Crisis-ridden Sri Lanka on Tuesday said it was defaulting on its external debt of about $ 51 billion pending a bailout from the International Monetary Fund, with which talks are scheduled for later this month. Sri Lanka’s Ministry of Finance said debtors, including foreign governments, were free to capitalize interest payments coming from Tuesday afternoon or opting for repayment in Sri Lankan rupees.
Officials previously said the island nation – due to its worst economic crisis in decades – temporarily suspended foreign debt payments to avoid a harsh standard and maintain its limited foreign reserves for the import of essential items such as food, fuel and medicine.
“It has come to the point that making debt payments is challenging and impossible. The best course of action that can be taken is to restructure debt and prevent a harsh standard,” said Sri Lanka’s central bank governor, P Nandalal Weerasinghe. , to reporters.
Sri Lanka’s foreign exchange reserves fell 16.1 percent in March to $ 1.93 billion from a month earlier, the central bank said last week.
An estimated $ 8.6 billion in debt payments will fall this year, according to a Bloomberg analysis, and rapidly falling reserves are raising questions about Sri Lanka’s ability to pay even part of that sum.
Sri Lanka had about $ 2.3 billion in foreign reserves in February.
The country is also set to face a test of global investor confidence later this month, Bloomberg reported, as interest payments on a $ 2023 bond and 2028 note fell; the two combined amount $ 78.2 million.
“To emerge from the crisis, the swift establishment of an effective government must be the first priority. An agreement with the International Monetary Fund (IMF) must be forthcoming,” wrote Bloomberg Economics economists Ankur Shukla and Abhishek Gupta.
With input from AFP, Bloomberg, Reuters