Reeling under neck-deep debt amid falling forex reserves since two years of Covid, crisis-hit Sri Lanka announced?yesterday that it would?default on its entire external debt worth $51 billion (over ?3.88 lakh crore),?as per news agency AFP.
For the uninitiated, a country¡¯s external debt pertains to the money borrowed by it from foreign lenders through sources such as commercial banks, governments, or international financial institutions.
The Governor of the Central Bank of Sri Lanka said to Reuters that it has come to a point that making debt payments is challenging and impossible. The best action that can be taken is to restructure debt and avoid a hard default.
The finance ministry officials reportedly said the move to commit temporary default will free up foreign currency to finance food, fuel and medicine imports after months of scarce supplies and shortage.
The measures are ¡°a last resort in order to prevent a further deterioration of the Republic¡¯s financial position,¡± the finance ministry said.
In a statement yesterday, the Sri Lankan finance also ministry stated that the ¡®temporary¡¯ suspension on payment will be effective on all debts outstanding on April 12.
According to the finance ministry ¡°The debt servicing suspension will be in force for an interim period pending an orderly and consensual restructuring consistent with the proposed arrangement with the IMF (International Monetary Fund).¡±
Amidst its nearly 22 million citizens facing power cuts, shortage of food, fuel and medicines, the expected and scheduled talks with IMF for loan next week seem to be the only light at the end of this dark tunnel for Sri Lanka.?
The finance ministry will approach IMF for assistance to formulate an economic recovery program and for emergency funds.?
Finance minister Ali Sabry, who returned to Parliament after resigning just one day after his appointment last week, said ¡°The government is seeking around $3 billion monetary support from the IMF over the next three years to revive the economy¡±.
Also, last month it was announced that China is providing $2.5 billion in monetary help to crisis-hit Sri Lanka. But amidst that announcement, it had reportedly come to light that China had refused Sri Lanka¡¯s appeal to reschedule its huge debt burden.
Now it remains to be seen in the coming weeks how much financial assistance the crisis-hit nation of Sri Lanka is able to fetch from financial institutions and countries.
Also Read:?How Sri Lanka's Economic Crisis Has Led To Used Cars Costing More Than A Luxury Flat
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