An Asian country defaulted on its debt because it ran out of USD reserves

Sri Lanka announced it would suspend foreign debt payments as the country needed to use its dwindling USD reserves to buy food and fuel.

“We have come to a situation where our ability to repay is very low. That’s why we declared default on foreign loans,” RT quoted the newly appointed central bank governor, Nandalal Weerasinghe, announcing at a meeting on April 12.

Mr Weerasinghe added that Sri Lanka’s external debt payments would be suspended “on a temporary basis”, pending a bailout from the International Monetary Fund.

Sri Lanka has to pay about 4 billion VND USD foreign debt this year, including $1 billion in July, but the country’s foreign exchange reserves stood at only about $1.93 billion in March.

“We need to focus on essential imports and not have to worry about paying off foreign debt,” Weerasinghe said, explaining what Sri Lanka plans to do with its remaining dollars.

The Ministry of Finance said in a statement that Sri Lanka had fallen into such dire circumstances due to “the impact of the COVID-19 pandemic and the impact of the war in Ukraine“.

According to the Sri Lankan Ministry of Finance, the island’s creditors, including the governments of countries that have lent money to the South Asian country, can accrue unpaid interest on the loan that Sri Lanka is due for payment, or choose to receive back the principal loan in Sri Lankan rupees.

Sri Lanka has seen a wave of violent protests since mid-March when thousands took to the streets to express anger over food shortages and food shortages. energy amid record inflation.

The dire economic situation worsened after the recent political crisis. A week ago, the Sri Lankan government resigned. President Gotabaya Rajapaksa and his brother Prime Minister Mahinda Rajapaksa, the only ones still in office, are forming a new cabinet.