Colombo: On Tuesday, Sri Lanka announced that it would default on its $51 billion external debt pending a bailout from the International Monetary Fund.
The ministry of finance said creditors, including foreign government that had lent to the South Asian nation, were free to capitalize any interest payments due to them from Tuesday afternoon or opt for payback in Sri Lankan rupees.
Earlier the officials had said Sri Lanka is going through its worst economic crisis and would temporarily suspend foreign debt payments to avoid a hard default and conserve its limited foreign reserves for the import of essential items like food, fuel, and medicine.
P Nandalal Weerasinghe, had told reporters, “It has come to a point that making debt payments are challenging and impossible. The best action that can be taken is to restructure debt and avoid a hard default.”
The island nation’s foreign reserves dropped 16.1 per cent to $1.93 billion in March from a month earlier.
According to analysis made by Bloomberg, an estimated $8.6 billion in debt payments fall due this year. This rapidly falling reserves raise questions about Sri Lanka’s ability to pay even a part of this sum.
In February, Sri Lanka had about $2.3 billion of foreign reserves.
“To get out of the crisis, the quick establishment of an effective government should be the first priority. Clinching a deal with the International Monetary Fund (IMF) should be next,” Bloomberg Economics’ economists Ankur Shukla and Abhishek Gupta wrote.
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