Sri Lanka Economic Crisis: Island Nation Announces Default On All External Debt

Sri Lanka is facing the worst economic crisis as it has been witnessing massive public outcry and protests for weeks over lengthy power cuts and shortage of gas, food, and other vital goods

Sri Lankan protesters shout slogans at the main entrance of president's office in Colombo. Image: Getty

New Delhi: Sri Lanka, which is grappling with its worst economic downturn since independence, defaulted on its $51 billion external debt on Tuesday.

According to a report by the agency AFP, the crisis-hit island nation in the Indian Ocean has called the move a “last resort” after running out of foreign exchange (forex) to import desperately needed goods.

Currently, Sri Lanka has been witnessing regular blackouts and acute shortages of food and fuel.

The island nation is facing the worst economic crisis since its independence in 1948. The country has been witnessing massive public outcry and protests for weeks over lengthy power cuts and shortage of gas, food, and other basic goods.

Closure of a few thermal power plants because of diesel shortage has triggered power cuts lasting over 10 hours daily. The country's only refinery was forced to shut twice in November last year since it was unable to pay for imports.

The finance ministry of Sri Lanka in a statement said that creditors, including foreign governments, were free to capitalise any interest payments due to them from Tuesday or opt for payback 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.

The immediate debt default was to ensure "fair and equitable treatment of all creditors" ahead of an International Monetary Fund assisted recovery programme for the South Asian nation, it added.

Sri Lanka had sought debt relief from India and China, but both countries instead offered more credit lines to buy commodities from them.

The crisis has caused widespread misery for Sri Lanka’s 2.2 crore people and led to weeks of anti-government protests.

Global rating agencies had downgraded Sri Lanka last year, effectively blocking the country from accessing foreign capital markets to raise much-needed loans to finance imports.