Colombo: Sri Lanka defaulted on its $51 billion foreign debt on Tuesday, as the island nation faces its greatest economic crisis in recent memory and growing calls for the government’s removal.
Acute food and fuel shortages, as well as extended daily power outages, have wreaked havoc on the country’s 22 million inhabitants in the country’s most devastating downturn since independence in 1948.
Crowds have attempted to assault the houses of government figures in recent weeks, with security personnel using tear gas and rubber bullets to disperse demonstrators.
Prior to an IMF rescue, Sri Lanka’s finance ministry declared the country had defaulted on all external obligations, including loans from foreign countries.
“The government is taking the emergency measure only as a last resort in order to prevent further deterioration of the republic’s financial position,” a statement from the ministry said.
Creditors have the option of capitalising any interest payments owed to them or opting for repayment in Sri Lankan rupees, according to the government.
After the coronavirus epidemic decimated key tourist and remittance money, Sri Lanka’s spiralling economic crisis began with an inability to import basic necessities.
To protect its foreign currency reserves and utilise them to settle the obligations it has already defaulted on, the government implemented a broad import embargo.
Government mismanagement, years of accumulated debt, and ill-advised tax cuts, according to economists, have exacerbated the issue.
Long lines develop every day throughout the island country to acquire scarce supplies of petrol, gas, and kerosene for cooking stoves, indicating broad public dissatisfaction with the administration.
Thousands of demonstrators camped outside President Gotabaya Rajapaksa’s beachside office in the capital Colombo for the fourth day in a row, demanding his resignation.
Sri Lanka was also downgraded by international rating agencies last year, thus preventing it from accessing global financial markets to obtain fresh loans and satisfy demand for food and gasoline.
Sri Lanka has asked India and China for debt relief, but both nations instead provided larger credit lines to buy goods from them.
China and Japan, two important bilateral sovereign creditors, each own roughly 10% of Sri Lanka’s foreign debt, according to official estimates, while India’s portion is less than 5%.
Market borrowings in the form of international sovereign bonds and other comparable instruments account for little under half of Sri Lanka’s debt.
According to estimates, Sri Lanka would require $7 billion to service its debt this year, while having only $1.9 billion in reserves at the end of March.