Sri Lanka’s central bank said on Tuesday it had become ‘challenging and impossible’ to repay external debt, as it focuses on essentials in the face of dwindling foreign reserves.
The island nation’s reserves have slumped more than two-thirds in the past two years, as tax cuts and the COVID-19 pandemic badly hurt its tourism-dependent economy and took the government’s debt exposure to alarming levels.
Street protests against shortages of fuel, power, food and medicine have intensified as citizens are reeling under the crisis.
‘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 the media.
‘It has come to a point that making debt payments are challenging and impossible.’ he added, saying the suspension of debt repayments would be until the country came to an agreement with creditors and with the support of a loan programme with the International Monetary Fund (IMF).
Sri Lanka will formally talk to the global lender on Monday for emergency loans.
The island nation has foreign debt payments of around $4 billion.
Sri Lanka’s sovereign dollar-denominated bonds saw gains of a percentage point, while hard currency bonds saw distress prices of under 40 cents to the dollar.
Governor Weerasinghe said the call on repayment was being taken in good faith, emphasizing that the country of 22 million people had never defaulted on its debt payments.