Crisis-stricken after running out of foreign cash to acquire vitally needed items, Sri Lanka defaulted on its $51 billion external debt on Tuesday, calling the move a “last resort.”
The island nation is in the midst of its greatest economic collapse. Since independence, with frequent blackouts and severe food and fuel shortages.
In a statement, Sri Lanka’s finance ministry said creditors, including foreign governments, had the option of capitalising any interest payments owing to them beginning Tuesday or opting for return in Sri Lankan rupees.
“The government is taking the emergency measure only as a last resort. In order to prevent further deterioration of the republic’s financial position,” the statement said.
It went on to say that the debt default was necessary to provide “fair and equitable treatment of all creditors”. Ahead of an IMF-assisted recovery plan for the South Asian country.
The crisis has wreaked havoc on Sri Lanka’s 22 million people, sparking weeks of anti-government demonstrations.
Sri Lanka was downgraded by international rating agencies last year, 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 provided larger credit lines to buy goods from them.
