Sri Lanka to suspend payment of foreign debt amid economic crisis

COLOMBO, Sri Lanka – Sri Lanka will temporarily suspend external debt payments to avoid a default, the central bank governor said on Tuesday, with its limited foreign exchange reserves needed for imports of essential items such as fuel.

“It has come to a point where paying off the debt is difficult and impossible. The best action that can be taken is to restructure the debt and avoid default,” Governor P. Nandalal Weerasinghe told reporters.

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Sri Lanka is due to start talks with the International Monetary Fund (IMF) on a loan program next week as the country suffers from prolonged power cuts as well as food and medicine shortages.

The island nation’s foreign exchange reserves stood at $1.93 billion at the end of March, with foreign debt payments of about $4 billion due this year, including a $1 billion international sovereign bond coming to maturity. due in July.

The governor said the action was taken in good faith, stressing that the country of 22 million people had never defaulted on its debt.

“It will be on a temporary basis until we reach an agreement with creditors and with the support of a program with the IMF,” said Weerasinghe, who took office last week amid public unrest. increases triggered by the economic crisis.

“We need to focus on essential imports and not have to worry about servicing external debt,” he said.

JP Morgan analysts estimate Sri Lanka’s gross debt service to be $7 billion in 2022 and a current account deficit of around $3 billion.

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