Sri Lanka’s government says it is suspending its repayment of foreign debt, including bonds and government-to-government borrowings, pending a loan restructuring program with the International Monetary Fund to deal with the island nation’s worst economic crisis in decades.
COLOMBO, Sri Lanka (AP) — Sri Lanka is suspending its repayment of foreign debt, including bonds and government-to-government borrowings, pending a loan restructuring program with the International Monetary Fund to deal with the island nation’s worst economic crisis in decades, the government said Tuesday.
Sri Lankans have faced daily power outages and fuel shortages for the past few months. While most of these items can be paid in hard currency, Sri Lanka faces bankruptcy with its shrinking foreign reserves and $22.5 billion in foreign debt. This year, nearly $7 billion is due.
The Ministry of Finance stated that Sri Lanka had an impeccable record of external debt service, dating back to independence in 1948. “Recent events however, including the COVID-19 pandemic effects and the fallout from hostilities in Ukraine have so eroded Sri Lanka’s fiscal position that it has become impossible to continue normal servicing of its external debt obligations.”
According to the ministry, the IMF has deemed Sri Lanka’s foreign debt unsustainable, and it is not possible to continue paying foreign debt repayments.
The government is seeking assistance from the IMF and has turned to India, China, and other countries to help with the shortages.
The ministry stated that the government would continue its talks with the IMF “as expeditiously” to present to creditors a comprehensive plan to restore Sri Lanka’s external public debt to a sustainable level.
Protesters gathered around President Gotabaya Rajapaksa’s office to demand his resignation. They held him responsible for the current economic crisis. The protesters provided drinking water and food. Muslim protesters also broke their Ramadan fast at the site to share food and drink with others.
Many protests have been directed at Rajapaksa’s family for 20 years. Critics claim that the Rajapaksa family borrowed heavily to finance projects which had no income, such as constructing a port facility with Chinese loans.
In a speech Monday night, Mahinda Rajapaksa (a former president and the older brother of the current president) reassured people that the government is working to solve the problems.
“We have embarked on a huge program to address the crisis we are facing today. He stated that every second the president and his government spend on rebuilding our country is exhausting.
He refused to give power and said that the ruling coalition would continue to rule Sri Lankan because opposition parties had rejected their call for a unity government.
Many Cabinet members resigned due to the crisis and protests. While four ministers were sworn into office as caretakers of the portfolios, many are still vacant.
After nearly 40 members of the governing coalition said they would not vote according to the coalition’s instructions, Parliament failed to reach a consensus about how to handle the crisis. This significantly weakens the government.
With the opposition parties split, they have also not been able to form a majority to take control of Parliament.
