For the first time, Sri Lanka is in default

Sri Lanka has defaulted on debt payments for the first time in its history, a day after the cash-strapped country said it had no money to buy fuel, even for a day.

On Thursday, Sri Lanka’s central bank governor P Nandalal Weerasinghe said the island nation had fallen into “preventive default” on its debts.

“Our position is very clear, we have said that until they come to the restructuring [of our debts], we will not be able to pay. So that’s what you call a preemptive default,” Weerasinghe said, according to the BBC.

“There may be technical definitions…on their side, they may see it as a defect. Our position is very clear, until there is debt restructuring, we cannot repay,” he added.

Pre-emptive defaults occur when a country fails to honor some or all of its debt payments to its creditors. As a result, it damages a country’s reputation, making it harder to borrow the money it needs in international markets, which can further damage confidence in its currency and economy.

According to ratings agency Moody’s, this is the first default by an Asia-Pacific country this century.

Last month, Sri Lanka said it would stop repaying its international debts to snatch dwindling foreign currency reserves, which are essential for importing key items from abroad.

Watch | Sri Lanka defaults on its debt for the first time in its history

It must repay about $7 billion in international loans this year, out of a total external debt of $51 billion. The country’s finance ministry said it had $25 million in usable foreign exchange reserves.

The island nation is going through its worst economic crisis since its independence in 1948.

Read also | Explanatory | Sri Lanka runs out of gas: How the island nation lost the plot

Inflation at 40%, rising prices for gasoline, medicine, cooking gas and other basic necessities have only worsened the misery of the people.

Read also | Sri Lanka. Proposal to suspend Parliament’s Rules of Procedure is rejected

The economic crisis has also triggered a political crisis in Sri Lanka, which led to the resignation of the country’s Prime Minister, Mahinda Rajapaksa, after violence between protesters and government supporters.

(With agency contributions)


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