Sri Lanka Announced Defaulting On All Its External Debt

Sri Lanka Announced Defaulting On All Its External Debt

On Tuesday, Sri Lanka defaulted on $51 billion in foreign debt as the island country grapples with its worst-ever economic crisis in memory and protests demanding the government's resignation.

Acute food and fuel shortages, alongside extended daily electricity blackouts, have brought widespread suffering to 22 million people in the most hurting downturn since independence in 1948.

Public anger has blazed in recent weeks with crowds attempting to trouble the homes of government leaders and security forces, scattering protesters with rubber bullets and tear gas.

The finance ministry of Sri Lanka's said the country was defaulting on all external obligations, including foreign governments from loans, ahead of an International Monetary Fund bailout package.

the ministry said.

"The government is taking the immediate measure only as a last resort to prevent further failure of the republic's financial position,"

The ministry added that creditors were free to capitalize on interest payments or opt for payback in Sri Lankan rupees.

Read More: Sri Lanka cabinet quits over protests in country

Sri Lanka's soaring economic crisis began with an inability to import essential goods after covid pandemic torpedoed vital revenue from tourism and remittances.

The government imposes a broad import ban to preserve its foreign currency reserves and use them to use the debts it has now defaulted.

Many Economists say the crisis has worsened by government mismanagement, years of gathered borrowing, and ill-advised tax cuts.

Public frustration with the Sri Lanka government is widespread, with long queues around the island country forming each day to buy short supplies of gas, petrol, and kerosene for cooking.

Thousands of people were gathered outside President Gotabaya Rajapaksa's seafront office in the capital Colombo on the fourth straight day of protests calling for him to step down.

Lower Rating

International rating agencies also downgraded Sri Lanka last year, effectively blocking the country from accessing foreign capital markets to raise new loans and meet the demand for food and fuel.

Sri Lanka had sought debt relief from India and China, but both countries offered more credit lines to buy commodities from them.

Official figures show that China and Japan, two critical bilateral sovereign creditors, hold about 10 percent of Sri Lanka's foreign debt, while India's share is under five percent.

Under half of Sri Lanka's debt is market borrowings through international sovereign bonds and other similar instruments.

Estimates showed Sri Lanka needed $7 billion to service its debt load this year, against just $1.9 billion in reserves at the end of March.

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