A state bankruptcy means the government fails to make debt and interest payments when due.
Failure to pay debts owed to creditors may be accompanied by an official announcement by the government that it will not pay the outstanding debts, or it may sometimes occur without any official announcement.
Nearly half of the countries of the European continent, 40% of the countries of Africa, and 30% of the countries of Asia declared bankruptcy during the previous two centuries.
Ecuador has declared itself bankrupt most times among sovereign nations.
It has declared bankruptcy 10 times.
Brazil, Mexico, Uruguay, Chile, Costa Rica, Spain and Russia have declared bankruptcy nine times during the same period.
Germany has suffered from bankruptcy 8 times in two and a half years, thus coming to the forefront of the major economic countries that have been bankrupt, followed by the US 5 times, China and UK 4 times, and Japan twice.
In the modern era, Russia declared bankruptcy in the late nineties, and in 2001, Argentina also declared bankruptcy.
Iceland went bankrupt in 2008 with a debt of $85 billion when the global credit market dried up following the crash in the US financial sector. The banking bubble had grown so large that by 2008, the banking system had a debt that was equal to 10 times Iceland's GDP.
As the three largest banks fell apart in what was the biggest systematic banking collapse in history, the country fell into a depression, and its economy contracted 10% over the next two years.
Interestingly, Iceland has made a solid recovery since the crisis, with unemployment holding steady at 4%, and by 2014, its economy was 1% bigger than it was before 2008.
Argentina declared bankruptcy in 2001 with a debt of $145 billion as its policy of pegging the peso to the US Dollar, out-of-control public debt, and rampant corruption left the country unable to deal with a number of economic shocks.
By 2001, unemployment was more than 20%, and Argentina declared the biggest debt default in history when it missed more than $100 billion in owed payments.
Throughout history, Russia has declared itself bankrupt 9 times. The latest in 1998 with a debt of $17 billion. The effects of the Asian financial crisis and falling demand for oil began putting pressure on the Russian economy which had incurred tremendous international debt and was suffering from declining national productivity.
The resulting Ruble Crisis of 1998 saw the Russian stock market losing 75% of its value and inflation reaching 80% as investors fled the market.
Russia would only be able to pay back less than $10 billion of its $17 billion debt to the International Monetary Fund, and the Russian economy contracted 5.3% in 1998 as unemployment reached 13%.
Mexico defaulted state loan worth $80 billion in 1982. The public debt grew at a rapid pace due to the Luis Echeverria administration's massive fiscal expansion programmes.
Following the oil shock of the late 1970s and worsening economic conditions, the Mexican peso depreciated 50%, but the government was still unable to service its debts, causing Mexico to default on its US and IMF loans.
Over the next five years, Mexico's GDP fell 11 per cent and kicked off the Latin American Debt Crisis, which saw countries throughout the region unable to service their foreign debt, forcing the IMF to provide loans in exchange for hugely unpopular reforms.
Lebanon's crisis began in late 2019 after the government announced new proposed taxes, including a $6 monthly fee for using Whatsapp voice calls. The measures set a spark to long smouldering anger against the ruling class and months of mass protests. Irregular capital controls were put in place, cutting people off from their savings as the currency began to spiral.
In March 2020, Lebanon defaulted on paying back its massive debt, worth at the time about $90 billion or 170% of GDP — one of the highest in the world. In June 2021, with the currency having lost nearly 90% of its value, the World Bank said the crisis ranked as one of the worst the world has seen in more than 150 years.
In April 2020, Deputy prime minister of the Lebanese government Saadeh al-Shami announced the bankruptcy of the state and the Central Bank of Lebanon.
The losses were distributed to the state, the Banque du Liban, banks and depositors.
Sri Lanka became the most recent example of state bankruptcy as it failed to give back foreign loans becoming a defaulter.
The new Lankan Prime Minister Ranil Wickremesinghe admitted the bankruptcy and told the parliament that its unprecedented economic crisis will linger until at least the end of next year.
Unable to repay its $51 billion foreign debt, the government declared it was defaulting in April and is negotiating with the International Monetary Fund for a possible bailout.