African Reserves Loans

Sri Lanka says it will default on external debt as cost of food and food imports soar, report says

Sri Lanka has said it will default on its foreign bonds as it scrambles to save dwindling reserves to pay for essential imports, media reports said on Tuesday.

Last Friday, the Central Bank of Sri Lanka appointed its seventeenth governor, P. Nandalal Weerasinghe, and on Tuesday took the decision to suspend payments on foreign bonds.

“We need to focus on essential imports and not have to worry about servicing external debt,” Weerasinghe said, according to a Reuters statement. report.

Flight mentioned a $1 billion bond maturing in July is trading at just 46 cents on the dollar and the country’s foreign exchange reserves have fallen below $2 billion, about half of what they were there one year old.

The war in Ukraine has taken its toll on the prices of essential foodstuffs like rice, sunflower oil and wheat and the weakness of the Sri Lankan currency, which has fallen 60% against the dollar this year, increases its import bill.

People took to the streets to protest the dwindling supply of medicine, food and fuel needed to power homes.

“It’s gotten to a point where paying off the debt is difficult and impossible.” said Weerasing.

He went on to say that the suspension will be in place until the South Asian country meets with the International Monetary Fund (IMF) on Monday to begin formal talks on emergency lending from the global lender.