Sri Lanka announced on Tuesday that it is defaulting on its foreign debt of around $51 billion pending a bailout package from the International Monetary Fund amid the country’s worst economic crisis.
Sri Lanka’s finance ministry said that creditors and foreign governments were free to capitalize interest payments due from Tuesday afternoon or opt for payback in Sri Lankan rupees.
“It shall be the policy of the Sri Lankan government to suspend normal debt servicing, shall apply to amounts of affected debts outstanding on April 12, 2022,” Sri Lanka’s finance ministry said.
Dr. P. Nandalal Weerasinghe, the Governor of Sri Lanka’s Central Bank, said that the best action is to restructure debt and avoid a hard default.
“It has come to a point that making debt payments are challenging and impossible. The best action that can be taken is to restructure debt and avoid a hard default,” Weerasinghe said.
Sri Lankan officials would temporarily postpone foreign debt payments to avoid a hard default and conserve its limited foreign reserves of essentials like food, fuel, and medicine.
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