Sri Lankan government declares country bankrupt, Sri Lanka announces temporary suspension of repayment of foreign loans to avoid hard default. Sri Lanka’s central bank governor says it needs its limited foreign reserves to import essential commodities such as fuel so it cannot repay loans.
Governor P Nandalal Veerasanghe told the media that foreign exchange reserves have reached a point where it is difficult and impossible to repay the loan, so the best course of action that can be taken now is to avoid debt restructuring and hard default.
Sri Lanka is to begin talks on a loan program with International Monetary Fund (IMF) next week. Sri Lanka is currently suffering from food and medicine shortages as well as prolonged power outages. The economic crisis in Sri Lanka has become so severe that public anger is now visible on the streets, so intense that people are protesting outside the Sri Lankan president’s house.
Given the gravity of the situation, the government has declared a state of emergency across the country and handed over responsibility to the army. In view of the growing violent protests in the country, the government has given the army the power to arrest without a warrant.
Sri Lanka’s foreign reserves stood at a modest level of just $1.93 billion at the end of March, while it has to repay about $4 billion in foreign debt this year, including a $1 billion global bond in July. The central bank governor said that Sri Lanka has never been in default in repaying its loans so the move was based on good faith.
“This step will be on a temporary basis only until we reach an agreement with the lenders and the IMF,” he said.