Sri Lanka Defaults on Its Payments, Could Trigger a Domino Effect Across the Third World

Since 2020, everyone has been suffering from the effects of shutting down the entire world. The world is so heavily reliant on the imports and exports of goods to and from other countries, there was no conceivable way this global shutdown would not have long term negative outcomes.

The supply chain crisis is deepening by the day and some countries are starting to feel the pinch as economies tank because they were unable to sustain such huge hits and are now defaulting on their debts.

When the first world suffers, the third world dies.

Sri Lanka, is one such country that is now unable to pay back what it owes and has announced that it will be trying to preserve its remaining dollar reserves so it can buy food and energy for its citizens – suspending debt payments, which will trigger a domino effect in other countries.

Bloomberg Quint reported: “Sri Lanka warned of an unprecedented default and halted payments on foreign debt, an extraordinary step taken to preserve its dwindling dollar stockpile for essential food and fuel imports.”

Bondholders, bilateral creditors, and institutional lenders currently owed money, have had their payments suspended as the newly appointed governor of Sri Lanka’s central bank, Nandalal Weerasinghe said during a press briefing, that payments will not be made until a new debt restructuring plan is in place.

Weerasinghe said that the government is currently attempting new negotiations with creditors by warning there could be a default and stated the measures are “a last resort in order to prevent a further deterioration of the Republic’s financial position,” the finance ministry said.

“It is now apparent that any further delay risks inflicting permanent damage on Sri Lanka’s economy and causing potentially irreversible prejudice to the holders of the country’s external public debts,” the ministry added.

Sri Lanka’s President Gotabaya Rajapaksa and Prime Minister Mahinda Rajapaksa – his brother – are both unpopular and there have been calls for the pair to step down, which neither have yet done.

Inflation in Sri Lanka is skyrocketing and currently is running at 20 percent per year, electricity is in and out and often can be out of service for well over 3 hours at a time.

Bloomberg Quint noted that Gotabaya’s party has lost its majority in parliament and this will delay bailout talks with the International Monetary Fund.

The current government is seeking financial assistance from India and China, two of its largest creditors and the Foreign Ministry said, “China has been doing its utmost to provide assistance to the socio-economic development of Sri Lanka, and will continue to do so going forward.” 

The country already had around $12.5 billion in outstanding bond euros and the next payment was due April 18, according to Bloomberg. Sri Lanka is also expected to pay another $36 million in interest on a bond that matures in 2023.

Adding to the nation’s woes is also a debt that is expected to pay an additional $42.2 million on a 2028 loan and $1.03 billion is also expected this year for principal and interest on a maturing note, due July 25.

Carl Wong, head of Avenue Asset Management told Bloomberg Quint, “The market was expecting this default to come,” adding, “Now we have to see how the new government handles the onshore chaos while talking to IMF.”


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1 thought on “Sri Lanka Defaults on Its Payments, Could Trigger a Domino Effect Across the Third World”

  1. what this says to me is that sri lanka is so overpopulated it cannot feed itself. when food becomes scarce this summer, prices will explode. what is washington doing about it? go ahead brandon, continue restricting drilling and see what you can really accomplish.

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