Sri Lanka temporarily suspends foreign debt payment

Colombo, Apr 12 (EFE).- Sri Lanka Tuesday said it had temporarily suspended foreign debt payments amid an unprecedented cash crunch that has thrown the country into a deep economic crisis, pending a bailout package from the International Monetary Fund (IMF).

The finance ministry said the government has decided to “suspend normal debt servicing…for an internal period pending an orderly and consensual restructuring of those obligations consistent with an economic adjustment program supported by the IMF.”

The policy affects “all outstanding series of bonds issued in the international capital markets, all bilateral (government-to-government) credits, except swap lines between the Central Bank of Sri Lanka and a foreign central bank,” the ministry said.

The government also suspended payments on “all foreign currency loan agreements or credit facilities with commercial banks or institutional lenders for which which (Sri Lanka) or a public sector entity is the debtor or guarantor.”

Thus “all payments of principal and interest due after 5 pm (Sri Lanka time) on Apr.12, 2022, under the affected debts, shall be deemed to have been capitalized and such amounts shall bear interest during the interim period at the normal contractual rate applicable to that credit,”

The government called it an emergency measure to preserve financial status quo, until “with the assistance of the IMF and Sri Lanka’s other partners, a full recovery plan can be prepared.

The financial crisis that sparked inflation and shortage of essentials forced people to take to streets, demanding the resignation of the government led by President Gotabaya Rajapaksa.

Thousands of demonstrators have been on a sit-in near the president’s office in Colombo that entered into the fourth day on Tuesday,

The protesters have named the protest site as “Gota Go Village” with Gota referring to the president’s first name.

People voluntarily bring supplies for the demonstrators to keep the sit-in going. Many popular artists have also joined in.

The government is in discussions with the IMF to design an economic adjustment program that allows the nation to face its internal and external commitments.

Sri Lanka’s current debt-to-GDP ratio has risen to 102.8 percent in 2021, with some $54,000 million, of which $20,000 million foreign debt.

The economic situation has worsened since the war in Ukraine that exacerbated the economic hardships created by the pandemic, the finance ministry said.

Sri Lanka’s main foreign lenders are the World Bank and the Asian Development Bank.

Among the bilateral lenders are Japan, China, and India that have already provided several lines of credit to the island nation.

Sri Lanka is facing an unprecedented economic crisis caused, in part, by the country’s debts, the economic recession during the pandemic, and a drastic drop in tourism.

Added to this is an excess of money printing and the consequent depreciation of the Sri Lankan rupee. EFE

san-igr/ssk