Since gaining independence from Britain in 1948, Sri Lanka has experienced numerous crises and nearly three decades of civil strife. However, it has never failed to repay its bills until now.
Sri Lanka claims that servicing its debt has become “difficult”. International investors are pulling out of the market. A $1 billion bond due in July is currently trading at 46 cents on the dollar. Will the IMF and China, as a major creditor, come to the rescue?
It had reached an arrangement with creditors on how the loans would be restructured. The letter emphasized the country’s impeccable track record of meeting its commitments.
The move to postpone debt payments, however painful, may be the first significant step toward resolving the country’s mounting economic crisis.
The government’s disclosure aligns with the IMF’s perspective, which stated last month that Sri Lanka’s foreign debt was “unsustainable” due to diminishing foreign reserves. Stopping payments, according to P. Nandalal Weerasinghe, governor of central bank stated that it will allow Sri Lanka’s remaining foreign exchange to be used on food and fuel imports while the country negotiates with the IMF and other creditors.
