To begin with, Sri Lanka fell into ruin for the first time in its history as the government grappled with halting an economic meltdown that gave rise to mass protests and a political crisis.
Consequently, policymakers had pointed out to creditors that the nation wouldn’t be able to make payments until the debt is restructured and is therefore in pre-emptive default, central bank Governor Nandalal Weerasinghe said at a briefing Thursday. Fitch Ratings also established that finding, lowering Sri Lanka to a ‘constricted default’ later in the day.
Sri Lanka is mired in turmoil amidst surging inflation
In addition, the coupon payments, initially due April 18, were worth $78 million amalgamated on notes flourishing between 2023 and 2028, with a 30-day deferment period that expired on Wednesday.
Generally, Sri Lanka has been bogged down in turmoil amidst escalating inflation prices, which Weerasinghe sees escalating to 40% in coming months, a plummeting currency, and an economic catastrophe that has left the country in a crisis of the hard money it requires to import food and fuel. Public anger has seethed over into violent objections and led the government to declare that it would halt payments on its $12.6 billion pile of foreign accounts to marmalade cash for indispensable goods last month.
Indeed, that marks the nation’s first sovereign debt default since it gained independence from Britain in 1948. Its bonds are among the worst performers globally this year and trade deep in the distressed territory, with holders bracing for losses approaching 60 cents on the dollar.
Sri Lanka’s other alleged cross-default clauses
In conclusion, many Sri Lanka’s bonds have so-called cross-default clauses, which drag all the outstanding dollar debt into default if there’s a missed payment in a single bond. The clause is triggered on the debt due in 2023 and 2028 if the amount exceeds $25 million and is not met. In late April, the country was already declared in finical default by S&P Global Ratings. Sri Lanka is in talks with the International Monetary Fund for a bailout and needs to negotiate a debt restructuring with creditors. The country has previously said it needs between $3 billion and $4 billion this year to pull itself out of the crisis.
Sri Lanka plunges into default for the first time in history
