Sri Lanka announced on Tuesday that it was defaulting on its $51 billion in external debt, pending a bailout from the International Monetary Fund, with whom it will hold talks later this month.
Creditors, including foreign governments, are free to capitalize interest payments due as of Tuesday afternoon or opt for payback in Sri Lankan rupees, according to Sri Lanka’s finance ministry.
Officials previously stated that the island nation would temporarily suspend foreign debt payments in order to avoid a hard default and conserve its limited foreign reserves for the import of necessities such as food, fuel, and medicine.
Sri Lanka’s foreign exchange reserves dropped 16.1 percent to $1.93 billion in March from a month earlier, the central bank said last week.
An estimated $8.6 billion in debt payments fall due this year, according to an analysis by Bloomberg, and rapidly falling reserves raise questions about Sri Lanka’s ability to pay even a part of this sum.
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