Sri Lanka has officially defaulted on its debt

Sri Lanka defaulted for the first time in its history by being unable to pay interest on bonds when the grace period ended on May 18.

May 18 is the last day of Sri Lanka’s 30-day grace period to pay $78 million in interest on bonds maturing in 2023 and 2028. These payments are due on April 18th. However, a few days earlier, the Sri Lankan authorities declared themselves insolvent and informed the creditors that they could not pay until the debt was restructured.

Sri Lanka is in the midst of political and economic turbulence. Sri Lanka’s central bank governor Nandalal Weerasinghe forecasts that the country’s inflation will rise to 40% in the next few months. The new Sri Lankan government even wants to sell the national carrier SriLankan Airlines to cut losses.

The collapse of the domestic currency and the economic crisis mean that the country lacks the foreign currency needed to import food and fuel. Last month they announced they would stop paying international debts to save money on groceries.

This is the first time the country has defaulted on its debt since gaining independence from Britain in 1948. This government bond is also one of the worst in the world this year.

Sri Lanka is negotiating a rescue package with the International Monetary Fund (IMF). They also negotiate with the creditors about a debt restructuring. Previously, this country announced that it would need USD 3-4 billion this year to get out of the crisis.

Restructuring can take 6 months. However, the current situation makes it very difficult to accurately predict the schedule, Weerasinghe said. He added that they will shortly submit a list of proposed advisers for the restructuring to Cabinet. The IMF may also issue an announcement on the negotiations on May 20th.

Ha Thu (according to Bloomberg)