First Lebanon now Srilanka declared themself bankruptcy. After the covid-19 break out some countries(especially those whose source of income was from tourism) face severe consequences. Another source of income was exporting quality tea which was also reduced significantly. Srilankan tea brand is infamous in the world. Besides that, some bad decisions from the govt like forbidding tp importation of fertilizer to produce organic foods create food shortages in the country. Mostly covid and govt is to blame for this current situation in Sri Lanka.
It is never a good idea to default on your loans because it would make it incredibly hard to get a loan again. However, sometimes you just need to do it to get better, when you have no other choices left like Sri Lanka.
First of all, it is a government, not like they are a company that can go bankrupt, they are there, they may not be able to pay right now, but that doesn't mean that you can't give them any loans in the future because they may get better after this situation. Secondly, we are talking about having some debt even after this, they are not reaching to zero, they are defaulting on some debt, but they still have some more debt left that they will pay, which will help them gain some credit again.