Crisis-hit Sri Lanka defaults on all foreign debt to save money for essentials

Sri Lanka defaulted on its US$51 billion foreign debt on Tuesday as the island nation grapples with its worst economic crisis in memory and widespread protests demanding the government’s resignation.

Acute food and fuel shortages, alongside long daily electricity blackouts, have brought widespread suffering to the country’s 22 million people in the most painful downturn since independence in 1948.

Public anger has flared in recent weeks with crowds attempting to storm the homes of government leaders and security forces dispersing protesters with tear gas and rubber bullets.

Sri Lanka’s finance ministry said the country was defaulting on all external obligations, including loans from foreign governments, ahead of an International Monetary Fund bailout.

“The government is taking the emergency measure only as a last resort to prevent further deterioration of the republic’s financial position,” a statement from the ministry said.

Creditors were free to capitalise any interest payments due to them or opt for payback in Sri Lankan rupees, the ministry added.

The announcement could increase pressure on President Gotabaya Rajapaksa and his brother, Prime Minister Mahinda Rajapaksa, to step down. They have so far been defiant despite mounting citizen protests against inflation that is running at 20 per cent and daily electricity shortages of as long as 13 hours.