In a statement on Tuesday, the ministry said repayment had become “impossible”, adding that although the government has taken emergency measures in an effort to stay informed of all its external debt, it is now clear that it is not now a sustainable policy “. He described the suspension as a “last resort”. A “complete restructuring of those commitments” was needed, the ministry said, adding that it had turned to the IMF for assistance in drawing up a recovery plan and for financial assistance. Meetings with the IMF are set to begin this month. Confirmation that Sri Lanka could not service its debt pushed prices down from already pressing levels, leaving a $ 1 billion bond ending July 25 below face value at a record low of less than 47 cents on the dollar. . Longer-term bonds are trading at even lower prices, suggesting that investors consider bankruptcy to be largely priced. The country has a total of about $ 35 billion in external public debt outstanding, with $ 7 billion in payments due this year. The IMF said last month that Sri Lanka’s public debt was at “unsustainable levels”. The Treasury Department has informed creditors that they could calculate Sri Lankan lost payments after Tuesday and add interest on any repayments. It has engaged in “good faith talks” with other countries that have lent it money, the largest of which was China, as well as with trade creditors. Sri Lanka’s foreign exchange reserves fell below $ 2 billion in March, and the shortage of dollars has severely curtailed imports, leading to shortages of vital goods such as fuel. The Sri Lankan rupee has fallen more than 37 percent against the dollar this year, making it the worst-performing currency in the world.

Colombo has been embroiled in a political crisis this month, following widespread anti-government protests that sparked a series of resignations, including the central bank governor and some cabinet members. Protesters have accused the government of President Gotabaya Rajapaksa of mismanaging the Sri Lankan economy and provoking a crisis. The finance ministry said the blow to tourism by Covid-19 and the rise in commodity prices caused by the crisis in Ukraine had “eroded Sri Lanka’s fiscal position”. Sri Lankans are suffering from rising inflation, 13-hour power outages and shortages of basic necessities. However, Prime Minister Mahinda Rajapaksa, the president’s brother and former president, condemned the protesters in a speech on Monday, days after security forces fired tear gas and water cannons at hundreds of protesters outside the president’s residence. “Friends, every second you demonstrate in the streets, our country loses opportunities to receive possible dollars,” said the prime minister. The Treasury Department statement comes after the newly appointed governor of Sri Lanka’s central bank surprised markets with a 7 percentage point rise in the country’s key policy rate on Friday in a bid to curb inflation – a move initially hailed by analysts as an attempt although some have warned that the move was not enough to allay concerns about a possible bankruptcy. Sri Lanka has been a regular visitor to the debt markets since issuing its first international bond more than a decade ago, and became Asia’s largest high-yield borrower as it sought to finance the country’s reconstruction after a civil war ended in 2009. The country currently has $ 12 billion worth of $ 12.7 billion in bonds pending. The Sri Lankan government has never defaulted on its debt, surprising many investors with its willingness to maintain interest payments in the wake of the pandemic, which has devastated the island’s major tourism industry. The aftermath of Russia’s invasion of Ukraine, which has triggered a rise in oil prices, has caused more pain to the energy import economy. In addition to the pressure, Sri Lanka had become dependent on tourists from Russia and Ukraine, as traffic from India and western Europe was disrupted by travel restrictions for Covid. Russia is also a key market for the island nation’s tea. “They reacted more than expected, but this latest crisis has essentially ensured that there needs to be restructuring,” said Kevin Daly, emerging market manager at Abrdn.