Sri Lankan officials on Tuesday said that the crisis-hit country will temporarily suspend foreign debt payments to avoid a hard default, with its limited foreign reserves required for imports of essential items such as fuel.
“It has come to a point where making debt payments are challenging and impossible. The best action that can be taken is to restructure debt and avoid a hard default, “Central Bank Governor P. Nandalal Weerasinghe told reporters.
Sri Lanka is due to start talks with the International Monetary Fund (IMF) on a loan programme next week, as the country has been suffering from prolonged power cuts alongside shortages of food and medicine.
Sri Lanka’s foreign reserves stand at $1.93 billion
The island nation’s foreign reserves stood at a paltry $1.93 billion at the end of March, with foreign debt payments of around $4 billion due this year, including a $1 billion international sovereign bond maturing in July.
The governor said the action was being taken in good faith, emphasising that the country of 22 million people had never defaulted on its debt payments.
With growing public unrest triggered by the economic crisis, Mr. Weerasinghe said, “This will be on a temporary basis until we come to an agreement with creditors and with the support of a programme with the IMF.”
“We need to focus on essential imports and not have to worry about servicing external debt,” he said.
Sri Lanka’s gross debt servicing would amount to $7 billion in 2022 and have a current account deficit of around $3 billion.