Which of the following neighboring countries of India is currently in a deep debt crisis, with a severe shortage of foreign currency and an inability to pay for essential imports?

Correct option is A

Sri Lanka is currently facing a severe debt crisis due to a combination of economic mismanagement, declining foreign reserves, and excessive borrowing. In 2022, Sri Lanka defaulted on its foreign debt payments, leading to an economic collapse. This crisis resulted in shortages of essential items like fuel, food, and medicine, as well as widespread social unrest.

Information Booster:

1. Sri Lanka's foreign reserves fell to record lows in 2022, forcing the government to approach the IMF for assistance.
2. The crisis was exacerbated by the COVID-19 pandemic, which affected tourism—a key revenue source for the country.
3. Poor fiscal policies, such as over-reliance on external loans and tax cuts, worsened the situation.
4. The Sri Lankan rupee depreciated sharply against major currencies.
5. Widespread protests forced then-President Gotabaya Rajapaksa to resign.
6. The IMF has approved a bailout package to help the country stabilize its economy.
7. India extended credit lines and humanitarian assistance during the crisis.

Additional Knowledge:

• Pakistan: Faces economic challenges but has not reached Sri Lanka’s level of crisis.
• Bhutan: Has a relatively stable economy and good relations with India.
• Bangladesh: While it has experienced inflationary pressure, its economy remains robust, supported by exports.