Sri Lanka To Suspend Payment On All External Debt: Finance Ministry

The suspension will stay in place till the economically embattled Sri Lanka has a debt rescue plan effective today

Sri Lanka's Ministry of Finance announced on Tuesday that effective 5pm, it would be suspending repayment of all external debt, till it finds a concrete restructuring plan in accordance with the economic adjustment program of the International Monetary Fund.

External debt, in this case, would be all Sri Lankan debt - borrowed or deferred payments - dominated in a currency other than Sri Lankan rupees or governed by a law outside Sri Lanka.

"The Government intends these emergency measures as temporary expedients designed to preserve the financial status quo until, with the assistance of the IMF and Sri Lanka's other official sector partners, a full economic recovery program can be prepared",

This suspension would include:

  • Bonds issued in international capital markets
  • Foreign-currency loan agreements with foreign banks or institutional lenders
  • Bilateral, government-to-government credit, excluding currency swaps (which involves trading the principal and interest of a loan in one currency for another)
  • Any debt calls falling in this period by either the government or a public sector body issued in respect of a third party

Credit being dispersed under existing agreements to Sri Lanka and any new debt would not be included under this suspension, the government has said.

Sri Lanka is currently facing one of its worst economic crises since its independence in 1948, involving a foreign exchange and cash crunch, runaway inflation, and high levels of debt that has wrecked the availability of necessities and the regular flow of life. The problems have been compounded due to ensuing political unrest.

Also Read: Explained: Sri Lanka's Foreign Exchange And Economic Crisis

The government has said that lenders' funds will not be lost. Rather, the amount owed to them would be re-added to the principal and interest would continue to accrue in this interim period as per the contractual interest rate.

The lenders would get written confirmation of the new principal amount, and if needed, a new short-term instrument that confirms this if needed by the lenders for accounting or official purposes.

Further, lenders also have the option to obtain the Sri Lankan rupee equivalent of what is owed to them.

Several news reports have suggested that this suspension of repayment is a "default" on its debt. However, nothing in today's announcement shows that Sri Lanka has failed or has been unable to make a repayment on upcoming debt, as a debt default would imply.

Sri Lankas owes whom how much?

Sri Lanka currently owes $51 billion in foreign debt, and data from Sri Lanka's Department of External Resources shows that as of April 2021, Sri Lanka's foreign debt was $35.1 billion.

As of last eyar, the debt market remained the largest lender to Sri Lanka, to whom its owes $16.38 billion. China is the country's second largest lender with $3.38 billion, or 10% of its foreign debt. Sri Lanka owes Japan $3.36 billion, or another 10% of its external debt. India has lent it $859 million, or 2% of its external debt, the data show.

The data also show that a majority - or 65% - of the foreign debt was denominated in US dollars in 2019, followed by IMF special drawing rights (14.4%).

This can be seen here.

BOOM is on the ground in Sri Lanka to cover the crisis.

Also Read:Power Cuts, Drug Shortages Push Sri Lanka's Healthcare System To The Brink

Updated On: 2022-04-12T16:33:23+05:30
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