fxtraderreview

After defaulting, Sri Lanka plans to print $2.8 billion in rupees, with a 40% inflation rate expected.

The government is in a state of emergency. Sri Lanka has announced that it will print more money and decrease infrastructure investment in an effort to appease the restive public. The government, on the other hand, admits that printing additional money will likely raise inflation to 40%.

The solution is to print more money.

Prime Minister Ranil Wickremesinghe said that after defaulting on its debts for the first time, the government in crisis-hit Sri Lanka now expects the country's inflation rate to reach 40%. With the country suffering a severe revenue shortfall, authorities have announced that they will print money worth almost $2.8 billion (one trillion rupees) to help pay government social programmes.

As per remarks published in the Business Standard, Wickremesinghe admits that putting one trillion rupees into circulation could cause additional suffering and unrest in the country. Nonetheless, the newly installed prime minister stressed that his government's policies are aimed at improving the population's well-being.

Protests are unavoidable in light of the bleak days ahead. It's only natural for individuals to protest when they are in pain. However, we must ensure that the political system is not destabilised. With the interim budget, it's all about lowering costs as much as possible and passing the savings to welfare.

Sri Lanka's economic troubles, according to the Business Standard article, were precipitated by the Covid-19 outbreak, which destroyed the country's tourism economy. Some critics, however, have pointed the finger at President Gotabaya Rajapaksa's government, claiming that tax cuts enacted by his administration resulted in even lower revenue going into government coffers.

Meanwhile, according to an Al Jazeera report, Sri Lanka's first default was caused by the country's failure to honour its financial obligations relating to coupon payments. When the 30-day grace period expired on May 18, a total of $78 million in outstanding coupon payments, which were originally due on April 18, were still unpaid.

The prime minister explained his reasoning for thinking that Sri Lanka has already defaulted:

"We've entered a state of preemptive default." Technical definitions are possible... They can consider it a default from their perspective. Our position is clear: we will not be able to repay unless the debt is restructured."

The administration of Prime Minister Wickremesinghe is apparently preparing to decrease infrastructure spending in addition to printing additional rupees. The savings from the budget cuts will be used to fund a two-year relief effort.