“We are no longer able to repay the external debt,” Central Bank Governor Nandalal Weerasinghe told reporters.

"This is a preventive and negotiated default. We have announced it to creditors," he added.

The Ministry of Finance clarified that this default concerned all external obligations, including loans granted by foreign governments, in anticipation of a rescue by the International Monetary Fund (IMF), from which Colombo hopes to obtain support of some $3 billion over three years.

“The government is taking this emergency measure only as a last resort, in order to avoid a further deterioration of the financial situation” of the country, according to the press release from the ministry.

"Sri Lanka will suspend repayments for an interim period pending an orderly restructuring," Treasury Secretary Mahinda Siriwardena told reporters.

Creditors are free to capitalize interest owed to them or opt for repayment in Sri Lankan rupees, he added.

Shortages

Weeks of power cuts and severe shortages of food, fuel and pharmaceuticals have plunged many of the country's 22 million people into misery as Sri Lanka faces its worst recession since independence in 1948.

The crisis, due to the Covid-19 pandemic which deprived the country of its tourist windfall, has been aggravated by a series of bad political decisions, according to economists.

Main economic indicators of Sri Lanka Janis LATVELS AFP

The government imposed a broad ban on imports to preserve its foreign exchange reserves and use them for debt servicing.

This month, people's frustration with the government has become widespread, and long queues now form on the island every day to buy scarce supplies of petrol, gas and kerosene. .

On Sunday, Sri Lankan doctors warned they were nearly out of life-saving medicine, adding that the economic crisis was likely to claim more lives on the island than the coronavirus pandemic.

Several facilities have already suspended routine operations since last month because they ran out of anesthetics.

The Medical Association has pointed out that even emergency operations may soon no longer be possible.

Calls for resignation

The measures announced by the government, and the resignation on Sunday evening of the majority of the members of the government, have so far failed to appease popular anger.

On Tuesday, thousands of people camped outside President Gotabaya Rajapaksa's office in Colombo, for the fourth straight day of protests calling for his resignation.

Last year, international rating agencies downgraded Sri Lanka's rating, effectively preventing the country from accessing foreign capital markets to obtain the loans needed to finance imports of food, fuel and medicine.

Sri Lanka has requested debt relief from India and China.

But these two countries preferred to offer him more lines of credit to buy basic products.

Motorcyclists line up to fill up with gas on April 12, 2022 in the capital Colombo Ishara S. KODIKARA AFP

China and Japan each hold around 10% of Sri Lanka's external debt, while India's share is less than 5%.

The largest share, 47%, is market borrowing through international sovereign bonds and other similar instruments.

The default will not deter China from extending new loans to Sri Lanka, Foreign Ministry spokesman Zhao Lijian said in Beijing.

"China has always done its best to provide assistance for the economic and social development of Sri Lanka. We will continue to do so," he said.

Sri Lanka's debt service for calendar year 2022 was estimated at just under $7 billion, on reserves of just $1.9 billion at the end of March.

The government is seeking an IMF bailout as the local currency has lost a third of its value over the past month.

Last week, finance ministry officials told AFP that the government intended to propose to its creditors a negotiated restructuring of its debt, in order to avoid "a severe default".

© 2022 AFP