Can Sri Lanka dig itself out of a $50 billion debt?

“After a month of intense civilian-led protests over Sri Lanka’s deteriorating economy, President Gotabaya Rajapaksa agreed to appoint a new council on Friday to lead the formation of an interim government. The resolution would create a coalition made up of all parties in Parliament and would remove the grip of the Rajapaksa family dynasty currently ruling the country. At issue is the country’s economic future, which is in shambles after defaulting on payments on its mountain of foreign loans — estimated to be worth $50 billion — for the first time since the country gained independence from the British in 1948.

Signs of Sri Lanka’s impending economic crisis became increasingly apparent over the last two years of the Covid-19 pandemic as food prices soared and power blackouts increased in frequency. Sri Lanka currently has about $7 billion in total debt due this year.

Many attribute Sri Lanka’s economic crisis to the mishandling of its finances by successive governments through mounting foreign debt and continued infrastructure investments. The Rajapaksa administration also implemented sweeping tax cuts in 2019, slashing the value-added tax (VAT) rate — the tax applied to imports and domestic supplies — from 15 percent to 8 percent, which contributed to a decrease in the country’s revenue.”

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