Sri Lanka defaults on its international debt for the first time in its history as the country faces more shortages. On Wednesday, a 30-day grace period to pay $78 million (£63 million) in overdue debt interest payments ended.
The governor of the central bank of the South Asian nation declared the country to be in “pre-emptive default.”
Two of the world’s largest credit rating agencies confirmed Sri Lanka has defaulted later on Thursday.
When governments are unable to satisfy some or all of their debt payments to creditors, defaults occur.
It can undermine a country’s investor reputation, making it more difficult for it to borrow money on foreign markets, further eroding confidence in its currency and economy.
“Our position is very clear, we said that unless they come to the restructure [of our obligations], we will not be able to pay,” central bank governor P Nandalal Weerasinghe said on Thursday when asked if the country was now in default.
Sri Lanka is attempting to restructure loans to foreign creditors totaling more than $50 billion to make repayment more affordable.
The pandemic and rising energy prices have hurt the country’s economy, but some argue the current problem was caused by the previous government.
Medicines, fuel, and other essentials are in short supply due to a persistent shortage of foreign money and rising inflation.
Prof Moore claimed that the previous administration borrowed money for infrastructure projects and then “insisted in this very macho attitude” on repaying rising debts rather than negotiating with creditors to restructure them.
The country has already begun bailout talks with the International Monetary Fund (IMF) and must restructure its debt deals with creditors. According to an IMF spokesman, ongoing talks on a new loan package are likely to wrap up on Tuesday.