Nfter months of crisis, Sri Lanka declared its economic collapse on Tuesday. The central bank governor, P. Nandalal Weerasinghe, who was appointed just last week, said that the debt service on the entire debt of 51 billion dollars would be stopped at least temporarily. All outstanding payments to bondholders, bilateral lenders and institutional lenders such as the Asian Development Bank (ADB), the World Bank and the International Monetary Fund (IMF) are suspended. It is the first time that the troubled island has stopped servicing its creditors.
But the goal remains to restructure the debt, according to a statement by the Treasury Department. Since the end of last week, it has been led by Ali Sabry, the former justice minister and confidant of the ruling Rajapaksa family clan. At first he refused to take on the extremely demanding position. Those responsible are now negotiating the next steps with the first creditors.
Hardly any fuel
Due to the lack of dollars, the island has been running out of fuel and electricity with huge disruptions, imported machinery, fertilizer and, for the last few weeks, food, and meanwhile the shortage of medicines has meant that government hospitals have been non-operational since April 7th. suspend life-saving operations. the inflation rate is 20 percent, traders are hoarding groceries in anticipation of even higher prices. Demonstrations against the Rajapaksa family are increasing. With Gotabaya Rajapaksa, she provides the still incumbent president and with his older brother Mahinda also the prime minister in South Asia’s oldest democracy. Western embassies are about to activate contingency plans and first fly out employees’ families.
The Treasury Department said Tuesday the move was “a last resort to prevent the republic’s financial position from further deteriorating.” of Sri Lanka lasting damage and possibly irreversible damage to the holders of the country’s foreign debt.” However, the party of Rajapaksas, which voted the people into government, lost its majority in parliament last week. Due to the resignation of numerous ministers alone, the Rescue talks with the IMF continue Sabry has announced that he wants to fly to Washington on Easter Monday to start negotiations there with the multilateral organizations Exception of Weerasinghe.
$3 billion needed immediately
On Tuesday morning, the central bank governor tried to calm the markets, which have been expecting a collapse for months. “This will only be temporary until we get an agreement with creditors and support thanks to a program with the IMF,” he pressured the fund in Washington foreign debt,” he added.
Sri Lanka needs $3 billion immediately to pay for urgent imports. On April 18, interest on two bonds of $36 and $42.2 million will be due, and on July 25 another one of $1.03 billion will have to be repaid. In total, at least $7 billion in loans are due in 2022. The value of all dollar bonds amounts to almost 13 billion dollars. At the end of March, however, Sri Lanka’s dollar reserves were only 1.94 billion dollars. The rupee lost another 0.5 percent of its value against the dollar on Tuesday. Stock trading is suspended this week. In the past week, the Colombo stock exchange only opened part-time due to the power outages.