Sri Lanka's inevitable loan default will buy time, but not fuel or food

Experts say country may still need bridge financing from bilateral partners for essentials

- Rohini Mohan

Even through a three-decade-long civil war and several crises, Sri Lanka paid its debts. But on April 12, the South Asian country announced it would halt payments on its foreign loans, saying they had become “challenging and impossible” to repay.

The decision frees up the shrinking foreign exchange reserve for critical imports of essentials such as food, fuel and medicine. Severe shortages of such items have triggered massive citizen protests since March 31. But experts said that while the suspension offers brief relief and staves off legal challenges from an actual loan default, the depleted dollar reserve and import financing difficulties remain worries.

Until this sudden announcement, the island nation reeling under its worst economic crisis wanted to keep its “unblemished record” with creditors – a phrase well known to any English-speaking citizen scanning local dailies for the government’s plans to repay its US$51 billion (S$69.6 billion) debt.