Sri Lanka defaults on external debt to save cash for essentials

Sri Lanka on Tuesday announced plans to temporarily default on its external debt, calling it a ‘last resort’ to avoid ‘permanent damage’ to the island nation’s economy amid its worst ever fiscal crisis. 70 years old.

“Recent events… have eroded Sri Lanka’s fiscal position, making normal servicing of external public debt obligations impossible,” Sri Lanka’s Ministry of Finance said in a statement posted on the official website of the Sri Lankan Treasury. April 12.

“It will therefore be the policy of the Sri Lankan government to suspend normal debt servicing of all relevant debts… for an interim period,” the memorandum states.

Sri Lanka’s finance ministry said it had contacted the International Monetary Fund (IMF) for advice on the “design of an economic stimulus package” that Colombo hopes to follow following its loan default. external debt. Sri Lanka’s Treasury said it had further requested “emergency financial assistance” from the IMF and other “multilateral and bilateral partners” in recent days.

A protester throws an object at a bus next to a burning police car during a protest outside the Sri Lankan President’s home demanding his resignation in Colombo on March 31, 2022. Security forces were deployed in the Sri Lankan capital on April 1 after protesters tried to storm the president’s house in anger over the country’s worst economic crisis since independence. (Photo by Ishara S. KODIKARA / AFP)

“Sri Lanka had $78m (£60m) in international sovereign bond payments due next week,” the BBC observed on April 12.

“Sri Lanka’s foreign exchange reserves stood at $1.93 billion at the end of March. However, it has around $4 billion in foreign debt payments due this year,” according to the UK broadcaster.

Sri Lanka has weathered a severe financial storm in recent months as its central bank has become deficient in foreign exchange reserves. The development, caused in part by the Chinese coronavirus pandemic, has left Sri Lankan traders unable to pay for imports of essential goods on which the island nation depends.

Shortages of food, fuel and medicine have frustrated Sri Lankans since early March. The situation escalated in mid-March and caused widespread unrest that spurred an anti-government movement. Sri Lankans, who hold the country’s federal government responsible for the financial crisis, successfully pressured almost the entire Sri Lankan cabinet to resign on April 3. officials to defy public pressure to resign on April 3. Protests calling for Gotabaya’s ouster continued in Colombo, Sri Lanka’s national capital, on April 11.

Sri Lankan Central Bank Governor Nandalal Weerasinghe told reporters on April 12 that Colombo’s decision to default on its external debt earlier in the day was directly linked to the country’s shortage of vital goods.

“The Central Bank Governor further emphasized that the scarce foreign currency reserve should NOT be used for debt service, adding that it should instead be used to purchase other essential items,” reported Tuesday. Sri Lanka’s News First website.

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