The island nation’s reserves have fallen by more than two-thirds in the past two years as tax cuts and the COVID-19 pandemic hit the tourism-dependent economy hard and exposed government spending on debt. Protests in the streets against the shortage of fuel, energy, food and medicine have been going on for more than a month. Sign up now for FREE unlimited access to Reuters.com Register “We need to focus on basic imports and not worry about servicing our foreign debt,” Sri Lanka Central Bank Governor P. Nandalal Weersinghe told reporters. “It has reached a point where paying off debt is difficult and impossible.” Weersinghe said the suspension would be until the country reached an agreement with creditors and backed a loan program with the International Monetary Fund (IMF). Sri Lanka begins formal talks with global lender on Monday on emergency loans. The country’s about $ 4 billion in foreign debt payments ending this year, including a $ 1 billion international government bond ending in July. Two coupon payments are paid on Monday. “It’s a bankruptcy. It was inevitable,” said Murtaza Jafferjee, chief executive of JB Securities. “This is positive for the economy because we used scarce foreign exchange resources to service our debt when we could not afford it. This will free up funds for our citizens. It was displaced vanity to the detriment of our people.” He said the Sri Lankan decision covers about $ 25 billion in bilateral and trade debt, which includes about $ 12 billion in international government bonds. BlueBay Asset Management’s senior emerging market analyst Timothy Ash said “the only surprise is that it took the Columbus administration so much to come to terms with reality.” “It makes sense to declare a moratorium on payments until they draw up a program with the IMF and agree terms with bondholders,” he said. Sri Lankan dollar-denominated government bonds showed healthy gains on Tuesday, with longer-term issues rising more than 1 cent against the dollar, according to Tradeweb. Its hard currency bonds are trading mostly in distressing levels, just below 40 cents on the dollar, while the bond that matures on July 25 traded just over 50 cents, according to Refinitiv. Governor Weerasinghe said the call for repayment had been received in good faith, stressing that the country of 22 million had never defaulted on its debt. Sign up now for FREE unlimited access to Reuters.com Register Written by Devjyot Ghoshal and Krishna N. Das. Edited by Ed Osmond and Raju Gopalakrishnan Our role models: The Thomson Reuters Trust Principles.
