Sri Lanka’s crisis-hit country said that it had stopped paying off its foreign debt due to its shrinking dollars reserves. These funds were necessary for fuel and food purchases.
“We have come to a situation where the ability to service our debt is very low. That’s why we decided to go for a preemptive default,”Nandalal Youerasinghe was announced as the central bank’s new governor during Tuesday’s briefing.
The payments on the South Asian country’s foreign debt would be suspended “on a temporary basis,”In the meantime, he said that an international bailout was being sought by the International Monetary Fund.
Sri Lanka was required to pay $4 billion this year in foreign debt repayments, $1 billion of which in July. However, its foreign reserves were only $1.93 billion as of March.
“We need to focus on essential imports and not have to worry about servicing external debt,”Weerasinghe explained what the country wanted to do with its dollars.
According to the Finance Ministry, Sri Lanka was in such an awful situation because of the “effects of the Covid-19 pandemic and the fallout from the hostilities in Ukraine.”
The island nation’s creditors, including foreign governments, were free to capitalize any interest payments due to them or opt for payback in Sri Lankan rupees, according to the ministry.
Sri Lanka saw a surge of violence since March, when thousands protested fuel and food shortages amid record inflation.
Political crisis continued to worsen the dire economic situation. A week ago, the country’s government had resigned, with President Gotabaya Rajapaksa and his elder brother the prime minister, Mahinda Rajapaksa, who were the only ones to keep their posts, struggling to form a new cabinet.
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