I had previously noted when Sri Lanka defaulted on its debt in April. Yesterday the Presidential palace was stormed by thousands of people and the PM + President finally resigned.
The whole situation is unfortunate, and while was borne of many of its own actions (the heads of state specifically), it was exacerbated by global inflation of commodity products. According to Vox, the simplified series of events included borrowing heavily (via China’s Belt and Road Initiative, or simply, its global debt for influence plan), massive corruption in use of funds from debt rather than building promised core infrastructure, reductions in taxes driving lower debt service capacity, bans of imports in core inputs (such as fertilizer) driving desperate core food inventories, and the final blow being inflated commodities (there is no fish as people can’t afford diesel to run the boats; lentils which are a core staple in Sri Lankan diets are unaffordable). I may have pieces of that wrong but check the Vox explainer article for a better version.
Overall I mentioned this because, as I mentioned before, we visited Sri Lanka in 2018 and had a wonderful experience in the country. It seemed peaceful, friendly, and rich in culture. The following terrorism incidents and national meltdown touch a bit closer to home, especially given the hotel we stayed at in Colombo was the center of a bomb blast.
Alas there is not a whole lot to say from the perspective on an investor. Jay Newman, the man who went up against Argentina as a part of Elliot Management’s bid to pry reasonable recoveries from Argentine bonds, has commented vociferously of the bad state of emerging market debt, specifically that the IMF and others have loosened credit metrics and covenants such that emerging market nations’ access to credit is far in excess of what they can rsponsibly service.
One can hope that a new leaf is turned in the country.