In the last days, protesters tried to storm the houses of the rulers, while the security forces dispersed the citizens with tear gas and rubber bullets.
“We are no longer able to pay the foreign debt,” Central Bank Governor Nandalal Weerasinghe told reporters on Tuesday. “It is a preventive and negotiated cessation of payments. We negotiate it with the creditors”he added.
The Ministry of Finance announced the suspension of all its external obligations, including loans from foreign governmentsahead of a planned bailout from the International Monetary Fund (IMF).
“The government only takes this measure as a last resort, with the aim of avoiding a further deterioration of the financial situation of the Republic”said a statement from the ministry, explaining that creditors can capitalize interest payments owed to them or opt for repayment in rupees.
Sri Lanka’s economic crisis began with the Covid-19 pandemic, which reduced vital income from tourism and remittances, and led to the impossibility of importing essential goods. The government then banned imports to conserve its foreign exchange reserves and use them to repay the debt it has now defaulted on. Added to this were years of accumulated debt and tax cuts.
The social crisis is such that every day long queues are formed throughout the island to buy the scarce available supplies of gasoline, gas and kerosene for the kitchens. On Sunday, doctors warned that they were at vital drug stock limits, and that the economic crisis could cause more victims on the island than the pandemic.
Several establishments have already suspended routine operations since last month because anesthetics were lacking. The medical association warned that even urgent operations would soon no longer be possible.
Sri Lanka’s credit situation
Last year, financial rating agencies downgraded Sri Lanka’s ratingwhich prevented the country from accessing foreign capital markets to obtain new loans and meet the demand for food and fuel.
Sri Lanka asked India and China for debt relief, but both countries offered new lines of credit to buy basic goods.
According to official figures, China and Japan, two of the country’s main creditors, hold about 10% each of Sri Lanka’s external debt, while India’s share is less than 5%. Just under half of the country’s debt is borrowed through international sovereign bonds and other similar instruments.
“The suspension of payment will not deter China from granting new loans to Sri Lanka,” Foreign Ministry spokesman Zhao Lijian said in Beijing. “China always did what it could to provide aid to Sri Lanka’s economic and social development. We will continue to do so,” he said.
According to estimates, Sri Lanka needs about $7 billion to service its debt this year, up from $1.9 billion in reserves at the end of March.
Source: Ambito
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