According to foreign media reports, Sri Lankan President Gotabaya Rajapaksa declared a state of emergency in the country on April 1. Sri Lanka is mired in its worst economic crisis in decades, facing severe shortages of foreign currency and fuel and other necessities.
Sri Lanka, a country of 22 million people, is dealing with a severe foreign exchange crisis that has devalued the country's currency and affected the supply of basic commodities such as food, medicine and fuel. The government is struggling to secure foreign exchange to pay for fuel and other vital imports.
What happened in Sri Lanka?
The island's foreign exchange reserves have hit rock bottom, with commercial banks unable to obtain dollars to finance imports of food, fuel and medicines. Sri Lanka was in the throes of a severe economic crisis when the Covid-19 pandemic hit, reducing remittances from foreign workers and denting the lucrative tourism industry - the economy's main source of dollars.
In turn, Sri Lanka's debt management plan, which relied on access to these markets, was derailed, and foreign exchange reserves plummeted by nearly 70% in two years.
What happened to Sri Lanka's foreign debt?
The country had only $2.31 billion in reserves left as of February, but faces about $4 billion in debt repayments in 2022, including a $1 billion international sovereign bond (ISB) due in July.
The ISB accounts for the largest share of Sri Lanka's external debt at $12.55 billion, with the Asian Development Bank, Japan and China being the other major lenders.
In an assessment of the country's economy published last month, the IMF said public debt had risen to "unsustainable levels" and foreign reserves were insufficient to cover near-term debt.
Citi Research said in a report late last month that the conclusions of the IMF report and the government's recent measures were insufficient to restore debt sustainability, strongly suggesting "the need for debt restructuring."
Laugfs Gas LGGL.CM, which ordered cooking gas, was unable to get $4.9 million in payments from local banks due to a severe shortage of foreign exchange, and a vessel carrying 5,500 metric tons of gas had to leave Sri Lankan waters.
The Sri Lankan government said it was seeking a bailout from the International Monetary Fund and loans from India and China. Indian traders have loaded 40,000 tonnes of rice, the first large-scale food aid from India since Colombo received a line of credit from New Delhi.
After offering CBSL a $1.5 billion swap and a $1.3 billion syndicated loan, China is considering a $1.5 billion credit line and up to $1 billion in separate loans to the island nation.
