The Strategist

Sri Lanka declares default on external debt due to COVID-19 consequences

04/13/2022 - 05:57

Sri Lankan authorities have declared a default on their external debt for a period of time as they wait for these commitments to be restructured in accordance with the IMF-backed economic reform program, according to the Ministry of Finance.

Vincent van Zeijst
Vincent van Zeijst
"Since its independence in 1948, Sri Lanka has maintained an excellent record of international debt service. Recent developments, such as the impact of the COVID-19 pandemic and... actions in Ukraine, have, however, severely weakened Sri Lanka's financial status, making it unable to meet its obligations. It became impossible due to external state debt", the ministry commented.

The authority points out that the IMF rated Sri Lanka's debt as "unacceptable" at the end of last month.

"Despite the government's great efforts to resolve all of its external debt, it is clearly evident that this is an insolvent policy that will necessitate a comprehensive restructuring of these commitments... As a result, the Sri Lankan government has decided to halt the routine service of all concerned debts. There will be an interim period while these commitments are restructured in an orderly and agreed-upon manner in accordance with the IMF-supported economic restructuring program," according to the statement.

As of April 12, 2022, all outstanding debts have been declared in default.

Sri Lanka is in the midst of its biggest economic crisis since gaining independence in 1948. The issue is triggered by a foreign currency imbalance as a result of the country's inability to acquire adequate amounts of fuel due to the coronavirus pandemic that has restricted visitor traffic. The COVID-19 outbreak wreaked havoc on the island's tourist industry, which is a major source of foreign revenue. The volume of remittances from Sri Lankans working overseas was also reduced.
Food, necessities, fuel, and gas are in low supply across the country. Due to a lack of foreign currency, several parts of Sri Lanka have continuous power outages lasting up to 13 hours.