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Sri Lanka defaulted on its $51 billion foreign debt Tuesday amid an economic crisis that has prompted mass demonstrations demanding the government’s resignation, Agence France-Presse reported.
The suspension of payments marks the country’s first default since Sri Lanka became independent in 1948. Officials said that the move will free up foreign currency reserves to purchase desperately needed food, fuel and medicine imports amid severe shortages and long daily electricity blackouts.
The government initially imposed an import ban to preserve its foreign reserves and use them to service its debt. But the move sparked large protests demanding the resignations of government leaders and featuring attempts by the crowd to storm their homes.
Economic analysts said that the current crisis began to be felt after the coronavirus pandemic halted vital revenue from the tourism sector and remittances. It was worsened by government mismanagement, years of accumulated borrowing and ill-advised tax cuts.
Market borrowings through international sovereign bonds account for a little under half of Sri Lanka’s debt, including a $1 billion bond that was maturing on July 25.
The default comes as the Sri Lankan government is negotiating with the International Monetary Fund for a bailout aimed at preventing a worse hard default.
Sri Lanka has also requested debt relief from China and India, but both nations have instead offered more credit lines to buy commodities from them.
According to estimates, Sri Lanka required $7 billion to cover its debt load this year, against just $1.9 billion in reserves at the end of March.