News analysis

Sri Lanka's inevitable loan default will buy time, but not fuel or food

People waiting to buy kerosene at a gas station amid a fuel shortage in Colombo, Sri Lanka, on April 13, 2022. PHOTO: EPA-EFE
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COLOMBO - Even through a three-decade long civil war and several crises, Sri Lanka paid its debts. But on April 12, the South Asian country announced it would halt payments on its foreign loans, saying they had become "challenging and impossible" to repay.

The decision frees up the shrinking foreign exchange reserve for critical imports of essentials such as food, fuel and medicine. Severe shortages of such items have triggered massive citizen protests since March 31. But experts said that while the suspension offers brief relief and staves off legal challenges from an actual loan default, the depleted dollar reserve and import financing difficulties remain worries.

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