Cash strapped Sri Lanka has defaulted on its debt for the first time in its history as the country struggles with its worst financial situation.
The last time Sri Lanka experienced such a crisis was 70 years ago.
It comes after a 30 day grace period to repay Ksh.9 billion (U.S$78m) of unpaid debt interest payments expired on Wednesday.
According to a BBC report, the governor of Sri Lanka’s central bank said the country was now in a “pre-emptive default”.
“Our position is very clear, we said that until they come to the restructure, we will not be able to pay. So that’s what you call pre-emptive default,” said the country’s central bank Governor P Nandalal Weerasinghe.
Sri Lanka’s economy has been hit hard by the pandemic, rising energy prices, and populist tax cuts. A chronic shortage of foreign currency and soaring inflation had led to a severe shortage of medicines, fuel and other essentials.
Defaults happen when governments are unable to meet some or all of their debt payments to creditors.
The default happens against the backdrop of the country’s worst economic crisis. The energy minister said the country had run out of money to pay for fuel.
Motorists, auto-rickshaw drivers and regular citizens waited in long lines in Colombo to buy fuel and kerosene for cooking on Wednesday, as 22 million people endure hardships amid record inflation, lengthy power blackouts and food insecurity.
Power and Energy Minister Kanchana Wijesekera appealed to people to stop queuing for the next two days, telling parliament that Sri Lanka currently has no dollars to pay for petrol shipments.