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Sri Lanka Announced Defaults on External Debt

Sri Lanka Announced Defaults on External Debt
Photo Credit: Eranga Jayawardena

Sri Lanka’s reserves have plummeted in the worst economic crisis in 70 years. As a result, the finance ministry said the country will not be able to repay its $51bn foreign debt. Officials say the epidemic and the war in Ukraine have made it “impossible” to repay the debt. In this, Sri Lanka declared itself as a defaulter. The article is about Sri Lanka Announced Defaults on External Debt.

The Sri Lankan Finance Ministry said, “Sri Lanka had a perfect record of debt repayment since independence from the United Kingdom in 1947. However, Sri Lanka’s financial position has deteriorated in recent years, making it impossible to comply with foreign government debt obligations. Instead, they can add the amount of interest due to the capital or choose to repay the loan in Sri Lankan rupees.” 

The government has been forced to take this initiative as the foreign exchange reserves required for importing goods on an emergency basis have almost run out. The finance ministry described the initiative as a last resort. So that the country’s economic situation does not deteriorate further, it said Sri Lanka’s immediate declaration of default meant ensuring that all lenders were treated “fairly and equitably” before the start of a recovery program with the help of the International Monetary Fund.

In an assessment by the IMF last month, Sri Lanka’s finance ministry said that Sri Lanka’s lending would not be sustainable. Colombo will meet next week to discuss a loan program from the International Monetary Fund (IMF) to get the economy back on track. Last year, international rating agencies downgraded Sri Lanka’s credit rating, leaving the country unable to borrow much-needed credit. In the meantime, Sri Lanka has sought loan concessions from India and China, but both countries have allowed Sri Lanka to borrow and buy essential commodities instead.

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