Sri Lanka defaults on debt for first time in its history

May 21, 2022•2 Minutes
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Sri Lanka has defaulted on its debt for the first time in its history as the country struggles with its worst financial crisis in more than 70 years.

A 30-day grace period to come up with $78m (£63m) of unpaid debt interest payments expired on Wednesday.

The governor of the South Asian nation’s central bank said the country was now in a “pre-emptive default”.

Later on Thursday, two of the world’s biggest credit rating agencies also said Sri Lanka had defaulted.

Defaults happen when governments are unable to meet some or all of their debt payments to creditors.
It can damage a country’s reputation with investors, making it harder for it to borrow the money it needs on international markets, which can further harm confidence in its currency and economy.

Asked on Thursday whether the country was now in default, central bank governor P Nandalal Weerasinghe said: “Our position is very clear, we said that until they come to the restructure [of our debts], we will not be able to pay. So that’s what you call pre-emptive default.
“There can be technical definitions… from their side they can consider it a default. Our position is very clear, until there is a debt restructure, we cannot repay,” he added.

Sri Lanka is seeking to restructure debts of more than $50bn it owes to foreign creditors, to make it more manageable to repay.

The country’s economy has been hit hard by the pandemic and rising energy prices, but critics say the current crisis has been of the previous government’s own making.

A chronic shortage of foreign currency and soaring inflation have led to a severe shortage of medicines, fuel and other essentials.

Professor Mick Moore from the University of Sussex and former consultant on Sri Lanka for the Asian Development Bank said even though it looked like Sri Lanka was struggling from the effects of global economic problems, it was “emphatically not that”.
“This is the most man-made and voluntary economic crisis of which I know,” he told the BBC’s Today programme.

Source-BBC