For instance recently Srilanka defaulted and i would like to understand how has their situation changed after the default announcement as compared to how it was lets say a month before the default?
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Default on debt means you can’t pay back the money you owe. It’s kind of like going bankrupt for a business or a person.
Now what does that mean ? Well in simple terms it means what you think it means. The country that defaults keeps the money it owes and no one wants to give this country money again.
Just like if a person goes to the bank and asks for a loan that they then can’t repay, the bank won’t give them money again.
Now it is a bit more complex than that. Default also means that assets of this country can be seized to back back the loan etc.
Usually most countries care about the US financial system and paying the loans it owes to it. But a country doesn’t have to take loans just from the US. It can be loans from citizens etc. so not all defaults are the same.
Another interesting thing about defaults is what’s happening in Russia right now. Russia will likely soon have a default on a loans it owes to US creditors, but only because US governments won’t allow Russia to make a payments. That’s right. It’s like you wanting to return your loan to the bank but the banks saying no you can’t do it. And then arresting you for missing payment. Its very strange but in Russia’s case this “default” won’t scare away investors from let’s say China. Because they know Russia can pay back. They don’t just because the US doesn’t let them.
Btw the loans that countries take are called obligations or sovereign debt. And the interest on these depends on how likely the country is to default among other things.
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