Sri Lanka suspends debt repayments pending IMF bailout – The Diplomat
The pulse | Economy | South Asia
Over the past few months, Sri Lankans have suffered shortages of fuel, food and other essentials and daily power outages.
Sri Lanka is suspending repayment of its external debt, including government-to-government bonds and borrowings, pending the completion of a loan restructuring program with the International Monetary Fund to deal with the worst economic crisis in the island nation for decades, the government announced on Tuesday.
Over the past few months, Sri Lankans have suffered shortages of fuel, food and other essentials and daily power outages. Most of these items are paid for in hard currency, but Sri Lanka is on the brink of bankruptcy, struggling with dwindling foreign exchange reserves and $25 billion in external debt. Nearly $7 billion is due this year.
“Sri Lanka has had an unblemished record in servicing external debt since independence in 1948,” the finance ministry said in a statement. “However, recent events, including the effects of the COVID-19 pandemic and the fallout from hostilities in Ukraine, have eroded Sri Lanka’s fiscal position to such an extent that the continuation of normal servicing of external public debt obligations has become impossible.
The ministry said the IMF has assessed Sri Lanka’s external debt as unsustainable and keeping up to date on external debt repayment is no longer a sustainable policy.
In addition to asking for help from the IMF, the government has turned to India and China to help it deal with the shortages.
“The government intends to continue discussions with the IMF as soon as possible with a view to formulating and presenting to the country’s creditors a comprehensive plan to bring Sri Lanka’s external public debt to a fully sustainable position,” the statement said. the Ministry.
Meanwhile, protesters camped around the president’s office for a fourth day demanding the resignation of President Gotabaya Rajapaksa, holding him responsible for the economic crisis. Supporters of the protesters provided drinking water and food, and Muslim protesters broke their Ramadan fast at the site to share food with those around them.
Much of the anger expressed over the weeks of protests has been directed at the Rajapaksa family, which has been in power for most of the past two decades. Critics accuse the family of borrowing heavily to finance projects that have failed to bring in money, such as a port facility built with Chinese loans.
Prime Minister Mahinda Rajapaksa, a former president who is the current president’s older brother, sought in a speech late Monday to reassure people that the government is working to solve the problems.
“We are embarking on a huge program to overcome the crisis we face today. Every second spent by the president and this government is used in exhausting ways to rebuild our country,” he said.
He refused to hand over power, saying the ruling coalition would continue to rule Sri Lanka because opposition parties had rejected his call for a unity government.
The crisis and the protests prompted many Cabinet members to resign. Four ministers have been sworn in as guardians, but many key portfolios are vacant.
Parliament failed to reach a consensus on how to handle the crisis after nearly 40 ruling coalition lawmakers said they would no longer vote under the coalition’s instructions, significantly weakening the government.
With the opposition parties divided, they too were unable to form a majority and take control of parliament.