Sri Lanka suspends debt repayments pending IMF bailout

COLOMBO, Sri Lanka (AP) — 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 face the island nation’s worst economic crisis in decades, the government announced on Tuesday.

In recent months, Sri Lankans have suffered fuel and food shortages 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 to be repaid over the next five years. 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 payments is no longer a realistic 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.

Central Bank Governor Nandalal Weerasinghe told reporters that the announcement of the suspension of external debt payments was urgent as Sri Lanka has to repay nearly $200 million next week and if the country cannot not raise this money, he would face a “hard default” leading to worse repercussions.

The Central Bank has called on Sri Lankans living and working abroad to donate foreign currency into four government-run bank accounts to enable government officials to purchase essentials such as food, fuel and medicines to be distributed urgently to the population, because the talks with the IMF will take time. generate economic improvement. The Central Bank tweeted that a three-member committee will ensure transparency in the distribution of funds and promised to make quarterly financial statements public.

Sri Lankans were forced to queue for cooking gas, fuel and dairy power and doctors warned there was a catastrophic shortage of essential medicines in government hospitals.

Protesters camped around the president’s office for a fourth consecutive day demanded the resignation of President Gotabaya Rajapaksa, holding him responsible for the economic crisis. Supporters of the protesters who are also calling on the ruling Rajapaksa family to stop providing clean water and food to the protesters. Muslim protesters broke their Ramadan fast at the site to share food with people around them.

Much of the anger expressed over the weeks of protests has been directed at the Rajapaksa family, which has held 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 country’s financial 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.

Rajapaksa has refused to hand over power, saying the ruling coalition will continue to rule Sri Lanka as opposition parties have 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 government 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.

But with the opposition parties divided, they were unable to form a majority to take control of parliament.

Tana T. Thorsen