Sri Lanka says it is repaying its sovereign debt become “impossible”. International investors are bailing out. The $1 billion bond due in July was trading at 46 cents. Can the IMF and big creditor China save the day?

Don’t expect a fix. Sri Lanka’s collapse was political, economic, financial — and predictable. The island nation, with the population of Florida, is a link in a “string of pearls” of strategic importance to China and the United States.it is also haunted corruption, according to Transparency International. Its economy is in tatters after the pandemic disrupted tourism and transportation.

Last week, amid power outages and food shortages, the entire government of President Gotabaya Rajapaksa stepped out, save for his brother, Prime Minister Mahinda Rajapaksa.

new central bank governor P Nandalal Virasingh Inherited dwindling foreign exchange reserves that fell below $2 billion last month. Public and private external debt exceeds $50 billion.It’s embarrassing when currency Although interest rates doubled last week to 14.5%, the depreciation this year has even outstripped the ruble.

The island is vulnerable amid soaring food prices triggered by war in Ukraine: more than half of household spending continue food.

The IMF faces two challenges. First, handouts without structural reforms just knock the jar down. Sri Lanka itself is only halfway through its previous IMF program. But these are frenetic times, not conducive to raising taxes to increase government coffers.

Second, Sri Lanka has multiple external creditors. China accounts for about one-fifth of the total and is huge. Sri Lanka has asked China to help restructure its debt. Beijing has built and financed large-scale infrastructure projects, including the strategically positioned Hambantota port.

Sri Lanka is not alone in this regard. China’s Belt and Road initiative, which critics have branded “debt-trap diplomacy”, has put a range of countries from Asia to Africa in a similar position.

The IMF and China can take lukewarm consolation: a successful bailout of Sri Lanka will create a blueprint for bailouts elsewhere.