Sri Lanka has sought emergency financial assistance from the International Monetary Fund (IMF) as it faces its worst economic crisis in over seven decades, with officials confirming a potential default on foreign debt for the first time since 1948. Finance Minister Ali Sabry is leading negotiations in Washington to secure a Rapid Financing Instrument (RFI), which the IMF will evaluate following advocacy from India.
The government announced last week it would temporarily halt $35.5 billion in foreign debt payments, citing compounding pressures from the pandemic and the Ukraine war. On April 18, 2022, it confirmed missing $78 million in interest payments on international bonds, triggering a 30-day grace period. A spokesperson stated this aligns with the policy to pause foreign debt servicing, noting that non-payment within the period would mark the first default since independence.
Moody’s warned that Sri Lanka’s bonds are "likely in, or very near default," emphasizing that resolving the crisis would require IMF-led debt restructuring. The rating agency highlighted that the missed coupon payment on April 18 would initiate a "series of defaults," with the grace period unlikely to resolve the situation. Two other major rating agencies had previously flagged similar risks.
The economic collapse has sparked widespread protests over food shortages, fuel price hikes, and power outages as foreign currency reserves dwindle. International sovereign bonds, held by entities including China, Japan, and firms like BlackRock, constitute the bulk of Sri Lanka’s foreign debt. The Colombo Stock Exchange remains closed for the week amid the ongoing turmoil.
