Sri Lanka Announces Defaulting on its $51 Billion External Debt

After weeks of economic turmoil, Sri Lanka stated on Tuesday that it would default on its $51 billion external debt in the absence of a bailout from the International Monetary Fund.

The country’s finance ministry stated that creditors, including foreign governments that had borrowed to the South Asian nation, were free to capitalize any interest payments owed to them from Tuesday afternoon or opt for repayment in Sri Lankan rupees.

The country is experiencing its worst economic crisis since independence, with frequent blackouts and severe food and fuel shortages.

In a statement, Sri Lanka’s finance ministry stated that creditors, including foreign governments, were free to capitalize any interest payments owing to them beginning Tuesday or choose for return in Sri Lankan rupees.

“The government is taking the emergency action only as a last resort in order to prevent further deterioration of the republic’s financial position,” according to the statement.

It went on to say that the immediate debt default was necessary to provide “fair and equitable treatment of all creditors” ahead of the South Asian nation’s participation in an International Monetary Fund-assisted recovery program. The problem has caused severe devastation among Sri Lanka’s 22 million inhabitants and sparked weeks of anti-government protests.

Last year, international rating agencies downgraded Sri Lanka, thus preventing it from accessing foreign financial markets to raise much-needed loans to finance imports. Sri Lanka had asked India and China for debt relief, but both countries instead offered larger credit lines to buy goods from them.

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