Crisis-hit Sri Lanka defaults on foreign debt

COLOMBO • Sri Lanka announced a default on its US$51 billion (S$69.5 billion) foreign debt yesterday as it grapples with its worst economic crisis in memory and escalating protests demanding the government's resignation.

Acute food and fuel shortages, as well as long daily electricity blackouts, have brought widespread suffering to the country's 22 million people in the most painful downturn since independence in 1948.

The government has struggled to service foreign loans and the default came ahead of negotiations for an International Monetary Fund (IMF) bailout aimed at preventing a more catastrophic hard default that would see Sri Lanka completely repudiate its debts.

"Sri Lanka will suspend repayments for an interim period pending an orderly restructuring," Treasury Secretary Mahinda Siriwardena told reporters. Just under half of Sri Lanka's debt is market borrowings through international sovereign bonds (ISBs), including one worth US$1 billion maturing on July 25.

China is Sri Lanka's largest bilateral lender and owns about 10 per cent of the island's public debt, followed by Japan and India. The government has borrowed heavily from Beijing since 2005 for infrastructure projects, many of which became white elephants.

Sri Lanka also leased its strategic Hambantota port to a Chinese firm in 2017 after it could not service the US$1.4 billion debt from Beijing used to build it. This sparked concerns from Western countries and neighbour India that the strategically located South Asian nation was falling into a debt trap.

Chinese foreign ministry spokesman Zhao Lijian said yesterday's default would not stop Beijing from lending support to Sri Lanka's beleaguered economy. "China has always done its best in providing assistance to Sri Lanka's economic and social development. We will continue to do so in the future," he said.

Sri Lanka's snowballing economic crisis began with an inability to import essentials, after the coronavirus pandemic torpedoed vital revenue from tourism and remittances. The government imposed a wide import ban to conserve dwindling foreign currency reserves and use them to service the debts it has now defaulted on.

But the resulting shortages have stoked public anger, with long queues forming each day to buy scarce supplies of petrol, gas and kerosene for cooking stoves.

It's been depressing to be so frightened of the future and where it's going," protester Vasi Samudra Devi said at an anti-government rally in Colombo on Monday.

Sri Lanka's finance ministry said yesterday's default was "a last resort in order to prevent further deterioration of the republic's financial position".

Creditors were free to capitalise any interest payments due to them or opt for payback in Sri Lankan rupees, the ministry added.

AGENCE FRANCE-PRESSE