Sri Lanka is suspending its repayment of foreign debt, including bonds and government-to-government borrowings, pending the completion of a loan restructuring program with the International Monetary Fund to deal with the island nation’s worst economic crisis in decades, the government said Tuesday.
Sri Lankans for the past months have been enduring shortages of fuel, food, and other essentials and daily power outages. Most of those items are paid for in hard currency, but Sri Lanka is on the brink of bankruptcy, saddled with dwindling foreign reserves and $25 billion in foreign debt. Nearly $7 billion is due this year.
“Sri Lanka has had an unblemished record of external debt service since independence in 1948,” the Ministry of Finance said in a statement. “Recent events, however, including the effects of the COVID-19 pandemic and the fallout from the hostilities in Ukraine, have so eroded Sri Lanka’s fiscal position that continued normal servicing of external public debt obligations has become impossible.”
The ministry said the IMF has assessed Sri Lanka’s foreign debt as unsustainable, and staying current on foreign debt repayment is no longer a tenable policy.
In addition to seeking help from the IMF, the government has turned to India and China for help in dealing with the shortages.
“The government intends to pursue its discussions with the IMF as expeditiously as possible with a view to formulating and presenting to the country’s creditors a comprehensive plan for restoring Sri Lanka’s external public debt to a fully sustainable position,” the ministry said.
Meanwhile, protesters camped out 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 supplied drinking water and food, and Muslim protesters broke their Ramadan fasting at the site to share food with those around them.
Much of the anger expressed in weeks of protests has been directed at the Rajapaksa family, which been in power for most of the past two decades. Critics accuse the family of borrowing heavily to finance projects that have earned no 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 Monday night to reassure people that the government is working on resolving the problems.
“We are embarking on an enormous program to overcome the crisis we face today. Every second spent by the president and this government is used up exhausting avenues to rebuild our country,” he said.
He refused to yield power, saying the governing coalition will continue to rule Sri Lanka because opposition parties rejected its call for a unity government.
The crisis and protests prompted many Cabinet members to resign. Four ministers were sworn in as caretakers, but many of the key portfolios are vacant.
Parliament has failed to reach a consensus on how to deal with the crisis after nearly 40 governing coalition lawmakers said they would no longer vote according to coalition instructions, significantly weakening the government.
With opposition parties divided, they too have not been able to form a majority and take control of Parliament.