Sri Lanka Defaults On All Foreign Debt Amid Economic Crisis

(Photo: Twitter)

Colombo: Amid the economic meltdown, the Sri Lankan government on Tuesday announced that it would go ahead with the decision of defaulting on its $51 billion external debt and requested a bailout from the International Monetary Funds.

The letter urged the IMF to provide financial assistance and help in forming a recovery program for the country to battle the economic crisis and restore Sri Lanka’s external public debt to a fully sustainable position.

Highlights of the Announcement

The Sri Lankan government pointed out that it has an ‘unblemished’ record for external debt since Independence.

The letter also talks about the recent events like Covid Pandemic, hostilities in Ukraine and so on which led to the situation where the normal servicing of external debt has become “impossible”.

The government of Sri Lanka has approached the International Monetary Fund for assistance in designing an ‘economic recovery program’ and ‘emergency financial assistance in the crisis.

The letter also seeks help from the bilateral and other multilateral partners to provide financial help in order to help the country get back on track from the extraordinary situation.

The country suspends the debt servicing of all the “Affected Debt” for an interim period until proper restructuring takes place with the support of the IMF.

This policy will apply to the amounts of Affected Debt outstanding on April 12, 2022.

The new policy divides the public borrowers and external public debts into three different categories.

The first category includes a series of bonds issued in the international capital markets.

The second category includes all bilateral (government to government) credits, excluding swap lines between the Central Bank of Sri Lanka and a foreign central bank.

The final category includes all the foreign-dominated loan agreements or credit facilities with the commercial banks or institutional lenders for which the Republic or a public sector entity is the obligor or guarantor.

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