Sri Lanka unilaterally suspends external debt payments

COLOMBO: Sri Lanka’s central bank said on Tuesday it had become “challenging and impossible” to repay external debt, as it tries to use its dwindling foreign exchange reserves to import essentials like fuel.

The island nation’s reserves have slumped more than twothirds in the past two years, as tax cuts and the Covid-19 pandemic badly hurt its tourism-dependent economy and exposed the government’s debt-fuelled spending. Street protests against shortages of fuel, power, food and medicine have gone on for more than a month.

“We need to focus on essential imports and not have to worry about servicing external debt,” Central Bank of Sri Lanka’s governor, P. Nandalal Weerasinghe, told reporters. “It has come to a point that making debt payments are challenging and impossible.” Weerasinghe said the suspension of payment would be until the country came to an agreement with creditors and with the support of a loan programme with the IMF. Sri Lanka starts formal talks with the global lender on Monday for emergency loans.

The country has foreign debt payments of around $4 billion due this year, including a $1 billion international sovereign bond maturing in July. A coupon payment of $78 million is due across two of its bonds maturing in 2023 and 2028 on Monday.

“This is a positive for the economy because we were using scarce foreign exchange resources to service our debt when we could not afford to. This will release funds for our own citizens. It was displaced vanity at the cost of our population,” said Murtaza Jafferjee, the chief executive of brokerage J.B Securities