Sri Lanka Gone Broke: Sovereign Debt Restructuring and Challenges Ahead
Sri Lanka’s debt restructuring process is burdened with several challenges. They include typical political and legal challenges, as well as evident geopolitical tensions and possible disruptive investment arbitration based on Sri Lanka’s BITs. Indeed, these atypical challenges will possibly make Sri Lanka’s debt restructuring process more complex and perhaps prolonged, leaving the country more vulnerable. Besides these challenges, debt restructuring might have immediate repercussions on the economy, such as difficulties in attracting foreign investors and losing access to international financial markets. Furthermore, although sovereign debt restructuring could bring the country’s distressed economy back to debt sustainability if appropriately managed, there is no guarantee that it will end the calamities of an insolvent nation grappling with several intertwined crises. Finally, Sri Lanka’s more daunting debt restructuring process will test the existing global financial infrastructure, questioning its adequacy to accommodate the current global economy’s challenges.