Sri Lanka halts debt repayment pending IMF bailout plan

Sri Lanka's government says it is suspending its repayment of foreign debt, including bonds and government-to-government borrowing

COLOMBO, Sri Lanka -- Sri Lanka is suspending its repayment of foreign debt, including bonds and government-to-government borrowing, pending the completion of a loan restructuring program with the International Monetary Fund to deal with the island nation’s worst economic crisis in decades, the government announced Tuesday.

Sri Lankans in recent months have endured fuel and food shortages and daily power outages. Most of those items are paid for in hard currency, but Sri Lanka is on the brink of bankruptcy, saddled with dwindling foreign reserves and $25 billion in foreign debt due for repayment over the next five years. Nearly $7 billion is due this year.

“Sri Lanka has had an unblemished record of external debt service since independence in 1948," the Ministry of Finance said in a statement. “Recent events, however, including the effects of the COVID-19 pandemic and the fallout from the hostilities in Ukraine, have so eroded Sri Lanka's fiscal position that continued normal servicing of external public debt obligations has become impossible.”

The ministry said the IMF has assessed Sri Lanka's foreign debt as unsustainable, and that staying current on foreign debt payments is no longer a realistic policy.