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