Sri Lanka's finances were fragile long before the coronavirus delivered its blow, but unless the country can secure aid from allies like China, economists say it may have to make a fresh appeal to the IMF or default on its debt.
LONDON - Sri Lanka’s finances were fragile long before the coronavirus delivered its blow, but unless the country can secure aid from allies like China, economists say it may have to make a fresh appeal to the IMF or default on its debt.
The new government veered off its soon-to-expire current IMF program late last year by slashing taxes, including VAT and the ‘nation-building’ tax brought in after the island’s long-running civil war in 2009. “The market is pricing in the risk of a credit event there,” said Aberdeen Standard Investments’ Kevin Daly, pointing to the recent drop in some of country’s bonds to under 50 cents on the dollar and rise in borrowing costs to over 20%. LK161142611=
Add to that the hammerblow from the virus. Tourism, which accounts for nearly 12% of the country’s economy and 11% of jobs according to World Bank, has been floored again just a year after the Easter Sunday suicide bombing attacks.Sri Lanka’s sizable textiles industry has been shredded too as global retailers shut up shop during lockdowns. Morgan Stanley forecasts the fiscal deficit will reach 9.
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